Reuters logo
TEXT-S&P keeps TNT Express ratings on creditwatch positive
November 28, 2012 / 11:36 AM / 5 years ago

TEXT-S&P keeps TNT Express ratings on creditwatch positive

Nov 28 -

Overview

-- Netherlands-based courier, express, and parcels company TNT Express N.V. and U.S.-based United Parcel Service Inc. (UPS) announced that the Netherlands Authority for the Financial Markets has granted an exemption to extend UPS’ offer period for the outstanding shares of TNT Express.

-- The offer period has been extended to allow for the appropriate clearances from the European Commission and the Chinese Ministry of Commerce, but no later than Feb. 28, 2013.

-- We are keeping our ‘BBB+/A-2’ long- and short-term corporate credit ratings on TNT Express on CreditWatch positive.

-- The ongoing CreditWatch reflects the possibility of an upgrade if we believe that the merger enhances TNT Express’ credit quality.

Rating Action

On Nov. 28, 2012, Standard & Poor’s Ratings Services kept on CreditWatch with positive implications its ‘BBB+/A-2’ long- and short-term corporate credit ratings on Netherlands-based courier, express, and parcels company TNT Express N.V. We originally placed the ratings on CreditWatch on Feb. 24, 2012.

Rationale

The ongoing CreditWatch placement follows the announcement, by TNT Express and U.S.-based package delivery company United Parcel Service Inc. (UPS; A+/Negative/A-1), that the Netherlands Authority for Financial Markets has granted an exemption for UPS to extend its offer period for the outstanding shares of TNT Express. We understand that the offer period ends one week after clearance from the European Commission and the Chinese Ministry of Commerce has been received, but no later than Feb. 28, 2013. In addition, since our last update, TNT Express and UPS have received a statement of objections from the European Commission. We understand that the statement of objections is a normal step in the second phase of merger procedure.

In our view, TNT Express could benefit from ownership by UPS, which we would view as the stronger entity in the context of this acquisition. As per our criteria, a weaker entity owned by a stronger parent will usually--although not always--have a higher rating than it would on a stand-alone basis. (For further details, see “Corporate Criteria--Parent/Subsidiary Links; General Principles; Subsidiaries/Joint Ventures/Nonrecourse Projects; Finance Subsidiaries; Rating Link to Parent,” published Oct. 28, 2004, on RatingsDirect on the Global Credit Portal.)

If UPS were to fully integrate TNT Express, we could equalize our ratings on TNT Express with our ratings on its parent company. If the integration was only partial, we would still upgrade TNT Express, with the scale of the upgrade depending on our view of UPS’ willingness to provide financial support to TNT Express in the event of distress.

TNT Express offers domestic, regional, and intercontinental delivery services, mainly for business-to-business customers. Its service entails picking up, transporting, and delivering documents, parcels, and freight around the world. TNT Express was spun off from TNT N.V. (now PostNL N.V. ) in June 2011.

The ratings on TNT Express reflect our view of its “satisfactory” business risk profile, which is supported by TNT Express’ position as a leading European and international courier, express, and parcels delivery services integrator. The ratings also reflect our assessment of TNT Express’ “modest” financial risk profile.

In our view, these strengths are partially offset by TNT Express’ participation in a market that is competitive (especially in Europe) and highly fragmented, its high level of operational leverage, and exposure to economic cyclicality.

On a stand-alone basis (excluding any implications of the UPS offer), we forecast that Standard & Poor‘s-adjusted debt will be about EUR1 billion at year-end 2012. We anticipate that this will contribute to an adjusted ratio of debt to EBITDA of about 2x at year-end 2012, which is the same as in 2011. Based on our forecast of adjusted funds from operations (FFO) of about EUR450 million-EUR485 million in 2012, we project that the ratio of adjusted FFO to debt will improve to 45% by the end of 2012, from 42% in 2011.

Liquidity

The short-term rating on TNT Express is ‘A-2’. We view TNT Express’ liquidity as “strong” under our criteria.

As of Sept. 30, 2012, we estimate the ratio of liquidity sources to uses to be about 3.5x-4.0x. Sources include our forecasts of:

-- Centralized cash and equivalents of about EUR250 million;

-- About EUR570 million available under a committed credit line that expires in March 2016; and

-- FFO of EUR350 million-EUR375 million (excluding adjustments).

We estimate TNT Express’ liquidity needs over the 12 months as:

-- Short-term borrowings of EUR43 million;

-- Capital expenditure of about EUR220 million, or about 3% of estimated revenues; and

-- Our estimation of the cash element of the dividend for 2012 of about EUR25 million-EUR50 million, in line with TNT Express’ stated dividend policy. The cash element has historically varied as the company offers dividends to be paid either in cash or shares.

There are no financial covenant triggers with liquidity implications in the documentation for the undrawn credit line. TNT Express has no debt maturities of more than EUR50 million per year until 2015.

CreditWatch

We aim to resolve the CreditWatch placement after the completion of the acquisition. We will assess the effect of the acquisition on TNT Express’ business and financial risk profiles. We could raise our ratings on TNT Express if we believe that the acquisition has enhanced its credit quality.

If UPS were to fully integrate TNT Express, we could equalize our ratings on TNT Express with our ratings on its parent company. If the integration was only partial, we would still upgrade TNT Express, with the scale of the upgrade depending on our view of UPS’ willingness to provide financial support to TNT Express in the event of distress.

In the event that the acquisition does not conclude, we could affirm our ratings on TNT Express and assign a stable outlook if the company’s credit standing remains in line with our forecasts. This would be consistent with the company maintaining its current financial policy, with adjusted FFO to debt of at least 45% and debt to EBITDA of no more than 2x on a sustainable basis.

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 Extension of UPS Offer Period, Aug. 24, 2012

-- TNT Express N.V., May 31, 2012

-- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008

-- Corporate Criteria--Parent/Subsidiary Links; General Principles; Subsidiaries/Joint Ventures/Nonrecourse Projects; Finance Subsidiaries; Rating Link to Parent, Oct. 28, 2004

Ratings List

Ratings Affirmed

TNT Express N.V.

Corporate Credit Rating BBB+/Watch Pos/A-2

TNT Finance B.V.

Commercial Paper* A-2/Watch Pos

*Guaranteed by TNT Express N.V.

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below