Paris, March 31, 2020 -- Moody's Investors Service, ("Moody's") has
today placed on review for downgrade the Baa2 issuer rating of Copenhagen
Airports A/S (CPH) and the Baa3 senior secured ratings of its holding
company Copenhagen Airports Denmark ApS (CAD).
A full list of affected ratings is provided towards the end of this press
release.
RATING RATIONALE
The rapid and widening spread of the coronavirus (COVID-19) outbreak,
the 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 airport sector
is among the most significantly affected by the shock given its exposure
to travel restrictions and sensitivity to consumer demand and sentiment.
Moody´s regards the coronavirus outbreak as a social risk under
its ESG framework, given the substantial implications for public
health and safety that lead to severe restrictions to air travel,
cancellation of airline routes and closing of borders, as well as
enhanced health and safety standards and regulation potentially resulting
in additional compliance expenses and potential non-compliance
costs in the form of fines.
Moody's base case assumption is that the coronavirus pandemic will lead
to a period of severe cuts in passenger traffic over the upcoming weeks
but that there will be a gradual recovery in passenger volumes starting
by the third quarter 2020.
Unlike previous negative shocks such as the SARS epidemic in 2003,
the prospects for traffic rebound is more uncertain because (1) travel
restrictions in some form may continue for some time even if the spread
of the virus seems contained; (2) the deteriorating global economic
outlook would likely slow the recovery in traffic and consumer spending,
even if travel restrictions are eased; and (3) the coronavirus outbreak
is also weakening the credit profile of airlines, which have been
drastically cutting capacity. As events continue to unfold,
there is a higher than usual degree of uncertainty around the length of
travel restrictions and drop in travel demand. Hence, it
is difficult to predict the overall traffic volumes for 2020.
Nevertheless, Moody's currently assumes that the decline in
CPH's passenger traffic will be at least 30% in the financial
year ending December 2020, driven by dramatic declines in the first
half of the year and a recovery in the second half albeit phased over
the period. The negative outlook takes account of CPH's rising
credit and liquidity risks due to the sharp decline in traffic as a result
of implementation of travel restrictions and the significantly weaker
credit profile of its carrier base.
Notwithstanding the significantly reduced cash flow over at least the
next few weeks, CPH remains a key infrastructure provider with a
potential for a strong recovery once the coronavirus outbreak and its
effects have been contained.
The ratings of the CPH/CAD group are supported by: (1) the strong
business profile of Copenhagen airport, which is the largest airport
in Denmark and acts as an important hub for air travel in the surrounding
southern Scandinavian region; (2) a regulatory regime which remains
broadly balanced and ensures visibility on charges until 2023; and
(3) debt structural features which provide for the formal subordination
of the shareholder loans at CAD and include some elements of senior debt
protection at the same level, although insufficient to provide uplift
to the CAD and CPH credit profile. At the same time, however,
the ratings of the CPH/CAD group are constrained by: (1) significant
on-going negative impact from travel restrictions related to the
Covid-19 outbreak on the CPH's operating performance and
uncertainties as to the timing and level of passenger recovery,
(2) the weak profile of the airport's main carriers; (2) the relatively
high leverage on a consolidated CAD/CPH basis; and (3) the group's
shareholder-friendly financial policy
LIQUIDITY AND DEBT COVENANTS
The liquidity position of the CPH/CAD group was solid prior to the coronavirus
outbreak. However, traffic reduction as a result of interruption
in flight activity will result in significantly lower cash flow.
As of end-December 2019, CPH had approximately DKK 19 million
of cash on balance sheet and DKK1.8 billion of committed undrawn
long-term credit facilities due in December 2024 and DKK 82 million
of undrawn overdraft facilities due in December 2020. However,
the company has around DKK 1.9 billion debt maturities this year
and will need to access additional sources of funding or capital in order
to cover its expenditure and ensure that it has sufficient liquidity to
see itself through the next few months. With around DKK 580 million
in available cash compared to an annual debt service of around DKK 220
million, and no debt maturities in 2020, CPH's holding
company CAD does not require immediate dividend upstreaming from CPH and
has a relatively more solid standalone liquidity profile. However
its debt documentation contains financial covenants based on CPH's
performance.
Given reduction in earnings, Moody's expects CPH ratios will
deteriorate significantly and lead to an erosion of the company's
headroom against covenants included in its debt documentation.
Moody's understands that CPH is in discussion with lenders to request
a covenant waiver and with local banks to secure additional credit facilities.
Moody's takes comfort from CPH's status as a partially government
owned airport with relatively modest debt leverage which should aid discussions
with banks, but it is vital that additional finance and covenant
waivers are obtained over the coming weeks in order to maintain adequate
liquidity.
FOCUS OF THE REVIEW
As part of the review process, Moody's will consider the progress
of on-going discussions with lenders regarding request for waivers
on financial covenants both at the CPH and CAD level, and the ability
of CPH to secure additional facilities so as to cover funding needs over
the foreseeable future. The review will also focus on the degree
of mitigation CPH's measures are able to provide in order to protect
the group's credit metrics amid a rapidly deteriorating operating
environment.
Factors That Would Lead to an Upgrade or Downgrade of the Rating
Given the current review for downgrade, upward rating pressure on
the ratings of CPH and CAD is unlikely in the near term.
The ratings of CPH and CAD could be downgraded if (1) the company failed
to strengthen its liquidity profile and restore sufficient headroom under
its covenants; (2) its credit metrics were to weaken such that FFO/Debt
for the CAD/CPH group were to fall below 10% on a sustained basis;
or (3) it appeared likely that the coronavirus outbreak had medium to
longer term impact on the airport traffic, either because of travel
restrictions or failures of major airlines.
The methodologies used in these ratings were Privately Managed Airports
and Related Issuers published in September 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1092224,
and Government-Related Issuers Methodology published in February
2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1186207.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of these methodologies.
Copenhagen Airports A/S (CPH) owns and operates the only Danish airports
in the Copenhagen region, namely Copenhagen airport and Roskilde
airport. CPH is currently owned 39.2% by the Government
of Denmark (Aaa stable) and 59.35% by Copenhagen Airports
Denmark ApS (CAD), the remainder being free float on the Copenhagen
Stock Exchange. CAD is a holding company jointly owned by Ontario
Teachers' Pension Plan Board and Arbejdsmarkedets Tillægspension.
LIST OF AFFECTED RATINGS
On Review for Downgrade:
..Issuer: Copenhagen Airports A/S
.... Issuer Rating, Placed on Review
for Downgrade, currently Baa2
..Issuer: Copenhagen Airports Denmark ApS
....Senior Secured Regular Bond/Debenture,
Placed on Review for Downgrade, currently Baa3
Outlook Actions:
..Issuer: Copenhagen Airports A/S
....Outlook, Changed To Rating Under
Review From Stable
..Issuer: Copenhagen Airports Denmark ApS
....Outlook, Changed To Rating Under
Review From Stable
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
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.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569
At least one ESG consideration was material to the credit rating outcome
announced and described above.
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.
Paco Debonnaire
AVP-Analyst
Infrastructure Finance Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Kevin Maddick
Associate Managing Director
Infrastructure 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
