Moody’s Switches to Positive on CMA CGM

Rating agency Moody’s Investors Service has 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 French liner company 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,” Moody’s said.

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 USD 6.0 billion from USD 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, 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.

“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,” the rating agency said.

However, according to Moody’s, downward rating pressure could develop if challenging market conditions lead to leverage above 5x for an extended period of time, FFO interest expense coverage below 3x or a material weakening of the company’s liquidity profile.

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