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Rating Action:

Moody's upgrades Nexi's CFR to Ba3 following the closing of the IPO; outlook positive

10 May 2019

Paris, May 10, 2019 -- Moody's Investors Service ("Moody's") has today upgraded Nexi S.p.A's (Nexi or the company) corporate family rating (CFR) to Ba3 from B1 and probability of default rating (PDR) to Ba3-PD from B1-PD. Concurrently, Moody's has upgraded to Ba3 from B1 the instrument ratings on the EUR825 million senior secured notes due 2023 and the EUR1,375 million senior secured floating rate notes due 2023 (FRNs) both issued by Nexi S.p.A. The outlook is positive.

This rating action concludes the review for upgrade initiated on 25 March 2019.

Nexi successfully completed an initial public offering (IPO) of its ordinary shares on 11 April 2019 for the purpose of listing on the Mercato Telematico Azionario, organized and managed by Borsa Italiana S.p.A., with the trading of Nexi shares commencing on 16 April 2019. As part of the IPO process, the company raised a EUR700 million primary component, the proceeds of which will be used to reduce debt. As part of the IPO, Nexi has also entered into an up to EUR1,165 million EUR-denominated senior secured term loan facility (term loan) due 2024 and a EUR350 million multi-currency revolving credit facility (RCF) due 2024. The aforementioned EUR700 million of primary IPO proceeds together with the new term loan will be used to repay the existing EUR1,375 million FRNs and EUR400 million of Private Notes as well as cover fees and expenses. The new EUR350 million RCF will replace the existing EUR325 million revolving facility. Moody's will withdraw the ratings on the FRNs once fully repaid.

RATINGS RATIONALE

"The upgrade of the CFR to Ba3 from B1 reflects (1) the significant decrease in the company's pro-forma adjusted leverage (pro-forma for the IPO and debt refinancing as adjusted by Moody's mainly for operating leases, pension deficit, and non-recurring items) to 4.7x as of 31 December 2018 from 6.1x prior to the transaction, (2) the prospect of additional de-leveraging from current levels on the back of positive revenue and margin fundamentals and supported by the company's strong position within the Italian payments value chain, and (3) the good liquidity position underpinned by the EUR350 million undrawn new RCF", says Fabrizio Marchesi, Moody's lead analyst for Nexi.

However, these strengths are mitigated by (1) the company's revenue concentration in Italy, (2) its limited scale and relatively low free cash flow (FCF) generation relative to its peer group, and (3) the execution risk related to the implementation of the significant initiatives expected in 2019. While non-recurring items related to the transformation of the business peaked at EUR131 million in 2018, management expects those to decrease by around 60% in 2019 to c.EUR50 million (excluding IPO and refinancing costs). Pro forma adjusted gross leverage was significantly higher at 8.7x as of 31 December 2018 when considering the non-recurring items compared to 4.7x excluding those.

The lower leverage pro forma for the IPO is driven by the expected application of primary IPO proceeds towards the reduction in existing outstanding debt. Further deleveraging from 2019 onwards will be supported by a continued improvement in operating performance, driven by revenue growth projected by Moody's at around 5% per annum over the next three years and an increase in EBITDA margin on the back of revenue gains and ongoing revenue and cost initiatives.

Moody's assumes that Nexi will continue benefitting from a good liquidity position supported by (1) cash on balance sheet of EUR207 million as of 31 December 2018 pro forma for the transaction, (2) the undrawn EUR350 million RCF, and (3) facilities to cover the group's working capital requirements. The company experiences significant volatility in working capital needs. Specifically, in addition to the requirement to fund differences in the timing of settlement between counterparties in the merchant acquiring business, the company also funds customer receivables on behalf of its co-issuer banks. Nexi has dedicated clearing and overdraft facilities to cover these needs with a largely non-recourse factoring line of up to EUR3,200 million as well as EUR1,500 million of bilateral credit facilities and additional bilateral banking lines. While Moody's expects FCF will be constrained at around 5% of total adjusted gross debt in 2019, the rating agency projects this ratio to increase towards 7% from 2020 supported by EBITDA growth and a reduction in non-recurring items. In addition, management has announced a dividend policy of 20-30% of distributable profits to be paid not before 2021 and a "medium-long term" net debt target of 2.0-2.5x compared to 3.5x at the closing of the IPO (as reported by the company including all initiatives). The RCF and term loan are subject to one financial maintenance covenant set at 5.75x until 2020 with a gradual tightening -- this represents a significant headroom relative to the net leverage of the group at the closing of the IPO.

The EUR825 million senior secured notes due 2023, the new term loan, and the new RCF rank pari passu and share the same collateral package, which includes intercompany receivables, bank accounts and shares of Nexi S.p.A. The senior secured notes are rated Ba3, at the same level as the CFR, reflecting the absence of any significant liabilities ranking ahead or behind.

The positive outlook reflects Moody's expectation that Nexi will continue to experience revenue growth at 5% and above over the next three years and margin improvement on the back of revenue and cost initiatives. Moody's would look to stabilize the outlook if Nexi were to experience significant delays in the implementation of these initiatives and/or incur material costs related to their implementation.

WHAT COULD CHANGE THE RATINGS UP/DOWN

Upwards pressure on the ratings could arise if (1) Nexi achieves good progress over the next 12 months in delivering on its transformation plan including meeting its revenue and EBITDA growth targets, (2) the company reduces significantly non-recurring items, (3) adjusted gross leverage is maintained at well below 4.5x on a sustained basis, (4) adjusted FCF/debt increases above 5%, and (5) the company maintains a good liquidity position.

Negative pressure on the ratings could arise if (1) Nexi experiences the loss of large customer contracts or increased churn, (2) adjusted gross leverage increases to above 5.0x on a sustainable basis, and (3) the liquidity position weakens.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Headquartered in Milan, Italy, Nexi is the leading provider of payment solutions in its domestic market, including card issuing, merchant acquiring, point-of-sale (POS) and automated teller machines (ATMs) management and other technology-driven services to financial institutions, individual cardholders, and corporate clients. The company generated pro forma net revenues and EBITDA (pro forma for the corporate reorganization and acquisitions and disposals completed in 2018 and 2019) of EUR931 million and EUR424 million (excluding initiatives to be realized), respectively.

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.

Fabrizio Marchesi
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

Yasmina Serghini, CFA
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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