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TEXT - S&P rates Spie Bondco 3 S.C.A.
December 24, 2012 / 4:11 PM / in 5 years

TEXT - S&P rates Spie Bondco 3 S.C.A.

(The following statement was released by the rating agency)

     -- 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 

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.

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
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.

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. 

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 

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, 
     -- 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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