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Rating Action:

Moody's places Astaldi's B3 ratings on review for downgrade

16 Nov 2017

Frankfurt am Main, November 16, 2017 -- Moody's Investors Service, ("Moody's") has today placed on review for downgrade the B3 corporate family rating (CFR), the B3 senior unsecured instrument ratings and the B3-PD probability of default rating (PDR) of Astaldi S.p.A. (Astaldi or "company").

Moody's expects to conclude its review during the typical 90 days period of such process.

RATINGS RATIONALE

"The review for downgrade will focus on the execution and effectiveness of Astaldi's contemplated EUR400 million program, containing a capital increase and new financial instruments to strengthen its financial situation, and the request for a waiver on the covenants on its EUR500 million revolving credit facility (RCF). The review process will also focus on the company's deteriorated liquidity situation, as evidenced by an unexpected working capital expansion of around EUR200 million at year-end 2017 guided by the company", says Goetz Grossmann, Moody's lead analyst for Astaldi. "Moreover, considering the group's revised weaker cash flow and higher net debt guidance for the full year 2017, we expect Astaldi's leverage to remain outside of our guidance for a B3 rating, at least by December 2017."

On 14 November 2017, Astaldi announced to write down around EUR230 million of its receivables in Venezuela (Caa3 negative) and increased its guidance for working capital - before the effect of the Venezuelan assets write-down - to EUR900-1,000 million at the end of December 2017, compared to previously "below EUR800 million" and raised its net debt guidance for year-end 2017 to approximately EUR1.15 billion, from previously approximately EUR1.0 billion. Both will likely trigger a breach under the existing covenants of the EUR500 million RCF, unless the company obtains a waiver from its banks. Furthermore, Astaldi announced to prepare a EUR400 million program to strengthen the company's financial situation, including a EUR200 million equity capital increase and a EUR200 million issue of new financial instruments. The Extraordinary Shareholders' Meeting asked to approve the operation at the next meeting of the Board of Directors (BoD) at a date subsequent to closure of fiscal year 2017. Astaldi's majority shareholder has expressed its support for the operation.

The review will focus on the deteriorated liquidity situation and the ability to receive a waiver from the banks, which has already been requested. Moody's notes that a covenant breach would constitute an event of default according to the company's facility agreement. Whilst Astaldi successfully agreed a re-set of financial covenants with its banks in July 2016, Moody's considers execution risks to obtain another waiver as considerable. Astaldi's weak liquidity also remains constrained by the ongoing inability to improve its working capital and, hence, free cash flow generation.

Moody's review will also focus on the execution risks and effectiveness of the EUR400 million financial program, which is currently uncertain. Moody's understands that there is currently no underwriting on the transaction in place, leaving execution risks still very high, which is also illustrated by the substantial drop in Astaldi's share price by around 60% to EUR2.34 since the end of October (EUR5.95). Moreover, the drop in market capitalization to currently around EUR230 million indicates a substantial dilution of existing shareholders if they were not to participate in the equity capital increase. The review also includes an assessment of the effectiveness of the program, given that the capital increase of approx. EUR200 million compares to a Venezuelan impairment impact on equity of approx. EUR150 million (thus more than compensating the effect on the equity-related financial covenant) and the unexpected working capital expansion (thus compensating the effect on the net leverage related covenant) at year-end 2017. More generally, the review will also focus on the company's ability to generate positive free cash flow.

Astaldi's financial leverage has been very high. At the end of June 2017, gross debt/EBITDA (Moody's adjusted) amounted to 9.0x and is expected to remain around the same level at the end of September. Even considering some debt reduction of around EUR200 million in Q4 2017, in line with the company's revised guidance, rating agency expects that Astaldi's leverage will remain above its expectation for a B3 rating (e.g. Moody's adjusted gross debt/EBITDA below 7.5x) at year-end 2017. The review therefore also focuses on Astaldi's ability to de-lever into the expected range for the existing rating level.

WHAT COULD CHANGE THE RATING UP / DOWN

Prior to the review process, Moody's said that the B3 ratings could be downgraded in the event of (1) debt/EBITDA (as adjusted by Moody's) exceeding 7.5x; (2) interest coverage measured as EBIT/ interest expense (as adjusted by Moody's) failing to remain above 1.0x; or (3) the inability to generate positive free cash flows (as adjusted by Moody's) net of investments in and disposals of concessions. Also, a further weakening of the company's liquidity profile could result in a downgrade.

In light of the review process, an upgrade is highly unlikely. However, the B3 ratings could be upgraded in the event of (1) sustainable and meaningful improvement in operating margins and cash generation, with particular regard to the generation of sustainable positive free cash flows; (2) improved leverage, as evidenced by a debt/EBITDA ratio (as adjusted by Moody's) falling below 6.0x on a sustainable basis; (3) interest coverage measured as EBIT/ interest expense (as adjusted by Moody's) exceeding 1.5x, and (4) improvements in the liquidity profile to adequate levels.

The principal methodology used in these ratings was Construction Industry published in March 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Headquartered in Rome, Italy, Astaldi S.p.A. provides general contracting, construction and procurement services with consolidated construction revenue of €2.9 billion in 2016. Projects include highways, railways, bridges, tunnels, subways, airports, commercial and civil buildings, mining and industrial facilities. Astaldi is the second largest construction company in Italy by revenue and has developed an international presence for a long time. The company also holds a portfolio of minority stakes in concessions, which are not consolidated and will be further developed and partly monetized in the next three years. Established in 1926 and listed since 2002, the majority of the company's capital stock is owned by the Astaldi family.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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.

Goetz Grossmann
Asst Vice President - Analyst
Corporate Finance Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Matthias Hellstern
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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