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Rating Action:

Moody's places Metro's ratings under review for downgrade

12 Jul 2019

Paris, July 12, 2019 -- Moody's Investors Service ("Moody's") has today placed under review for downgrade the Ba1 corporate family rating (CFR) and Ba1-PD probability of default rating (PDR) of Metro AG (Metro). Concurrently, Moody's has placed under review for downgrade the Ba1 senior unsecured rating and the (P)Ba1 senior unsecured medium-term notes program rating of Metro. The NP commercial paper rating and the (P)NP short-term program ratings of Metro have been affirmed. The outlook has been changed to ratings under review from stable.

RATINGS RATIONALE

According to the offer document published on 10 July 2019, EP Global Commerce (EPGC), a group of investment vehicles co-owned by Czech businessman Daniel Kretínský and Slovak investor Patrik Tkác, has obtained commitments from BNP Paribas Fortis SA/NV (Aa3 stable), Credit Suisse International (A1 stable) and Société Générale (A1 stable) for EUR4,910 million of loans and for a EUR1,000 million revolving credit facilities.

As a result, Moody's believes that Metro's debt could increase substantially if EPGC's offer is successful. The offer document has set the acceptance threshold at 67.5% of all ordinary shares outstanding, which compares to EPGC's current stake of about 35%, including the option sold by German holding company Franz Haniel & Cie. GmbH (Baa3 stable).

The review for downgrade reflects the possibility that Metro's credit quality may deteriorate substantially in case EPGC's takes control, possibly leading to a downgrade of two notches or more. Our review process will focus on (1) the outcome of the offer; (2) possible changes in Metro's capital structure; (3) potential modifications of governance strategy, and of the group structure; and (4) the company's ability to stabilise its earnings in light of tough operating conditions in Russia.

Moody's had previously stated that a Moody's-adjusted debt/EBITDA ratio above 5.0x, a Moody's-adjusted retained cash flow/net debt ratio below 10% or a significant deterioration in liquidity could lead to a downgrade.

LIST OF AFFECTED RATINGS

..Issuer: METRO AG

Affirmations:

....Commercial Paper, Affirmed NP

....Other Short Term, Affirmed (P)NP

On Review for Downgrade:

.... LT Corporate Family Rating, Placed on Review for Downgrade, currently Ba1

.... Probability of Default Rating, Placed on Review for Downgrade, currently Ba1-PD

....Senior Unsecured Medium-Term Note Program, Placed on Review for Downgrade, currently (P)Ba1

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Downgrade, currently Ba1

Outlook Actions:

....Outlook, Changed To Rating Under Review From Stable

..Issuer: METRO Finance B.V.

Affirmations:

....BACKED Other Short Term, Affirmed (P)NP

On Review for Downgrade:

....BACKED Senior Unsecured Medium-Term Note Program, Placed on Review for Downgrade, currently (P)Ba1

....BACKED Senior Unsecured Regular Bond/Debenture, Placed on Review for Downgrade, currently Ba1

Outlook Actions:

....Outlook, Changed To Rating Under Review From Stable

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Retail Industry published in May 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

COMPANY PROFILE

Headquartered in Düsseldorf, Germany, Metro is one of the largest food wholesalers and retailers in Europe, with revenue of EUR36.5 billion and reported EBITDA of EUR1.4 billion in fiscal 2018. The group was created by the demerger of the former Metro-Ceconomy group, whose shareholders agreed in June 2017 to split the operations between CECONOMY AG (Ceconomy, Baa3 negative), which took over consumer electronics, and Metro Wholesale & Food Specialist, which gathered the food wholesale and retail operations. Metro Wholesale & Food Specialist subsequently changed its name to Metro AG.

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.

Items color coded in purple in this Press Release relate to unsolicited ratings for a rated entity which is non-participating.

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.

Vincent Gusdorf, CFA
VP-Sr Credit Officer
Corporate Finance Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Yasmina Serghini, CFA
MD-Corporate Finance
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

No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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