TEXT - S&P rates Spie Bondco 3 S.C.A.
(The following statement was released by the rating agency) Overview -- Multi-technical services provider and holding company Spie Bondco 3 S.C.A. is the parent of France-based Financiere SPIE. -- We are assigning our 'B' long-term corporate credit rating to Spie Bondco 3 S.C.A., based on our 'B' rating on Financiere SPIE. -- The outlook is negative, mirroring the negative outlook on Financiere SPIE. Rating Action On Dec. 24, 2012, Standard & Poor's Ratings Services assigned its 'B' long-term corporate credit rating to France-based multi-technical services provider Spie Bondco 3 S.C.A. (Spie Bondco 3), the parent company of Financiere SPIE (B/Negative/--). The outlook is negative. We have also affirmed our 'B' issue rating on the EUR1,085 million senior secured credit facilities borrowed by financing vehicle Clayax Acquisition 4 SAS (French Bidco). These facilities comprise the revolving credit facility (RCF), the capital expenditure (capex) facility, the term loan A, and the term loan B1. The recovery rating on these facilities is '3', indicating our expectation of meaningful (50%-70%) recovery for debtholders in the event of a payment default. We also affirming our 'CCC+' issue rating on the EUR375 million senior secured notes issued by Spie Bondco 3 S.C.A. The recovery rating on these notes is '6', indicating our expectation of negligible (0%-10%) recovery for noteholders in the event of a payment default. Rationale We have assigned our long-term rating to Spie Bondco 3, as the holding company of the Spie group, in addition to our rating on Financiere SPIE. The rating assignment does not change the substance of our analytical views on the Spie group because in our assumptions underpinning the rating on Financiere SPIE, we already factored in all of the Spie group's financial debt. We anticipate that demand for the Spie group's services in France and the rest of Western Europe will remain in positive territory under our base case for 2012 and 2013. We assume that in 2012, revenues will grow by about 4% and the EBITDA margin will remain at 6% at least, despite our now more pessimistic forecasts for a 0.6% decline in eurozone GDP and only 0.1% growth in France in 2012. Our revenue and EBITDA margin forecasts for 2013 are similar to our 2012 projections, based on Standard & Poor's forecast for 0.1% GDP growth in France and -0.1% GDP growth in the eurozone (European Economic and Monetary Union). We assume that the Spie group will not be affected by the weak economic environment because of the limited cyclicality of its business and the generally low volatility of its earnings, both of which support our assessment of the group's "fair" business risk profile. Under our base case, we anticipate that the ratio of funds from operations (FFO) to Standard & Poor's-adjusted debt (including preferred shares) for the Spie group will improve in 2012 and 2013, from about 6% at year-end 2011, thanks to its positive discretionary cash flow generation. We also assume that the company will maintain EBITDA interest coverage at about 2x. The company's current debt level is very high for the rating and had significantly increased at the end of September 2012, compared with the end-December 2011 figure. This was due to the impact of increasing working capital needs. Under our base-case scenario, we assume that this increase will be largely reabsorbed in the final quarter of this year and that the Spie group's working capital will once again positively affect cash generation, matching the general trend in previous years. In our base-case scenario, in the coming years the Spie group should be able to improve and maintain its ratio of FFO to adjusted debt at about 10%. In 2012 and 2013, we anticipate that SPIE's acquisition spending will remain in line with our annual projections of EUR35 million-EUR40 million. We assume that the group could exceed this ceiling if cash generation is particularly strong. However, we also assume that SPIE would be able to reduce its expenditure in the event of financial stress over the next few years. The rating on Spie Bondco 3 reflects our assessments of the group's "fair" business risk profile and "highly leveraged" financial risk profile. The business risk profile is constrained by the low barriers to entry in the industry and the group's high concentration on the French market. Supports include the steadily growing demand for outsourcing services, the limited cyclicality of the business, the fragmentation of the customer base, and low operating leverage. The "highly leveraged" financial risk profile is constrained by the very high leverage stemming from the group's capital structure. The Spie group's in our view "adequate" liquidity and its ability to generate free operating cash flow mitigates this, however. Liquidity We assess the Spie group's liquidity as "adequate" under our criteria, based on a ratio of liquidity sources to uses of at least 1.2x in 2012. SPIE's debt has an average maturity length of more than six years. The structure includes: -- A EUR200 million term loan A maturing in six years that will start amortizing in 2012; -- A EUR100 million six-year capex facility that will start to amortize after 3.5 years, unused on completion of the refinancing; -- A EUR585 million term loan B1 maturing in 2018; -- A EUR300 million securitization facility; and -- A EUR375 million bond maturing in 2019. At end-September 2012 the Spie group reported EUR163 million of cash and short-term deposits. In addition, the group relies on a EUR200 million RCF maturing in 2017, of which EUR80 million was drawn in September 2012 along with EUR18 million drawn under the capex facility. The structure also includes EUR462 million of preferred shares, for which the group can postpone the yield payment if necessary, or repay early if it has excess cash but only if it meets a leverage test ratio. We understand that the preferred shares are expensive, but we believe that they enhance the group's financial flexibility because it has the option to defer interest payments on these shares. The bank debt has covenants, with which we believe the Spie group should be able to comply in the coming quarters. Recovery analysis The issue rating on the EUR1,085 million senior secured credit facilities borrowed by financing vehicle Clayax Acquisition 4 SAS (French Bidco) is 'B', the same level as the corporate credit rating on Spie Bondco 3. These