-- 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
-- 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 likely one notch once the sale is complete, and pending our review
of PostNL's business risk profile, operating strategy, and financial policy.
On Dec. 18, 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.
The ongoing CreditWatch placement reflects the potential for an upgrade of
likely one notch 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.
The number of notches of upgrade depends on the amount of debt repaid.
We 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. However, the final amount of debt repayment may be more
than this amount. 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, which we currently assess as
"significant." 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%. We may revise this guideline if we assess
that PostNL's business risk profile has changed. We currently assess PostNL's
business risk profile as "strong."
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 about EUR200 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
A potential upgrade will be also subject to our review of PostNL's business
risk profile. Our current assessment of "strong" 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 weakening 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.
In addition, we note that the volumes of addressed mail in The Netherlands
declined more in the third quarter of 2012 than we previously anticipated and
we forecast a continued decrease in mail volumes. If the level of decline in
the third quarter is sustained, this could weigh negatively on our assessment
of the group's business risk profile.
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%. We understand that the company has well-established,
solid relationships with banks and a high standing in credit markets.
Liquidity sources to September 2013 are:
-- About EUR398 million of cash and cash equivalents as of Sept. 30, 2012,
of which about EUR50 million are restricted; and
-- A EUR570 million undrawn committed revolving credit facility due May
Uses of liquidity to September 2013 include:
-- About EUR50 million of negative unadjusted FFO under our base-case
forecast for 2012, including EUR84 million in top-up payments to pension funds,
to be paid in December 2012;
-- Our forecast of working capital needs of about EUR45 million;
-- Capital expenditures of about EUR200 million; and
-- About EUR60 million of debt maturities.
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.
The CreditWatch positive placement indicates the potential for an upgrade of
likely one notch, subject to our positive review of PostNL's financial risk
profile and our assessment of the company's business risk profile in light of
its full-year results and outlook for the mail business in the Netherlands.
The review will focus in particular on PostNL's intentions for the proceeds of
the TNT Express disposal, and PostNL's future financial policy. 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.
-- TNT Express 'BBB+/A-2' Ratings Remain On CreditWatch Positive On
Further Extension Of UPS Offer Period, Nov. 28, 2012
-- PostNL 'BBB' L-T Rating Kept On CreditWatch Positive Pending Sale Of
Stake In TNT Express; 'A-2' S-T Rating Affirmed, Sept. 26, 2012
-- Methodology: Business Risk/Financial Risk Matrix Expanded, Sept. 18,
-- UPS Inc. 'AA-' And 'A-1+' Ratings Remain On CreditWatch Negative, Aug.
-- PostNL 'BBB/A-2' Ratings Remain On CreditWatch Positive On Commitment
To Tender Share In TNT Express, June 28, 2012
-- Methodology And Assumptions: Liquidity Descriptors For Global
Corporate Issuers, Sept. 28, 2011
-- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008
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