DBRS Morningstar Assigns Provisional Rating of BBB (low), Stable, to Elis S.A.’s EUR 200 Million Senior Unsecured Notes Issuance

DBRS Ratings GmbH (DBRS Morningstar) assigned a provisional rating of BBB (low) with a Stable trend to the proposed EUR 200 million Senior Unsecured Notes (the Notes) issued by Elis S.A. (Elis or the Company). The Notes were issued under the Euro Medium Term Note Programme dated 6 May 2021 and supplemented on 30 August 2021. The Notes will be added to the existing EUR 350 million notes issued on 3 October 2019, which mature in 2028 and will have the same terms and conditions. In addition, the Notes will have pari passu status with all other unsecured and unsubordinated obligations of Elis.

DBRS Morningstar notes that, in conjunction with the Notes issuance, Elis has offered a tender on its existing EUR 650 million unsecured notes maturing on 15 February 2023 for an amount expected at least equal to the proposed new Notes. DBRS Morningstar’s expectation is that the Notes issuance and the tender offer will effectively be a leverage-neutral event, apart from extending the Company’s maturity profile and lowering its interest cost, which is positive.

The current ratings reflect DBRS Morningstar’s views on Elis’ ability to withstand the unprecedented Coronavirus Disease (COVID-19) disruptions and the relative stability of the Company’s businesses, apart from the Hospitality sector, which is typically affected by lockdown measures and travel restrictions that can be implemented in short order and therefore are unpredictable. Since the beginning of the coronavirus pandemic, Elis has taken a number of precautionary and proactive measures to preserve earnings, cash flows, and liquidity against the coronavirus-related disruptions. During the first half of 2021, Elis was able to withstand the muted market conditions, especially in the Hospitality sector, and generated small amounts of revenue and EBITDA growth as well as improved free cash flow generation. Elis also raised its previously communicated guidance for the full-year 2021. In 2021 and 2022, DBRS Morningstar expects that the Company will continue to improve its credit metrics compared with 2020, which will continue to support the current ratings.

In 2021 and 2022, DBRS Morningstar expects that as the coronavirus-related disruptions continue to subside, the Company’s financial metrics will continue to improve to levels that are consistent with a low investment-grade rating, such as a DBRS Morningstar-adjusted debt-to-EBITDA ratio in the 3.50 times (x) to 3.75x range and a DBRS Morningstar-adjusted cash-flow-to-debt ratio of higher than 20%. However, if the coronavirus’ negative effects last longer than currently expected because of uneven vaccine rollouts and the emergence of new variants, leading to elevated leverage for an extended period of time, DBRS Morningstar could consider a negative rating action. In addition, a return to more aggressive financial policies or debt funding of large acquisitions could also lead DBRS Morningstar to take a negative rating action. While unlikely in the near term, DBRS Morningstar could upgrade the rating if the Company significantly improved its operating performance and its financial metrics on a sustained basis.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology is Rating Companies in the Services Industry (29 January 2021), https://www.dbrsmorningstar.com/research/372947/rating-companies-in-the-services-industry, which can be found on dbrsmorningstar.com under Methodologies & Criteria. Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (3 February 2021), https://www.dbrsmorningstar.com/research/373262/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

The primary sources of information used for this rating include Elis’ audited and interim financial statements, investor presentations, forecasts, budgets, and presentations provided by Elis. DBRS Morningstar considers the information available to it for the purposes of providing this rating to be of satisfactory quality.

This rating concerns a newly issued financial instrument. This is the first DBRS Morningstar rating on this financial instrument.

DBRS Morningstar does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

The sensitivity analysis of the relevant key rating assumptions can be found at: https://www.dbrsmorningstar.com/research/384323.

This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Giuseppe Fresta, Vice President
Rating Committee Chair: Andrea Zanda, Senior Vice President
Initial Rating Date: 28 March 2019
Last Rating Date: 16 March 2021

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-- Rating Companies in the Services Industry (29 January 2021), https://www.dbrsmorningstar.com/research/372947/rating-companies-in-the-services-industry.
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (3 February 2021), https://www.dbrsmorningstar.com/research/373262/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com.