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Rating Action:

Moody's downgrades Travelex to Caa1; outlook negative

05 Mar 2020

London, 05 March 2020 -- Moody's Investors Service, ("Moody's") has today downgraded the corporate family rating (CFR) of a foreign currency exchange specialist TP Financing 3 Limited ("Travelex") to Caa1 from B3 and the company's probability of default rating (PDR) to Caa1-PD from B3-PD. Moody's also downgraded to Caa1 from B3 the rating assigned to the €360 million 8% senior secured notes due 2022 issued by Travelex Financing plc, a subsidiary of Travelex. The outlook on all ratings remains negative.

This rating action follows Travelex's announcement on the 2nd of March 2020 of approximately GBP25 million reduction in underlying EBITDA in the first quarter of 2020 owing to the impacts of the cyberattack suffered by Travelex on the New Year's Day 2020 and the reduction in travel as a result of the coronavirus infection. Additionally, there have emerged material governance concerns with regard to the key shareholder of the Travelex's parent company.

RATINGS RATIONALE

On 2 March 2020, Travelex announced its expectations for a GBP25 million reduction in the underlying EBITDA in the first quarter of 2020 as compared to the prior year period when the company reported a Core EBITDA of GBP2.5 million (underlying EBITDA of GBP25.9 million post-IFRS 16). While Travelex anticipates recouping at least a portion of this amount from its insurance proceeds, the timing and the magnitude of this payment are uncertain. Furthermore, the coronavirus is continuing its spread globally without any meaningful current estimates of any abatement; therefore, Moody's expects further negative impact on global travel in general and on Travelex's consumer business in particular. The agency notes positively, though, that according to company reports it was able to sustain its wholesale business through the cyberattack and has not seen customer defections.

The downgrade reflects Moody's estimate that Travelex's leverage measured as debt/EBITDA will be above 5.0x in 2020, an increase over 4.3x the agency previously anticipated. At the same time, the company's coverage computed as EBITA/interest expense will be approximately 0.1x, a very low and unsustainable level.

Travelex's weakened performance also puts pressure on its liquidity both in terms of continuing negative free cash flow generation and with respect to the company's ability to comply with its net leverage covenant in its revolving credit facility.

In the past, Travelex benefitted from consistent support of the key shareholders of its parent company, Finablr plc, which was listed on the London Stock Exchange in May 2019, and has indicated its continued focus on Travelex's business. However, in recent weeks, the independent directors of Finablr have sought information from some of the founding shareholders to clarify their position in the company's shares following these shareholders' resignation from the board of NMC Healthcare and reporting irregularities discovered there. This situation presents a corporate governance risk to Travelex, in Moody's view, with regard to Finablr's foregoing ability and interest in supporting Travelex if needed. This is notwithstanding that Finablr reported good performance with a revenue of $734 million and EBITDA of $168 million in the first half of 2019.

Corporate governance is a part of the agency's environmental, social and governance assessment. While Travelex is not significantly exposed to environmental risks, both the corporate governance considerations discussed above and social risks, such as the recent cyberattack and the resulting damage to Travelex's brand, play a material role in Moody's analysis.

The negative rating outlook reflects Moody's expectation of increased market pressure on Travelex's performance in the wake of the coronavirus, as well as the company's challenged liquidity and covenant compliance.

The rating could be stabilized if Travelex successfully addresses its covenant compliance and demonstrates consistent performance notwithstanding the effects of the coronavirus. In addition, the governance concerns at Finablr would need to be addressed satisfactorily.

Further downward pressure would be precipitated by additional performance deterioration or any covenant breaches.

LIST OF AFFECTED RATINGS

Downgrades:

..Issuer: TP Financing 3 Limited

.... Corporate Family Rating, Downgraded to Caa1 from B3

.... Probability of Default Rating, Downgraded to Caa1-PD from B3-PD

..Issuer: Travelex Financing plc

....Senior Secured Regular Bond/Debenture, Downgraded to Caa1 from B3

Outlook Actions:

..Issuer: TP Financing 3 Limited

....Outlook, Remains Negative

..Issuer: Travelex Financing plc

....Outlook, Remains Negative

The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Domiciled in Jersey, TP Financing 3 Limited, a holding company owner of Travelex, an independent retail foreign exchange business, with a wide network of stores (more than 1,500) and ATMs (more than 1,100) concentrated in some of the world's busiest international airports and tourist locations in 30 countries. The company also provides wholesale foreign exchange currencies to central banks, financial institutions and travel agents and has partnerships with supermarkets, high street banks, travel agencies, hotels and casinos as a provider of outsourced foreign currency services. For the first nine months of 2019, Travelex reported statutory revenues of GBP567 million and statutory EBITDA of GBP134 million (before exceptional items, as per statutory accounts).

REGULATORY DISCLOSURES

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Maria Maslovsky
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Peter Firth
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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