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Rating Action:

Moody's places Nexi's ratings under review for upgrade following announcement of intention to IPO

25 Mar 2019

London, 25 March 2019 -- Moody's Investors Service ("Moody's") has today placed under review for upgrade Nexi S.p.A.'s (Nexi or the company) B1 corporate family rating (CFR) and B1-PD probability of default rating (PDR), as well as the B1 instrument rating on the EUR825 million senior secured notes due 2023 and the EUR1,375 million senior secured floating rate notes due 2023 both issued by Nexi Capital S.p.A.

RATINGS RATIONALE

The decision to place the ratings under review for upgrade follows Nexi's announcement on 18 March 2019 of its intention to launch an initial public offering (IPO) of Nexi S.p.A.'s shares and to list on Borsa Italiana. The company expects to raise proceeds from the issuance of new shares of between EUR600 million to EUR700 million. The proceeds from the capital increase will be used by the company mainly to repay debt. The company is also finalizing a new loan agreement, conditional upon the completion of the IPO, in order to refinance on better terms part of its outstanding debt.

Moody's expects to conclude the review process with the closing of the IPO, expected to complete in the coming months, subject to market conditions. The review will also evaluate the company's new ownership structure, the terms and conditions of the new bank facilities, the financial policy (including a dividend policy that is expected to target a dividend pay-out ratio between 20% and 30% of distributable profits over the medium-to long-term although no dividend to be distributed for financial year 2019) and strategic objectives.

Pro forma for the IPO, adjusted gross leverage (as adjusted by Moody's mainly for operating leases, pension deficit, and non-recurring items) is estimated by Moody's to decrease to around 4.6x as of 31 December 2018 (based on a Normalized EBITDA of EUR424 million - as previously reported by the company - pro forma for the corporate reorganization, acquisitions and disposals completed in 2018 and 2019 or 6.5x when taking into consideration EUR131 million of non-recurring items) from 6.1x prior to the transaction (or 8.6x including non-recurring items). Moody's anticipates further de-leveraging over the next 18 months to around 4.0x driven mainly by (1) the realization of disclosed initiatives as part of the company's transformation plan -- EUR31 million of such initiatives were realized by the end of 2018 out of a total target of EUR126 million that management expects to realize by 2020 -- and (2) sustained revenue growth that Moody's projects at around mid-single digit rates over the next three years. Revenue and EBITDA growth projections are supported by Nexi's track record of delivering strong organic growth over the last three years. During this period, net operating revenues and EBITDA (as reported by the company) grew on a like-for-like basis at compound annual growth rate (CAGR) of 7.8% and 15.5%, respectively.

While Moody's recognizes that the IPO will improve Nexi's credit profile, the ratings will remain constrained by (1) the concentration of operations in a single country, (2) the relative concentration of customers due to the wholesale nature of its issuing and clearing services which is partly mitigated by the long-term nature of bank contracts, (3) the historically acquisitive nature of the business as demonstrated by Mercury UK Holdco's M&A activity in 2016 and 2017, and (4) the limited free cash flow generation in the 12-24 month-period following the IPO due to capital expenditures maintained at a higher level and the tail of restructuring charges related to the implementation of the transformation plan. Nexi expects that non-recurring items will decrease by more than 60% in 2019 from EUR131 million in 2018.

At this stage Moody's anticipates that the CFR would likely be upgraded by at least one notch if the IPO is executed as expected.

Moody's assumes that Nexi will continue benefitting from a good liquidity position supported by (1) cash on the balance sheet and (2) facilities to cover the group's working capital requirements. Nexi experiences a significant volatility in working capital needs. In addition to a requirement to fund differences in timing of settlement between counterparties in the merchant acquiring business, the company also funds customer receivables on behalf of its co-issuer banks. Nexi has thus dedicated clearing and overdraft facilities to cover these needs with a largely non-recourse factoring line of up to EUR3,200 million to comfortably cover funding needs of the issuing business.

WHAT COULD CHANGE THE RATINGS UP/DOWN

Before placing the ratings under review, Moody's had indicated that upwards pressure could arise if (1) Nexi maintains a high level of organic growth at above 5% per annum while delivering a significant EBITDA margin improvement due to the successful implementation of the transformation plan, (2) adjusted gross leverage decreases to below 5.5x on a sustainable basis, (3) adjusted FCF-to-debt increases towards high single-digit rates, and (4) the company maintains a good liquidity position and does not perform large debt-funded acquisitions.

On the other hand, negative pressure on the rating could arise if (1) Nexi experiences the loss of large customer contracts or increased churn in merchant acquiring due to increased competition, (2) adjusted gross leverage is maintained at above 6.5x on a sustainable basis due to debt-funded acquisitions or the inability to deliver on the transformation plan, or (3) liquidity deteriorates or FCF/debt is maintained at low-single digit rates as a percentage of debt.

PRINCIPAL METHODOLOGY

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.

Headquartered in Milan, Italy, Nexi is the leading provider of payment solutions in its domestic market, including card issuing, merchant acquiring, point-of-sale (POS) and automated teller machines (ATMs) management and other technology-driven services to financial institutions, individual cardholders, and corporate clients. The company generated pro forma net revenues and EBITDA (pro forma for the corporate reorganization and acquisitions and disposals completed in 2018 and 2019) of EUR931 million and EUR424 million (excluding initiatives to be realized), respectively.

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.

Sebastien Cieniewski
VP - Senior Credit Officer
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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