Business news - Money, Finance and Savings

Rpt fitch assigns dufry finance scas eur500m senior notes final bb ra


(Repeat for additional subscribers)July 25 (The following statement was released by the rating agency)Fitch Ratings has assigned Dufry Finance S. C. A.'s EUR500m eight-year 4.5% senior unsecured notes a final rating of 'BB'. The assignment of the final ratings follows a review of final documentation which materially conforms to the information received at the time of the expected rating assignment (see "Fitch Rates Dufry's EUR500m 2022 Senior Notes 'BB(EXP)'' dated 8 July 2014 at this site). The bond is rated at the same level as Dufry AG's Issuer Default Rating of 'BB' as it ranks equally with the company's senior unsecured debt, including its existing USD500m 2020 notes, its term loans and its revolving credit facility. Dufry is using the proceeds to finance the acquisition of the Nuance Group, along with funds from the mandatory convertible notes and the rights issue. The increased indebtedness related to the Nuance acquisition was included in Fitch's recent rating affirmation of Dufry on 5 June 2014. KEY RATING DRIVERS Business Scale StrengthenedThe acquisition of Nuance materially increases Dufry's market leadership and scope of operations. In the travel retail industry, Fitch views this as paramount for maintaining the high quality of concessions and for increasing operational efficiencies. Increased FootprintDufry will benefit from Nuance's complementary presence in the Mediterranean region, Asia and the US. Given that over 80% of Dufry's pipeline projects involve new concessions and expansions in these geographies, Fitch views the complementary geographic nature of the transaction as highly accretive to Dufry's long-term business development goals. Mixed Impact on Concession Portfolio

The acquisition will allow Dufry to expand and diversify its concession portfolio and add a number of profitable contracts. An overall shorter concession lifetime and a higher share of concessions with minimum guaranteed payments will slightly elevate Dufry's operating leverage. However, given Dufry's historically high concession renewal rates of 80%, the curtailed concession lifetime does not materially diminish business visibility. We expect the average profitability of Nuance's concessions to converge with that of Dufry's, through discontinuation of less profitable contracts and renegotiation of new concessions with predominantly variable fee structures. The unprofitable Australian operations of Nuance are not deemed as strategically important to Dufry, and most of these unprofitable concessions are expiring over the next quarters. Cash Generation to Remain StrongGiven Nuance's weaker profitability, the acquisition will sustainably compress Dufry's EBITDA margins by 1%-2% below the historical average of 14%. As a result, Fitch estimates that forecast funds from operations (FFO) as a percentage of sales will be consistently below historical levels of 11%-12% by 2%-3%. However, in the absence of any major incremental capital spend above the company's target of 3.5% of sales, free cash flow (FCF) generation is projected to remain strong and expand over the rating horizon. Even with lower profitability, Dufry would still rank among the top performers in the travel retail sector such as World Duty Free. Credit Metrics under Pressure in FY14-15

As a result of the acquisition, Fitch expects FCF as a percentage of sales to drop to below 4% (FYE13: 5.4%), with FFO adjusted leverage after dividends paid to associates at around 6.0x in FY14 (based on actual contribution from Nuance in 2H14) and remaining above 5.5x in FY15. We consider the deterioration in credit metrics will be temporary, limited to the business integration period, which is expected to be restored in FY16 once the combined business starts generating normalised levels of cash flow. If FFO-adjusted gross leverage remains sustainably above 5.5x, for example, as a result of a more onerous integration process, weaker FCF or a delay in the equity placement as part of the financing package, this could put pressure on the ratings. Further Debt-Funded Acquisitions LikelyIn the consolidating and highly competitive travel retail industry, we expect acquisitions will remain an essential strategy to deliver growth and protect profitability. As long as future acquisitions are accretive to Dufry's internal cash generation and the company remains disciplined in its financial policy, Fitch will continue to factor small add-on acquisitions into the ratings.

