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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.
© 2018 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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