TEXT-S&P keeps PostNL 'BBB' rating on watch positive

Wed Sep 26, 2012 10:21am EDT

Overview
     -- Netherlands-based mail company PostNL N.V. is selling its
29.8% share in Netherlands-based courier, express, and parcels company TNT
Express N.V. to United Parcel Service Inc. for about EUR1.54 billion. The tender
process is continuing as planned, but is subject to regulatory approval.
     -- We understand that PostNL's management plans to use a large part of 
the proceeds of the sale for net debt reduction. If this materializes, it 
could lead us to revise our assessment of the company's financial risk profile 
upward.
     -- We are therefore keeping our 'BBB' corporate credit rating on PostNL 
on CreditWatch positive to reflect that an improvement in the company's 
financial risk profile could lead to an upgrade.
     -- The ongoing CreditWatch placement reflects the possibility of an 
upgrade of up to two notches once the sale is complete, and pending our review 
of PostNL's operating strategy and financial policy.

Rating Action
On Sept. 26, 2012, Standard & Poor's Ratings Services kept its 'BBB' long-term 
corporate credit and senior unsecured debt ratings on Netherlands-based mail 
company PostNL N.V. on CreditWatch, where they were originally placed with 
positive implications on March 26, 2012. At the same time, we affirmed our 
'A-2' short-term corporate credit rating on PostNL.

Rationale
The ongoing CreditWatch placement reflects the potential for an upgrade of up 
to two notches if we revise our assessment of PostNL's financial risk profile 
upward following the sale of its 29.8% share in Netherlands-based courier, 
express, and parcels company TNT Express N.V. (BBB+/Watch Pos/A-2) to United 
Parcel Service Inc. (A+/Negative/A-1) for a cash consideration of about EUR1.54 
billion. We understand that the tender process is continuing as planned, but 
remains subject to certain regulatory approvals and competition clearance.

We further understand that on completion of the sale, PostNL's management will 
put EUR700 million of the proceeds into an escrow account, to be subsequently 
used for debt repayment. We note that this plan is consistent with PostNL's 
previously stated intention to reduce its net debt to EUR300 million-EUR500 
million with the proceeds from disposals of financial assets.

Accordingly, we anticipate an improvement in PostNL's credit ratios and, 
therefore, its financial risk profile. We estimate that the company's Standard 
& Poor's-adjusted funds from operations (FFO) to debt will rise to 35% or 
more, depending on the final amount of net debt reduction. We could raise the 
rating if PostNL were to comfortably sustain an "intermediate" financial risk 
profile, translating into adjusted FFO to debt of about 35%. PostNL's 
financial risk profile is currently "significant."

Any decision to raise the rating would, however, depend on management's 
financial policy and medium-term plans for capital spending, dividends, and 
possible bolt-on acquisitions. For example, we understand that PostNL's 
capital spending might increase to EUR240 million in 2012, which, combined with 
large cash outlays for restructuring and pension contributions, would result 
in negative free operating cash flow under our base-case credit assumptions. 

A potential upgrade will be also subject to our review of PostNL's business 
risk profile, which we currently assess as "strong." This is supported by the 
company's good track record of maintaining better operating efficiency in its 
core Dutch mail business than its European postal peers, as well as improving 
its international business. 

We see pressure on the business risk profile, however, in view of the weak 
economic environment in The Netherlands and the company's participation in the 
European mail industry, which is subject to a structural volume decline. This 
decline, along with competition and relatively high labor costs, has placed 
pressure on profitability and has led PostNL to restructure its mail business 
in The Netherlands. We note that this is a complex program of change and that 
the effects of reorganization have been more extensive than we originally 
anticipated.

Liquidity
The short-term rating on PostNL is 'A-2'. We view PostNL's liquidity as 
"strong" under our criteria, reflecting that the company's sources of 
liquidity exceed uses by 1.5x or more over the next 24 months. We also 
anticipate that net liquidity sources would remain positive, even if EBITDA 
were to decline by 30%. PostNL's credit facilities and bonds do not contain 
financial covenants and are not subject to rating triggers. We understand that 
the company has well-established, solid relationships with banks and a high 
standing in credit markets.

As of June 30, 2012, PostNL had EUR483 million of cash and cash equivalents, of 
which about EUR40 million were restricted. We understand that the company also 
had access to a EUR570 million undrawn committed revolving credit facility due 
May 2016. This, together with our base-case forecast of unadjusted FFO of 
about EUR50 million, should enable PostNL to comfortably service its upcoming 
financial obligations. 

Uses of liquidity in 2012 include:
     -- About EUR60 million of debt maturities; 
     -- Our forecast of working capital needs of EUR50 million-EUR60 million;
and 
     -- Capital expenditures of a maximum of EUR240 million.

We note that debt maturities in 2013 and 2014 are immaterial. PostNL's next 
significant maturity falls due in 2015 when a EUR400 million bond matures.

CreditWatch 
The CreditWatch positive placement indicates the potential for an upgrade of 
up to two notches, subject to a positive review of PostNL's financial and 
business risk profiles. The review will focus in particular on PostNL's 
intentions for the proceeds of the TNT Express disposal and PostNL's future 
financial policy. 

In addition, we will seek to update our views on the company's level of 
business risk and its near- to medium-term operating performance in light of 
the structural decline in the mail business in The Netherlands. If we revise 
our assessment of PostNL's business risk profile downward, for example to 
"satisfactory" from "strong," it is less likely that the upgrade would be more 
than one notch. We aim to resolve the CreditWatch placement after the 
completion of our review.

Related Criteria And Research
All articles listed below are available on RatingsDirect on the Global Credit 
Portal, unless otherwise stated.
     -- PostNL 'BBB/A-2' Ratings Remain On CreditWatch Positive On Commitment 
To Tender Share In TNT Express, June 28, 2012
     -- TNT Express 'BBB+/A-2' Ratings Placed On CreditWatch Positive On 
Perceived Likelihood Of Acquisition By UPS, Feb. 24, 2012
     -- United Parcel Service 'AA-' Ratings Remain On CreditWatch Negative On 
The Company's Agreement To Acquire TNT Express, March 19, 2012
     -- Methodology And Assumptions: Liquidity Descriptors For Global 
Corporate Issuers, Sept. 28, 2011
     -- Criteria Methodology: Business Risk/Financial Risk Matrix Expanded, 
May 27, 2009
     -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008

Ratings List
CreditWatch Update

PostNL N.V.
 Corporate Credit Rating                BBB/Watch Pos/A-2  
  Senior Unsecured Debt                 BBB/Watch Pos      


Complete ratings information is available to subscribers of RatingsDirect on 
the Global Credit Portal at www.globalcreditportal.com. All ratings affected 
by this rating action can be found on Standard & Poor's public Web site at 
www.standardandpoors.com. Use the Ratings search box located in the left 
column.
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