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Rating Action:

Moody's upgrades Comboios de Portugal rating to Baa3 outlook stable

21 Sep 2021

Paris, September 21, 2021 -- Moody's Investors Service ("Moody's") has assigned a Baa3 long term issuer rating to Portuguese state-owned rail operator Comboios de Portugal (CP) and concurrently withdrawn the Ba1 corporate family rating and Ba1-PD probability of default rating (PDR) , as per the rating agency's practice for corporates transitioning to investment grade. The baseline credit assessment (BCA) of CP is affirmed at caa1. The outlook was revised to stable from positive.

Today's rating action follows Moody's upgrade to Baa2 from Baa3 of the Government of Portugal's ratings announced on 17 September 2021. For more details on the rationale for the sovereign outlook change, please refer to the press release: https://www.moodys.com/research/--PR_452364

"The upgrade takes into account the strong linkages between Comboios de Portugal and the sovereign, from which it receives considerable financial support," says Francesco Bozzano, a Vice President-Senior Analyst at Moody's and lead analyst for Comboios de Portugal.

RATINGS RATIONALE

The upgrade to a Baa3 issuer rating, reflects a strengthening in CP's credit quality following the upgrade of the Government of Portugal's ratings to Baa2 from Baa3 and Moody's view that the government's ability to support CP has strengthened.

In accordance with Moody's Government-Related Issuers (GRI) rating methodology, CP's Baa3 rating reflects the combination of the following inputs: (1) a caa1 BCA, which is a measure of the company's standalone financial strength without the assumed benefit of government support; (2) the Baa2 with stable outlook rating of the Government of Portugal; (3) a very high probability of government support; and (4) very high default dependence.

The Baa3 issuer rating assumes that in the future, the Portuguese government will continue to provide CP with funds, either in the form of loans or capital increases, enabling CP to meet its debt obligations on a timely basis. The Baa3 issuer rating is one notch below the rating on the sovereign, reflecting the residual risk, albeit small in the rating agency's view, that the sovereign may not be able to make payments in the future or that CP's unguaranteed debt may not be treated as part of government debt in any restructuring. Absent such payments, CP would likely have minimal value as a standalone enterprise.

Moody's expects that the Portuguese government will fund (either by injecting new capital or providing additional lending) CP's 2021 financial requirements, including around EUR60 million of capital spending, and around EUR1.7 billion of debt maturities, which is owed to the Portuguese government.

This significant financial support is reflected in Moody's assessment of a very high probability of support, that is also based on (1) CP being a 100% state-owned company, and (2) its special Entidade Pública Empresarial (EPE) legal status.

CP's caa1 BCA reflects the company's weak standalone financial profile. Despite the reduction in the total amount of debt from EUR4.2 billion in 2014 to EUR2.1 billion in 2020, owing to new equity provided by the Portuguese government, CP's financial structure remains unsustainable.

CP's liquidity remains weak and the company is reliant on Portuguese government support to fulfil its financial obligations. Debt maturities amount to around EUR1.75 billion in 2021 of debt owed to the Portuguese government. These amounts are to be covered directly by the government, by injecting new capital, providing additional lending or rolling over the maturity of the financing provided by the government.

RATING OUTLOOK

The outlook is stable, reflecting the outlook on the Government of Portugal and our expectation that government support remains very high and will support the company's liquidity needs.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

An upgrade of the Portuguese sovereign rating coupled with a strengthening of the company's bca could result in an upgrade of CP's ratings. An upgrade of CP's rating would also depend on ongoing evidence of support from the government. An upgrade of the sovereign rating alone is unlikely to result in a change to the final rating if the company's BCA does not improve. For example, an upgrade of the company's BCA would depend on the company having an adequate liquidity profile and an improvement in the capital structure as a result of a significant reduction in the company's gross debt.

Negative pressure on the rating could result from a deterioration in the sovereign's creditworthiness or any evidence that the Government of Portugal would not be willing to financially support CP if required.

PRINCIPAL METHODOLOGY

The methodologies used in these ratings were Passenger Railways and Bus Companies Methodology published in January 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1113375, 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.

COMPANY PROFILE

CP is the main railway operator in Portugal, controlling over 90% of the passenger market. The company is 100% owned by the Portuguese government through the Ministry of Finance and the Ministry of Infrastructure and Housing. In 2020, CP transported almost 87 million of passengers and reported revenues of EUR174 million.

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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288435.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

Francesco Bozzano
Vice President - Senior Analyst
Corporate Finance Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Jeanine Arnold
Associate Managing Director
Corporate 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

No Related Data.
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