Paris, April 03, 2020 -- Moody's Investors Service, ("Moody's") has
today downgraded to B3 from B1 the corporate family rating (CFR) of eDreams
ODIGEO S.A. (eDreams or the company). The rating
agency has also downgraded eDreams' probability of default rating
(PDR) to B3-PD, from B1-PD, and has downgraded
to Caa1 the €425 million senior secured notes due 2023, from
B2. Concurrently Moody's has placed the company's CFR,
PDR and rating on the €425 million senior secured notes due 2023
on review for downgrade. The outlook on all entities was stable
prior to today's rating action.
"The decision to downgrade eDreams and to place the ratings under review
for downgrade reflects the impact that the rapid and widening spread of
the coronavirus outbreak is expected to have on eDreams' financial
performance and the risk that a prolonged downturn will lead to a further
weakening of the company's liquidity position" said Fabrizio
Marchesi, Vice President and Moody's lead analyst for the company.
RATINGS RATIONALE
The rapid and widening spread of the coronavirus outbreak, deteriorating
global economic outlook, falling oil prices, and asset price
declines are creating a severe and extensive credit shock across many
sectors, regions and markets. The combined credit effects
of these developments are unprecedented. The travel sector is one
of the most significantly impacted by the shock, also due to the
quarantine measures introduced by numerous governments.
Moody's regards the coronavirus outbreak as a social risk under
its ESG framework, given the substantial implications for public
health and safety. Today's action reflects the impact of
the breadth and severity of the shock, as well as the deterioration
in credit quality it has triggered, on the company.
Although eDreams performed well in recent quarters, achieving,
for instance, a Moody's-adjusted (gross) debt/EBITDA
ratio of 3.5x as at 31 December 2019, its credit quality
is expected to deteriorate significantly over the coming quarters because
of the coronavirus outbreak, with operational and financial metrics
falling outside the parameters commensurate with its previous CFR.
Although the company's financial performance should improve once
quarantine measures are removed, the timing of any recovery is uncertain
and there is a risk that the coronavirus outbreak may have longer-lasting
negative effects on consumer sentiment and purchasing power.
We expect eDreams will experience significant deterioration in its future
liquidity position, on the back of a severe contraction in travel
volumes, a large increase in cancellations and a material unwind
of its large, negative working capital position. Although
the company's liquidity consisted of €71 million of cash on
balance and €175 million of undrawn revolving credit facility (RCF)
as at 31 December 2019, we anticipate that a significant portion
of this liquidity will be used to fund working capital outflows,
leaving the company with tight liquidity going forward. We also
note the risk that stems from an eventual non-compliance with the
RCF's springing gross leverage covenant, which is set at 6x
gross leverage and tested when the RCF is drawn by more than 30%.
A breach of this covenant would constitute an event of default,
although we understand that the company is in negotiation with its lender
banks regarding a potential covenant waiver.
The review process will focus on (1) the duration of the coronavirus epidemic,
the quarantine and social distancing measures that governments will keep
in place and the actions taken to support their economies; (2) the
effects of the outbreak and the aforementioned measures on customer demand
for travel; (3) the trajectory of the company's revenue,
profitability, working capital, leverage and free cash flow;
and (4) its ability to maintain adequate liquidity.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Positive rating pressure is not expected in the short to medium term.
However, the rating could be stabilized if it becomes clear that
the impact of the coronavirus epidemic on travel volumes and economic
activity will be less pronounced than anticipated, Moody's-adjusted
leverage is forecast to remain around 5.0x on a sustained basis,
cash flow generation turns positive on a sustained basis, and liquidity
is maintained at an adequate level.
Conversely, further negative rating pressure could occur in the
event that the economic fallout from the coronavirus outbreak is stronger
than currently anticipated, leading to a more significant and prolonged
decline in profitability, an increase in Moody's-adjusted
leverage to above 6.0x on a sustained basis, heightened concerns
regarding the ability of the company to meet its obligations as they fall
due, or if it becomes clear that the company is not in a position
to resolve a potential event of default related to the maintenance covenant
of its RCF.
STRUCTURAL CONSIDERATIONS
The company's capital structure consists of (1) a €175 million super-senior
revolving credit facility maturing in 2023; and (2) €425 million
of senior secured notes also maturing in 2023. The senior secured
notes rank behind the super-senior facility and their security
is limited largely to share pledges.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Business and Consumer
Service Industry published in October 2016 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1037985.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
COMPANY PROFILE
eDreams is the largest OTA in the European flight segment. It was
formed in 2011 when Axa (now Ardian) and Permira acquired Opodo and merged
it with their existing portfolio travel companies to create a European
rival to Expedia Group, Inc. eDreams was listed in Spain
in 2014. In fiscal 2019, the company reported revenue and
company-adjusted EBITDA of €551 million and €120 million,
respectively.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
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.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating outcome
announced and described above.
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.
Fabrizio Marchesi
Vice President - Senior Analyst
Corporate Finance Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Jeanine Arnold
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