RATING SENSITIVITIES Negative: Future developments that could lead to negative rating action this site leverage remaining at around 5.0x in the medium term, due to an adverse shift in the operating environment, persisting organic issues and/or continuing appetite for debt-funded acquisitions-EBITDA margin below 12%, coupled with FCF margin below 4%, both on a sustained basis-FFO fixed charge cover sustainably below 2.5xPositive: Although an upgrade is unlikely in the near term, future developments that could lead to positive rating action this site FFO adjusted leverage declining to below 4.0x and fixed charge cover rising above 3.0x on a sustained basisLIQUIDITY AND DEBT STRUCTURE Fitch expects Dufry to maintain comfortable liquidity given its continuously strong FCF generation, absence of principal repayments until 2019 after the debt refinancing and augmented liquidity reserves under the new largely undrawn RCF of CHF900m.

Rpt money markets watching for exit strategy comments at ecb meeting


* Money market curve has steepened in March* Markets focus on exit strategy debate at the ECB meeting* Curve may flatten back Draghi avoids "exit" commentsBy Marius ZahariaLONDON, April 2 Last month's rise in long-term euro zone money market rates could unwind if the ECB does not take the debate about an eventual withdrawal of its emergency cash injections any further at its meeting on Wednesday. Several policymakers, led by the German Bundesbank chief Jens Weidmann, have said in recent weeks that the European Central Bank needs to prepare an exit strategy after pumping about 1 trillion euros of cheap funds into the financial system. In the context of upbeat macro-economic data out of the United States and receding expectations for more monetary easing in the world's largest economy, the comments have led to a steepening of the money market curve. But analysts say the move may have gone too far given the bloc's weaker economic outlook relative to the United States.

"Recent comments by some of the ECB members have brought the exit strategy on the table," Commerzbank rate strategist Benjamin Schroeder said."(But) I think the steepening move has already happened and I would expect some flattening out of the ECB meeting if there is no talk about the exit strategy."Euribor futures fell across the 2013 and 2014 strip last month, indicating expectations for higher interest rates. The 2012 contracts remained relatively stable reflecting no near-term expectations for a change in monetary policy.

The December 2013 Euribor had fallen by some 20 ticks to a 10-week low of 98.81 in the first two weeks of March, reflecting interest rates were expected to be 20 basis points higher at the end of next year than they were seen in February. The contract has since rebounded to trade at 98.99 on Monday as disappointing euro zone data such as the manufacturing PMI surveys have tamed the steepening pressure. Analysts say long-term money market rate expectations could fall back towards levels seen at the beginning of last month if President Mario Draghi keeps his neutral stance on the debate. He has so far avoided to commit to an exit strategy, saying only that the ECB will take immediate action if the inflation outlook worsened.

FALLING EURIBOR RATES ING's head of investment grade debt strategy Padhraic Garvey also did not expect Draghi to change his tone on Wednesday and said this would give more momentum to a fall in Euribor rates "across the curve."The benchmark three-month Euribor rate fixed at 0.771 percent from Friday's 0.777 percent, the lowest level since the late June 2010. Twelve-month rates dropped by a lower amount to 1.410 percent from 1.416 percent. Erste Bank fixed income analyst Mildred Hager expected the three-month Euribor rate to fall to 0.70 percent during this quarter and remain stable for the rest of her forecast horizon until March 2013. No change in the ECB's main refinancing rate was expected in the foreseeable future and no further liquidity injections were seen in the near term, Reuters polls showed, leaving any market reaction dependent on Draghi's post-meeting news conference. Erste's Hager expected the first hike in the ECB's benchmark interest rate at the end of the 2014 or the beginning of 2015."I don't think there's anything that can be contained in the ... (ECB) statement that could change that," Hager said. Overnight Eonia forward rates trade within a tiny 0.35-0.37 percent range on the 2012 strip, but gradually rise above 0.40 percent in 2013, when banks have the option to pay back some of the cheap ECB loans.