Moody’s changes outlook on CMA CGM’s B1 rating to positive; affirms ratings

Moody’s Investors Service (“Moody’s”) has today changed to positive from stable the outlook on the B1 corporate family rating (CFR), the B1-PD probability of default rating (PDR) and the B3 senior unsecured rating of CMA CGM S.A. Concurrently, Moody’s has affirmed the ratings assigned to the company including its B1 CFR, B1-PD PDR and B3 senior unsecured ratings.

The change in outlook to positive from stable reflects the reduction in adjusted debt due to changes in Moody’s approach for capitalizing operating leases. The updated approach for standard adjustments for operating leases is explained in the announcement “Moody’s updates its global methodology for financial statement adjustments”, published on June 15, 2015.

RATINGS RATIONALE

The positive outlook reflects the improvement in CMA CGM’s financial metrics due to the material reduction in the debt adjustment related to operating leases. Indeed, based on 2014 financial statements, Moody’s debt adjustment related to operating leases declines to $6.0 billion from $10.2 billion, resulting in an improvement in leverage (i.e. debt/EBITDA) to 4.8x from 6.4x.

At the same time, CMA CGM has continued to have a robust operating performance, which has resulted in the company improving its financial metrics in recent quarters. In particular, CMA CGM has maintained profitability levels, which are among the highest in its industry, with a core EBIT margin in 2014 at 5.8%. Moody’s expects these improvements to persist in 2015 in spite of ongoing challenging market conditions in the container shipping segment.

WHAT COULD CHANGE THE RATING UP/DOWN

Upward rating pressure could materialise if we have evidence that CMA CGM can sustain its solid operating performance and report the following metrics over an extended period of time: (1) leverage (debt/EBITDA) moving towards 4x; and (2) funds from operations (FFO) interest expense coverage above 4x (ratios include Moody’s adjustments). At the same time, the company should maintain an adequate liquidity profile.

Downward rating pressure could develop if challenging market conditions lead to (1) leverage above 5x for an extended period of time; (2) FFO interest expense coverage below 3x (ratios include Moody’s adjustments); or (3) a material weakening of the company’s liquidity profile.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Global Shipping Industry published in February 2014. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Headquartered in Marseilles, France, CMA CGM is the third-largest container shipping company in the world measured in TEU. CMA CGM generated revenues of $16.7 billion in 2014.
Source: Moody’s Investors Service Ltd.