Rating Action Overview
- The airports sector in Europe is facing an unprecedented decline in air traffic as Europe has
become the epicenter of the COVID-19 pandemic.
- We expect a sharp reduction in France-based Aeroports de Paris' (ADP's) revenue and cash
flow, causing it to report much weaker credit metrics in 2020 relative to its 2019 results and our
previous expectations.
- Our current base case is a 25 percent decrease in passenger traffic for 2020, and we expect ADP to
take several actions to reduce the impact of this decline, including cost and capital expenditure
(capex) savings and dividend reduction. However, we believe these initiatives will be insufficient
to offset the effect of the reduced demand on the company's credit metrics.
- Therefore, we are lowering by one notch our long-term issuer and issue credit ratings on ADP to
'A' from 'A+'.
- The negative outlook indicates that we could lower the ratings further if the pandemic proves
more severe and long lasting than we currently expect, placing further pressure on ADP's credit
metrics, notably S&P Global Ratings-adjusted funds from operations (FFO) to debt below 10 percent
Rating Action Rationale
We expect ADP's credit metrics to weaken sharply in 2020, relative to our prior expectations,
due to the effects of the coronavirus pandemic. Based on our forecast of 25 percent lower passenger
traffic in 2020, and a rebound of air traffic in the 24 months following containment of the
outbreak, we now expect that S&P Global Ratings-adjusted FFO to debt could significantly decline
toward 13 percent in 2020, compared with about 20.5 percent in 2019 and our previous 2020 forecast of
19.0 percent-20.0 percent. We expect ADP's EBITDA to decline to the same extent as traffic, despite the high
proportion of fixed costs inherent for an airport. While we expect ADP to proactively manage costs
and reduce capex and dividends, we believe the present situation will consume the company's
rating headroom. ADP's credit metrics were already under strain following the recently announced
debt-funded acquisition of the Indian airport operator GMR Airports, and the uncertainties arising from the ongoing negotiations for the new regulatory period.
Liquidity remains adequate, despite our expectations of lower cash flow generation over the
next 12 months. One of the company's credit strengths in the current environment is its liquidity
position. We continue to see to see the group's liquidity as adequate despite our expectations for
lower cash generation over the next 12 months, which lead us to expect that sources of liquidity
will be more than 1.2x over this period. As of Dec. 31, 2019, ADP had €3.2 billion-€3.4 billion of
sources, which includes about €2 billion of cash, €1 billion to €1.2 billion of FFO, and €200 million
compensation payment from the Turkish government. This should be sufficient for the company to
cover its €879 million of short-term maturities, €550 million of maintenance capex and dividends,
and €1.36 billion to pay down the acquisition of India-based GMR Airports. We have not included
any potential sources of additional liquidity, such as new funding to finance this acquisition. We
acknowledge ADP's flexibility to defer further planned capex, and reduce or even suspend
shareholder remuneration if necessary. ADP benefits from strong relationships with banks and a
good standing in capital markets. We believe this would allow ADP to easily access funding if
necessary, albeit at a higher cost of debt.
Outlook
The negative outlook reflects ADP's weaker-than-expected credit metrics following the
coronavirus outbreak, and the pandemic's negative impact on air travel. It indicates that there is a
one-in-three chance we could further lower the ratings if the company is unable to sustain its
credit metrics commensurate with its ratings, notably adjusted FFO to debt above 10 percent on a
sustainable basis.
Downside scenario
We could lower the ratings should the pandemic prove more severe and long lasting than we
currently expect, leading adjusted weighted average FFO to debt to decline below 10 percent over fiscals
2021 and 2022. This also could happen if the recessionary macroeconomic backdrop is harsher or
more prolonged than expected, thereby affecting overall mobility.
Upside scenario
We could revise the outlook to stable if passenger traffic recovers in late 2020 into 2021, resulting
in FFO to debt sustainably above 10 percent over the next 18-24 months.
Ratings Score Snapshot
Issuer Credit Rating: A/Negative/--
Business risk: Excellent
- Country risk: Intermediate
- Industry risk: Low
- Competitive position: Excellent
Financial risk: Intermediate
- Cash flow/Leverage: Intermediate
Anchor: a
Modifiers
- Diversification/Portfolio effect: Neutral (no impact)
- Capital structure: Neutral (no impact)
- Financial policy: Neutral (no impact)
- Liquidity: Adequate (no impact)
- Management and governance: Satisfactory (no impact)
- Comparable rating analysis: Neutral
Stand-alone credit profile: a
Likelihood of government support: Moderate (no impact)
Related Criteria
- General Criteria: Group Rating Methodology, July 1, 2019
- Criteria | Corporates | General: Corporate Methodology: Ratios And Adjustments, April 1, 2019
- Criteria | Corporates | General: Reflecting Subordination Risk In Corporate Issue Ratings, March
28, 2018
- General Criteria: Rating Government-Related Entities: Methodology And Assumptions, March
25, 2015
- Criteria | Corporates | General: Methodology And Assumptions: Liquidity Descriptors For Global
Corporate Issuers, Dec. 16, 2014
- General Criteria: Methodology: Industry Risk, Nov. 19, 2013
- Criteria | Corporates | Industrials: Key Credit Factors For The Transportation Infrastructure
Industry, Nov. 19, 2013
- Criteria | Corporates | General: Corporate Methodology, Nov. 19, 2013
- General Criteria: Country Risk Assessment Methodology And Assumptions, Nov. 19, 2013
- General Criteria: Methodology: Management And Governance Credit Factors For Corporate
Entities, Nov. 13, 2012
- General Criteria: Stand-Alone Credit Profiles: One Component Of A Rating, Oct. 1, 2010
- General Criteria: Use Of CreditWatch And Outlooks, Sept. 14, 2009
Related Research
- Coronavirus Impact: Key Takeaways From Our Articles, March 24, 2020
- The Coronavirus Pandemic Could Reduce Global Air Passengers By Up To 30 percent In 2020, March
17, 2020
