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