Senvion
All,cMoody’s are out with another, somewhat reactive downgrade after Senvion have hired PJT and have commissioned an S6 (German Law) restructuring opinion.
Wolfgang
Moody's downgrades the CFR of Senvion to Caa1; negative outlook
27 Feb 2019
EUR400 million senior secured notes downgraded to Caa2
Frankfurt am Main, February 27, 2019 -- Moody's Investors Service, ("Moody's") today downgraded to Caa1 from B3 the corporate family rating (CFR) and to Caa1-PD from B3-PD the probability of default rating (PDR) of Senvion S.A. (Senvion). Concurrently Moody's downgraded to Caa2 from Caa1 the rating of the senior secured notes issued by Senvion Holding GmbH. The outlook on both entities remains negative.
RATINGS RATIONALE
"Moody's decision to downgrade Senvion's ratings by one notch was triggered by the company's announcement issued on 23 February, regarding the postponement of the publication of the annual financial statements," said Oliver Giani, lead analyst for Senvion. "According to the release Senvion has commissioned a restructuring opinion and is currently in discussions with its main shareholder, lenders and other financing sources to secure financing for the Company," he added. "In Moody's view the release uncovers an even worse situation than expected after the recent revision of its guidance for 2018 and signals an increased likelihood for a debt restructuring", Mr. Giani continued.
Senvion's CFR is constrained by (1) its leveraged capital structure and declining profitability, driven by the structurally low profitability of the consolidating and intensely competitive wind turbine industry as well as some loss-making projects, (2) the limited product and end-industry diversification with more than 75% of revenues (September 2018 LTM) coming from the installation of new wind turbines and (3) some geographical concentrations with Senvion's historical key markets of Germany, France and the UK still representing 55% of new installations and 46% of revenues in 2017.
Senvion's CFR is supported (1) the company's size and market positions, albeit significantly smaller than the leaders Vestas, Siemens Gamesa and GE Renewables, and (2) a solid level of firm order book (+37% y-o-y as of September 2018) which provides good revenue visibility for the next 12-18 months.
LIQUIDITY
The Caa1 rating incorporates Moody's expectation that Senvion will preserve a sufficient liquidity cushion, in particular the ability to remain in compliance with financial covenants of the EUR 125 million revolving credit facility maturing in April 2022, as well as continued access to the EUR825 million letter of guarantee facility. Furthermore the current rating is based on the expectation that Senvion will be able to stop the liquidity drain seen in 2018, driven by an improvement of the operating performance. However, we acknowledge the fact that there is an element of unpredictability and volatility in cash flows, considering the large size and long lead times of projects.
STRUCTURAL CONSIDERATIONS
Senvion Holding GmbH's EUR400 million senior secured notes due 2022 are rated Caa2, one notch below the Caa1 CFR. This principally reflects the subordinated position of the notes in the loss given default waterfall with regards to the super senior secured syndicated facility in a default scenario, even though the facility and the notes share the same guarantor and collateral package. The facility is large enough (i.e., EUR125 million in revolving credit facility and EUR825 million in letter of guarantee facility) to justify the notching of the senior secured notes below the CFR. The EUR825 million letter of guarantee facility, although not a cash credit, enjoys super seniority status versus the notes.
RATIONALE FOR OUTLOOK
The negative outlook mirrors Moody's concern that a capital restructuring may become necessary. Over the next 3 to 6 months Moody's will continue to closely monitor the further development in particular with regard to the outcome of the restructuring opinion commissioned by Senvion and possible further restructuring needs being identified, management's business plan for 2019 and beyond, the quality of the order book and the magnitude of potential cancellations of orders, the company's ability to reduce leverage as well as liquidity and covenant compliance.
WHAT COULD CHANGE THE RATING UP/DOWN
The ratings on Senvion could be downgraded (1) in case the company fails to grow its order book and topline and improve its operating performance in 2019, or (2) if the company's liquidity profile deteriorates due to continued negative free cash flow generation or the inability to comply with the financial covenant under its credit facilities agreement. Likewise, any further indications that the capital structure may not be sustainable or increased risk of a distressed exchange would lead to a negative rating action.
Albeit unlikely at the moment, upward potential would develop if the company's (1) Moody's-adjusted EBITA margin remains positive on a sustained basis, (2) free cash flow turns positive, and (3) Moody's-adjusted gross leverage declines below 7.0x on a sustained basis.
LIST OF AFFECTED RATINGS:
..Issuer: Senvion Holding GmbH
Downgrade:
....BACKED Senior Secured Regular Bond/Debenture, Downgraded to Caa2 from Caa1
Outlook Action:
....Outlook, Remains Negative
..Issuer: Senvion S.A.
Downgrades:
.... LT Corporate Family Rating, Downgraded to Caa1 from B3
.... Probability of Default Rating, Downgraded to Caa1-PD from B3-PD
Outlook Action:
....Outlook, Remains Negative
The principal methodology used in these ratings was Global Manufacturing Companies published in June 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
Senvion S.A. is a publicly quoted entity and the ultimate holding company of the Senvion group. Headquartered in Hamburg, Germany, Senvion is one of the leading manufacturers of wind turbine generators (WTGs). The group develops, manufactures, assembles and installs WTGs with nominal outputs ranging from 2.0 MW to 6.3 MW, covering all wind classes in both onshore and offshore markets. We note that Senvion can also occasionally partner with its clients via codevelopment/coinvestment projects. Senvion has a workforce of about 4,500 worldwide and generated revenue of close to €1.4 billion during the twelve months period to September 2018, with cumulative global installed capacity of around 18.1 GW. In March 2016, private equity firm Centerbridge Partners sold a stake of around 26.4% in Senvion S.A. to private investors in an initial public offering.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.
Oliver Giani
Vice President - Senior Analyst
Corporate Finance Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Christian Hendker, CFA
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454