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Rating Action:

Moody's places OHL's ratings on review for upgrade

17 Oct 2017

Frankfurt am Main, October 17, 2017 -- Moody's Investors Service, ("Moody's") has placed on review for upgrade the Caa1 corporate family rating (CFR), the Caa1-PD probability of default rating (PDR) and Caa1 senior unsecured instrument ratings for Spanish construction group Obrascon Huarte Lain S.A. ("OHL"). This follows the announcement by OHL on 16 October that it has received a binding offer by IFM Global Infrastructure Fund (IFM) to acquire 100% of its stake in OHL Concesiones S.A. ("OHL Concesiones") for an enterprise value of EUR2.775 billion, subject to certain customary closing adjustments.

Moody's expects the closing of the transaction (after an agreed exclusivity period with IFM and necessary shareholder approvals) and conclusion of the review within the next 90 days at the latest.

RATINGS RATIONALE

The review for upgrade is based on Moody's view that, should the acquisition of OHL Concesiones by IFM be successful, OHL's net debt position and Moody's-adjusted recourse leverage will reduce to levels better than currently incorporated in the group's Caa1 CFR. As Moody's expects OHL to use a major portion of the net cash proceeds for the equity value of OHL Concesiones (around EUR2.2 billion estimated by management) to repay recourse debt, OHL's gross adjusted recourse debt/EBITDA leverage is likely to decline to well below 7.5x, which Moody's has guided for an upgrade to B3.

The review process will focus on the following main items:

- Final terms and conditions of a potential agreement, which is still uncertain

- Final proceeds from the disposal as well as the use of proceeds, including impact on leverage and liquidity

- Future profitability of OHL's remaining core business.

Besides the uncertain timeline of the transaction to close and final amount of cash proceeds, the review will also focus on OHL's ability to achieve its full-year 2017 financial targets (including minor further asset disposals), after posting rather weak results for the first-half of 2017 with a 13.1% drop in group turnover and 2.6% EBITDA margin. To form a final decision, Moody's will therefore continue to assess OHL's operating performance during the first 9 months of 2017 (to be published on 14 November) and the group's ability to achieve its targeted reduction in net recourse debt to about EUR200 million (EUR814 million at June 2017) and its net recourse leverage to below 1.0x by year-end 2017. This should be supported by OHL's forecasts of recourse EBITDA of EUR165 million in 2017 (EUR172 million Engineering & Construction, EUR-7 million Developments, without dividends from OHL Concesiones).

The review will further include an evaluation of the likelihood of OHL to generate positive earnings and free cash flows at the recourse level, which have still been negative in the 12 months ended 30 June 2017, as well as the group's liquidity position that Moody's expects to substantially strengthen to at least adequate from weak after the transaction.

Moreover, the review will focus on the impact of the transaction on OHL's business model of the remaining core construction activities and its prospects without ownership of the concession business, which currently contributes around 20% of the order book and has above-average profitability.

WHAT COULD CHANGE THE RATING UP/ DOWN

The ratings could be upgraded if Moody's determines during the review period that the OHL's credit metrics will improve on a sustainable basis such that gross recourse debt/recourse EBITDA falls to well below 7.5x, with the maintenance of an adequate liquidity profile, including the generation of positive free cash flow.

Downward pressure on the ratings would evolve if the group were to fail to de-lever as expected, with gross recourse debt/recourse EBITDA consistently remaining above 10x. Negative rating pressure could also emerge if (1) OHL's performance does not enable a return to positive free cash flow generation on a recourse and consolidated basis, (2) recourse EBITDA were to stay at currently very low levels, or (3) if the group's short-term liquidity situation were to deteriorate further.

PRINCIPAL METHODOLOGY

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 Madrid, OHL is one of Spain's leading construction/concessions groups. The group owns a 56.85% equity stake in OHL Mexico SAB de CV., a large concessions operator in Mexico. In the last 12 months ended June 2017, OHL reported sales of €3.1 billion. The group is organised into three divisions: Engineering & Construction, Concessions and Developments. The Villar Mir family, via its investment vehicles Inmobiliaria Espacio and Grupo Villar Mir (GVM), currently holds a 54.5% equity stake in OHL.

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.

Matthias Heck
Vice President - Senior 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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