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Rating Action:

Moody's reviews CEVA Group plc's CFR and instrument ratings for upgrade

01 May 2018

London, 01 May 2018 -- Moody's Investors Service, ("Moody's") has today placed the CFR and all instrument ratings of CEVA Group plc ("CEVA", or "the group") on review for upgrade: Caa2 Corporate Family Rating and existing Instrument Ratings: Caa1 Senior Secured Bank Credit Facility, Caa3 Senior Secured Facilities and C Senior Unsecured Facilities. The Caa2-PD Probability of Default Rating remains unchanged. The outlook has been changed to Rating Under Review from Stable.

The review follows the announcement that the group intends to list its shares in the Swiss Stock Exchange on 4 May 2018, with expected proceeds of CHF 743 million from the offering and an additional CHF 407 million from the sale of the CMA CGM Securities, whereby CMA CGM will be acquiring a 24.99% stake in the group.

A full list of affected ratings can be found at the end of this press release.

RATINGS RATIONALE

Today's action was prompted by the expectation of a significant reduction in leverage as outlined in the IPO prospectus. This will address Moody's previous concern regarding the sustainability of the group's capital structure as CEVA has publicly announced that they intend to use the IPO proceeds to repay debt. The repayment of debt will also improve the group's cash flows as interest payments are expected to reduce considerably.

Post transaction, the group targets reported net leverage of 2.5x-3x with further de-leveraging towards 1.5x over time. Moody's estimates that on a Moody's adjusted basis, leverage will be in the range of 4-4.5x, compared to current Moody's adjusted leverage of 8.5x.

Moody's expects free cash flow to be comfortably positive in 2019, whereas 2018 will still include interest payments related to the existing capital structure. Moody's continues to expect the group to incur restructuring and other exceptional expenditure over the next 12-18 months. Interest coverage (EBIT/interest expense) is expected to improve to 1x.

The anticipated reduction in CEVA's financial leverage has prompted the review for upgrade, and at this stage Moody's anticipates that the CFR would likely be upgraded by up to three notches. The review will focus on (i) the completion of the IPO; (ii) the use of proceeds and future capital structure; and (iii) Moody's view of the company's future operational and financial prospects.

As part of the internal reorganization transactions taking place ahead of the IPO, CEVA Holdings LLC, the group's current holding company, will release its subsidiary CEVA Group PLC from its obligations under an existing $953 million Intercompany PIK loan Note, which is currently treated as debt in our metrics, in exchange for additional equity. Therefore, should this transaction proceed as expected it will likely result in a distressed exchange under Moody's definition of default. Moody's expects to assign a "/LD" indicator to the company's PDR upon closing of the transaction.

LIST OF AFFECTED RATINGS

..Issuer: CEVA Group plc

Placed On Review for Upgrade:

....Corporate Family Rating (Foreign Currency), Placed on Review for Upgrade, currently Caa2

....Senior Secured Bank Credit Facility, Placed on Review for Upgrade, currently Caa1

....Senior Secured Regular Bond/Debenture, Placed on Review for Upgrade, currently Caa1

....Senior Secured Regular Bond/Debenture, Placed on Review for Upgrade, currently Caa3

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Upgrade, currently C

Outlook Actions:

..Issuer: CEVA Group plc

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

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Global Surface Transportation and Logistics Companies published in May 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

COMPANY PROFILE

CEVA is the sixth-largest integrated logistics provider in the world in terms of revenues ($7 billion for the year ended 31 December 2017). CEVA offers integrated supply-chain services through the two service lines of Contract Logistics and Freight Management and maintains leadership positions in several sectors globally including automotive, high-tech and consumer/retail.

Following a debt restructuring in May 2013, CEVA Holdings LLC (Holdings) is the ultimate parent company of CEVA. Apollo, a US-based equity fund, and its affiliates own approximately 22% of the equity in Holdings, while Franklin Templeton Investments Corp. owns approximately 27% and funds affiliated with Capital Research and Management Company around 28%. Apollo affiliates hold a majority of the voting rights of Holdings and have the right to elect a majority of its and CEVA's boards.

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.

Lucia Lopez
Vice President - Senior 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.
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