The corporate family rating of French shipping major CMA CGM was downgraded to B2 from B1 amid the company’s weakened liquidity profile, according to rating agency Moody’s.
Additionally, CMA CGM’s probability default rating was set to B2-PD from B1-PD, senior unsecured ratings were downgraded to Caa1 from B3, while the outlook was changed to stable from negative.
“Today’s rating action reflects that CMA CGM’s liquidity profile has weakened materially in the last 12 months as a consequence of the acquisition of CEVA Logistics AG, although expected by Moody’s to improve somewhat in 2020,” Daniel Harlid, Assistant Vice President — Analyst and lead analyst for CMA CGM, said.
The downgrade of CMA CGM’s rating follows the acquisition of CEVA Logistics, that together with the a large capex programme and difficult, albeit stable, market environment has and will continue to put pressure on the company’s liquidity profile.
Given Moody’s base case, where the free cash flow generation of the company leaves very limited room for debt reduction, Moody’s now expects adjusted debt/EBITDA to be sustained above 5x and adjusted FFO Interest coverage to be sustained below 3x during the next 12-18 months.
Moody’s notes that CMA GCM has historically shown “good access to capital and that there is some optionality when it comes to delay capex which would improve the current liquidity profile.”
Also, Moody’s understands the company is planning to sell a minority stake in Ceva and divest terminals, both of which would improve liquidity.
Nevertheless, the rating action reflects that available liquidity has decreased substantially since June 2018, when the company had USD 1.6 billion of cash on balance sheet and USD 1.2 billion of undrawn RCFs. This is in stark contrast with the liquidity position in June 2019, consisting of USD 1.5 billion (of which USD 270 million is at a Ceva level) and only around USD 280 million in undrawn RCFs.
As Moody’s currently have a stable outlook on the container shipping sector, expectations on CMA CGM’s operating performance for the next 12-18 months reflects volumes growing with low single digits coupled with some further improvements in operating expenses per TEU (excluding bunker costs).
This translates to a Moody’s-adjusted EBIT margin in the range of 3.5%-4.0% and Moody’s-adjusted debt/EBITDA of 5.6x-5.1x. The stable outlook is also based on a successful divestment of terminals for a total amount of at least USD 500 million.