facilities comprise the RCF of EUR200 million, the capex facility of EUR100 million, the amortizing term loan A of EUR200 million, and the term loan B1 of EUR585 million. The recovery rating on these facilities is '3', indicating our expectation of meaningful (50%-70%) recovery for debtholders in the event of a payment default. The issue rating on the EUR375 million bond is 'CCC+', two notches below the corporate credit rating. The recovery rating on this bond is '6', indicating our expectation of negligible (0%-10%) recovery for noteholders in the event of a payment default. The recovery ratings on the senior secured credit facilities and on the bond are supported by our view of the Spie group's enterprise valuation, which is itself a function of the group's large customer base and good product diversification. The recovery rating on the senior secured credit facilities is supported by the security package, which we view as good, but not comprehensive, and is constrained at the '3' rating level by the first-lien debt, which dilutes overall recovery levels. The recovery rating on the bond is constrained by its weak security package and contractual subordination to the senior secured credit facilities. Recovery prospects for both debt instruments are also constrained by the Spie group's jurisdiction of domicile, France. We consider France to be less creditor-friendly than other European jurisdictions. The documentation for the credit facilities includes maintenance financial covenants and nonfinancial covenants. As per the documentation, the group can raise additional debt via permitted indebtedness and incremental facilities. The permitted indebtedness includes permitted local overdraft/working capital facilities in aggregate amount of up to EUR30 million, plus an additional EUR3 million for each complete period of 12 months after the closing date and additional indebtedness for any member of the group to an aggregate amount of up to EUR30 million. The group has also the ability to issue incremental facilities up to a maximum of EUR200 million if there is no default and if the financial covenants are met after issuance. The group has the ability to increase the securitization facility to up to EUR300 million from the current EUR269 million drawn at the end of September 2012. The documentation for the notes includes limitations on liens and on guarantees of debt by restricted subsidiaries (effectively a negative pledge) and limitations on incurrence of indebtedness, unless no default has occurred or would occur as a consequence and if the pro forma consolidated fixed charge cover ratio would be greater than 2.0x. Further debt can be raised via permitted baskets without complying with this ratio if it is classed as one of the following: indebtedness of a special purpose entity (securitization vehicle) or other indebtedness in an aggregate amount at any time outstanding not exceeding EUR75 million. To calculate recovery prospects, we simulate a default scenario. We project that a hypothetical default takes place in 2015, as a result of weakened operating performance in the current economic climate and tough competition. We calculate a gross stressed enterprise value of about EUR1 billion at the hypothetical point of default. After deducting priority liabilities of EUR350 million (comprising enforcement costs, local overdraft facilities, and the securitization facility), we arrive at a net stressed enterprise value of EUR650 million. We assume that the advance-payment guarantees for customers would come into effect in the event of a payment default and therefore deduct an amount of about EUR100 million along with the outstanding senior secured credit facilities from the stressed enterprise value. This allows recoveries of 50%-70% for the EUR1,100 million of senior secured debt outstanding (including six months of prepetition interest), resulting in our '3' recovery rating on this debt. Our stressed enterprise valuation leaves negligible (0%-10%) recovery for the EUR375 million senior bonds due 2019, which results in our recovery rating of '6' on the bonds. Outlook The negative outlook primarily reflects the risk that the Spie group's financial ratios decrease to lower than the minimums we would consider commensurate with the current rating. In particular, we would look for the group to maintain EBITDA interest coverage of about 2x, at least, and FFO to debt above 6% (improving toward 10% in the coming years) in 2012 and in 2013 to keep the current rating. Although we assume a weaker economic environment in France than is currently the case, we think the Spie group would maintain credit ratios commensurate with the current rating under our base case. We also assume that the large capital needs for working capital reported at the end of September 2012 will be completely reabsorbed by year-end 2012. We could lower the rating if a sizable shortfall in sales and earnings constrained the group's ability to service its debt, in turn reducing EBITDA cash interest coverage to less than 1.5x and FFO to debt to less than 6% in 2012. The rating could also come under pressure if SPIE's free operating cash flow turned negative following shortfalls in sales and earnings or high capital needs for working capital or acquisitions. In light of the group's very high leverage, any small deterioration in operating results could jeopardize an improvement of the ratios toward levels more consistent with the current rating. Despite the weakening economic conditions in the eurozone, we could revise the outlook to stable in the coming quarters if the Spie group maintained sound cash generation, interest coverage at about 2x, and if it demonstrated steady deleveraging. Related Criteria And Research -- Methodology: Management And Governance Credit Factors For Corporate Entities And Insurers, Nov. 13, 2012 -- Methodology: Business Risk/Financial Risk Matrix Expanded, Sept. 18, 2012 -- Methodology And Assumptions: Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011 -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008 Ratings List New Rating Spie Bondco 3 S.C.A. Corporate Credit Rating B/Negative/-- Ratings Affirmed Financiere SPIE Corporate Credit Rating B/Negative/-- Spie Bondco 3 S.C.A. Senior Unsecured CCC+ Recovery Rating 6 Clayax Acquisition 4 SAS(French Bidco) Senior Secured B Recovery Rating 3 (Caryn Trokie, New York Ratings Unit)
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