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Rating Action:

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

25 Mar 2020

London, 25 March 2020 -- Moody's Investors Service, ("Moody's") has today placed on review for downgrade all ratings of Swissport Group S.a r.l. (Swissport), Swissport Investments S.A., Swissport Financing S.a r.l. and Swissport International AG, including its the B3 Corporate Family Rating and B3-PD Probability of Default Rating. A full list of affected ratings and entities can be found at the end of this press release. The outlook on all ratings has been changed to ratings under review from stable.

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 passenger airline sector has been one of the sectors most significantly affected by the shock given its exposure to travel restrictions and sensitivity to consumer demand and sentiment. Today's action reflects the impact on Swissport of the breadth and severity of the shock, and the broad deterioration in credit quality it has triggered.

The rating action was prompted by the very sharp decline in passenger traffic since the outbreak of coronavirus started during January 2020, which will result in a significant negative free cash flow in 2020, a weakening liquidity profile and a significantly higher leverage. From a regionally contained outbreak the virus has rapidly spread to many different regions severely denting air travel. On a full-year basis, Moody's expects global industry capacity to fall 25% to 35%, assuming the spread of the virus slows by the end of June and, subsequently, passenger demand returns. Approximately 80% of Swissport's revenue is linked to the number of flights, which although is somewhat less volatile than passenger traffic, will also be significantly affected. Around 20% of Swissport's business is cargo handling, which is less vulnerable to a complete shutdown scenario compared to passenger traffic, but in Moody's view will also be depressed due lower economic activity and supply chain disruption.

Moody's base case assumptions are that the coronavirus pandemic will lead to a period of severe cuts in passenger traffic over at least the next three months with partial or full flight cancellations and aircraft groundings, with all regions affected globally. The base case assumes there is a gradual recovery in passenger volumes starting in the third quarter. However there are high risks of more challenging downside scenarios and the severity and duration of the pandemic and travel restrictions is uncertain. Moody's analysis assumes around a 50% reduction in Swissport's revenue from baggage handling and circa 25% decline in cargo handling volumes in the second quarter and a 20% fall for the full year, whilst also modelling significantly deeper downside cases including a full fleet grounding during the course of Q2.

Moody's acknowledges that Swissport is currently focusing on reducing costs as much as possible and building up its liquidity. Moody's understands that the company has pro-actively started to reduce personnel costs with staff layoffs, unpaid leaves and enrolling to government support programs. Moody's also expects that Swissport will be significantly cutting this year's capex spend as well as tightening payment terms for the airlines to speed up revenue collection. However, the rating agency estimates that in case the coronavirus pandemic continues into the summer months, which is normally the peak travel season, and the air traffic remains at a fraction of normal activity levels, Swissport will likely have to seek additional external sources of liquidity from banks or government support.

RATIONALE FOR RATING REVIEW

The review process will be focusing on (i) the current market situation with a review of current passenger traffic conditions and cargo volumes over the next 1-2 months, (ii) the liquidity measures taken by the company and their impact on the company's balance sheet, (iii) other measures being taken by the company to alleviate balance sheet and credit metrics stress.

WHAT COULD CHANGE THE RATING UP/DOWN

The ratings are unlikely to be upgraded in the short term. Positive rating pressure would not arise until the coronavirus outbreak is brought under control, travel restrictions are lifted, and passenger volumes return to more normal levels. At that stage Moody's would evaluate the balance sheet and liquidity strength of the company and positive rating pressure would require evidence that the company is capable of substantially recovering its financial metrics and restoring liquidity headroom within a 1-2 year time horizon.

Moody's could downgrade Swissport's rating if there are expectations of deeper and longer declines in airport passenger volumes including a material extension into Q3 2020 as a result of the coronavirus outbreak, particularly if not matched by additional sources of liquidity; wider liquidity concerns increase, for instance due to cost inflexibility; or a prolonged period of significantly negative free cash flow generation.

ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS

Moody's regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety, and as detailed above the impact of the crisis on the company's credit quality has been the key driver of the downgrade and review.

Moody's would like to draw attention to certain governance considerations related to Swissport. The company is controlled by HNA, which had a track record of pursuing an aggressive financial policy, including making Swissport issue an intra-group loan to the parent and pledging Swissport's shares in a breach of the company's financial covenants.

LIQUIDITY

Swissport's liquidity is challenged by the decline in free cash flow generation. The company had €308 million cash as of February 2020 pro-forma for the recent €50 million term loan upsize and has fully drawn the revolving credit facility (RCF) and capex facility to cover the expected outflows. Swissport also has circa €25 million available under its factoring facility.

STRUCTURAL CONSIDERATIONS

The B2 rating for the Term Loan B (TLB), the senior secured notes (SSN) and the RCF is one notch above the corporate family rating (CFR), benefiting from a sizeable amount of subordinated debt in the form of senior notes (SN, €280 million), which provides loss absorption in Moody's Loss Given Default model. Conversely, the SN instrument rating of Caa2 reflects the subordination of the instrument in the capital structure.

LIST OF AFFECTED RATINGS

..Issuer: Swissport Financing S.a r.l.

Placed On Review for Downgrade:

....BACKED Senior Secured Bank Credit Facility, currently B2

....BACKED Senior Secured Regular Bond/Debenture, B2

....BACKED Senior Unsecured Regular Bond/Debenture, currently Caa2

Outlook Actions:

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

..Issuer: Swissport Group S.a r.l.

Placed On Review for Downgrade:

.... LT Corporate Family Rating, currently B3

.... Probability of Default Rating, currently B3-PD

Outlook Actions:

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

..Issuer: Swissport International AG

Placed On Review for Downgrade:

....BACKED Senior Secured Bank Credit Facility, currently B2

....Senior Secured Bank Credit Facility, currently B2

Outlook Actions:

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

..Issuer: Swissport Investments S.A.

Placed On Review for Downgrade:

....BACKED Senior Secured Regular Bond/Debenture, currently Caa3

....BACKED Senior Unsecured Regular Bond/Debenture, currently Caa3

Outlook Actions:

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

PRINCIPAL METHDOLOGY

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.

COMPANY PROFILE

Headquartered near Zurich Airport, Swissport is the world's largest independent ground handling services company, based on revenue and the number of airport locations. In 2019, Swissport serviced flights at 300 airports in 50 countries. The Ground Services segment accounts for roughly 80% of Swissport's group revenue, with cargo handling contributing the remainder. In 2019 Swissport generated revenues and management-adjusted EBITDA of €3.1 billion and €413 million, respectively. The company is owned by the Chinese investment group HNA Group Co., Ltd.

REGULATORY DISCLOSURES

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.

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.

Egor Nikishin, CFA
Analyst
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

Richard Etheridge
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.
© 2020 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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