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Related Issuers
Rating Action:

Moody's upgrades CEVA Group PLC's corporate family rating ("CFR") to B1; stable outlook

16 May 2018

London, 16 May 2018 -- Moody's Investors Service, ("Moody's") has today upgraded the CFR of CEVA Group plc ("CEVA", or "the group"), a leading global integrated logistics provider, to B1 from Caa2. The rating agency has concurrently upgraded the Probability of Default Rating to B1-PD, from Caa2-PD and existing instrument ratings have been upgraded as follows: B1 from Caa1 Senior Secured Bank Credit Facility, B1 from Caa1 Senior Secured first lien Notes, B3 from Caa3 Senior Secured second lien Notes and Caa1 from C Senior Unsecured Notes. The outlook has been changed to stable.

CEVA successfully completed its IPO in the Swiss Stock Exchange on May 4 2018. IPO proceeds have been confirmed to be used for debt repayment.

Today's rating actions reflect the following drivers:

- Sustainable capital structure post IPO. Moody's estimates that on a Moody's adjusted basis, leverage post IPO will be around 5.3x (based on 2017 EBITDA), reducing towards 4x over the next 12 months based on EBITDA growth and debt repayment.

- Improved free cash flow generation driven by a number of factors: (i) reduced interest expense; (ii) reduced restructuring costs as large transformational initiatives have completed; (iii) positive macro-economic factors and sector outlook and (iv) improved terms of trade with customers and suppliers.

A full list of affected ratings is provided at the end of this press release.

RATINGS RATIONALE

CEVA's B1 corporate family rating reflects the group's: (i) relatively solid business profile given the scale, global reach and breadth of the group's service offering; (ii) large and diverse blue-chip customer base with high retention rates and entrenchment in customers' operations in Contract Logistics (CL); (iii) upside potential from improved operational efficiency, underpinned by an experienced management team that has delivered considerable operational improvements since 2014.

Conversely, the rating is constrained by: (i) exposure to cyclical automotive, consumer and retail industries as well as freight rates volatility; (ii) sustainability of operational margin improvements in a highly competitive industry; (iii) free cash flow generation expected to remain low in the next 18-24 months.

The final rating outcome is higher than the previously expected range indicated at the time the ratings were put under review. This reflects a revision to Moody's expectation of free cash flow generation with lower restructuring costs assumptions, as well as continued improvement in operating performance as seen in Q1 2018 results. Further comfort has been derived from the group's focus on de-leveraging as stated in its financial policies and targeted capital structure (1.5x reported net leverage over time), and expected improvements in business profileexcluding any potential upside from the relationship with CMA CGM, who will become 24.99% equity owners of CEVA.

Moodys's continues to view CEVA's liquidity as adequate. IPO proceeds are currently on balance sheet to repay debt and available liquidity of $508million as at 31 March 2018 (including $299 million undrawn facilities) is adequate. Moody's expects that the existing RCF will be successfully extended.

The B1 ratings on the first lien Senior Secured Bank Credit Facilities are in line with the CFR, reflect their priority ranking in the event of security enforcement and their large share in the capital structure. The second lien Senior Secured Facilities and Senior Unsecured Facilities are rated B3 and Caa1 respectively, two and three notches below the CFR, reflecting their contractual and lien subordination. However, Moody's notes the limited opco guarantees in the lending structure.

Moody's understands that CEVA has already started the process to repay some of the existing facilities and expects to refinance its capital structure in the near future.

RATING OUTLOOK

The stable outlook reflects Moody's expectations that the current solid operating performance is sustained and the group will remain focused on de-leveraging with no significant M&A and/or shareholder distributions. It also assumes that debt will be refinanced at lower interest rates and that the RCF is successfully extended.

FACTORS THAT COULD LEAD TO AN UPGRADE

An upgrade is unlikely in the next 12-18 months given that CEVA is weakly positioned in the B1 rating category. However, there could be upward pressure on the ratings if, for a sustained period of time: (i) leverage falls below 3.5x; (ii) good liquidity profile with FCF/Debt above 5%; (iii) EBIT/Interest above 1.5x.

FACTORS THAT COULD LEAD TO A DOWNGRADE

There could be downward pressure on the ratings if: (i) leverage remains above 4.5x for a sustained period of time; (ii) weakening liquidity with FCF/debt close to zero and (iii) EBIT/Interest below 1x.

LIST OF AFFECTED RATINGS

Issuer: CEVA Group plc

Upgrades:

.... Probability of Default Rating, Upgraded to B1-PD from Caa2-PD

.... Corporate Family Rating, Upgraded to B1 from Caa2

....Senior Secured Bank Credit Facility, Upgraded to B1 from Caa1

....Senior Secured Regular Bond/Debenture, Upgraded to B1 from Caa1

....Senior Secured Regular Bond/Debenture, Upgraded to B3 from Caa3

....Senior Unsecured Regular Bond/Debenture, Upgraded to Caa1 from C

Outlook Actions:

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

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.

CORPORATE PROFILE

CEVA is the one of the 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. The group recently listed on the Swiss Stock Exchange.

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.
© 2022 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody’s Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $5,000,000. MCO and Moody’s Investors Service also maintain policies and procedures to address the independence of Moody’s Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody’s Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”

Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.

Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.

MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY100,000 to approximately JPY550,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

​
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