Cassini SAS, Parent Of Comexposium Group, Rated Prelim 'B'; Outlook Stable

  • Credit Agricole Assurances intends to acquire Charterhouse Capital Partner's stake in French trade show organizer Comexposium for €877 million, through newly created holding company Cassini SAS.
  • Financing of the proposed acquisition and repayment of the existing senior secured debt will involve issuance of a new senior secured term loan B and a revolving credit facility.
  • We are therefore assigning our preliminary 'B' rating to Cassini and our preliminary 'B' issue rating to its new senior secured debt. The recovery rating on the debt is '3', indicating our expectation of average recovery prospects (50%-70%; rounded estimate: 60%) in the event of a payment default.
  • The stable outlook reflects our view that after the transaction's close, Comexposium's leverage will reduce to 6.0x-6.5x in 2019 and the group will continue to generate annual organic revenue growth and positive free operating cash flows.
FRANKFURT (S&P Global Ratings) Jan. 25, 2019--S&P Global Ratings today took 
the above rating actions. 

Predica, a fully owned subsidiary of the insurance company Credit Agricole 
Assurances (CAA; A-/Stable/--), part of the Credit Agricole S.A. 
(A+/Stable/A-1) group, intends to acquire Charterhouse Capital Partner's stake 
in the Comexposium group for, as we understand, a purchase price of €877 
million. The second shareholder Chambre de Commerce et d'Industrie de Paris 
Ile de France (CCIR) will maintain its historical ownership in the group. The 
two shareholders have created Cassini SAS, a new holding company, which will 
acquire the entire equity capital from current parent Comete Holding SAS 
(B/Stable/--).

As a part of the transaction, the new shareholder and CCIR will inject about 
€742 million of equity, with the management contributing an additional about 
€12 million, including up to 40% as common equity and up to 60% as preferred 
shares. In addition, Comexposium will refinance its senior secured financial 
instruments by issuing a new term loan B and revolving credit facility (RCF). 
While the amount of the new RCF due in 2025 remains €90 million, the new term 
loan B due in 2026 will increase by €128 million compared with the existing 
term loan B of €355 million. We will withdraw the ratings on the €355 million 
term loan B due 2025 and the €90 million RCF due 2024 once they have been 
repaid.

After the transaction is completed, we project Comexposium's leverage at 
6.0x-6.5x by the end of 2019, declining but remaining above 5x by the end of 
2020. Our adjusted 2019 debt includes €483 million of new term loan B, about € 
44 million of the operating lease adjustment, and about €80 million of put 
options. We exclude the preferred shares from our calculation, because we 
treat them as equity.

In addition, we understand that Cassini did not repay the former shareholder 
loan (2015 bond) at Comexposium level as part of the transaction, but has 
transformed it into an intercompany loan. Hence, this debt cancels out at the 
level of Cassini on a consolidated basis and we do not include it in our 
consolidated debt calculations for Cassini. In addition, we note that the 
terms of the contract under the intercreditor agreement eliminate the 
structural subordination between this intercompany loan and the proposed term 
loan B.

We forecast EBITDA interest cover above 2x in 2019-2020, and that Comexposium 
will continue to generate positive free operating cash flow (FOCF) of about 
€40 million in 2019-2020.

The rating on Comexposium primarily incorporates its relatively small scale 
compared with rated peers, such as RELX Group and Informa PLC, in the highly 
fragmented global exhibition market, as well as its high leverage and 
financial sponsor-like ownership.

Comexposium's small scale of operations in the global exhibition industry 
constrains our assessment of the group's business risk. In 2017, RELX Group's 
exhibitions business and Informa (pro forma the UBM acquisition) generated 
revenues of about €1.25 billion and more than €1.6 billion respectively, while 
Comexposium's revenues amounted to less than €300 million. We also factor in 
Comexposium's limited although improving geographic diversification, with 
about 74% of its annualized revenues coming from France in 2018 (compared with 
more than 80% in 2015). In France, it relies heavily on business in the Paris 
region, which in our view leaves the group vulnerable to unexpected risks such 
as terrorist attacks, which could affect visitor and exhibitors numbers.

We also note that Comexposium is exposed to variations in industry cycles 
where the group operates. Since Comexposium still generated about 50% of 
annualized revenues through its top-10 trade shows in 2018, we also see 
revenue concentration as a rating constraint, though we acknowledge that it 
has reduced from over 55% in 2014.

These weaknesses are somewhat mitigated by Comexposium's leading and 
established market position in France, underpinned by well-recognized brands 
and popular shows, providing stability and predictability to revenues and 
margins. For instance, as of end of December 2018, more than 80% of the total 
budgeted spaces for shows occurring in the next 12 months were already 
contracted. In addition, Comexposium owns nine trade shows, with annual 
revenues in excess of €10 million, demonstrating the "must-attend" nature of 
the shows, in our view. Our assessment is also supported by the group's 
diversified trade show portfolio in terms of its industry and exhibitor base, 
which somewhat mitigates the lack of geographic diversity. In addition, 
Comexposium benefits from a variable cost structure, with flexibility to 
adjust costs or cancel services if needed. Furthermore, it benefits from 
economies of scale that typically result from the group's strategy of 
replicating existing shows abroad in order to develop internationally and 
attract local exhibitors.

The preliminary ratings are subject to the successful completion of the 
transaction, and to our review of the final documentation. If S&P Global 
Ratings does not receive the final documentation within a reasonable 
timeframe, or if the final documentation materially departs from the 
information we have already reviewed, we reserve the right to revise or 
withdraw our ratings.

The stable outlook reflects our view that after completion of the proposed 
transaction, Comexposium's leverage will be 6.0x-6.5x in 2019 and 5.1x-5.6x in 
2020, compared with 7.0x-7.5x in 2018, absent any material debt financed 
acquisition. We also expect the group will continue to post positive FOCF.

The outlook also reflects our expectation that the group's top line will 
increase on the annualized basis, fueled by organic growth of its trade shows, 
the group's ability to create new shows, and bolt-on acquisitions. We also 
expect Comexposium will have adequate liquidity, supported by the fully 
available RCF and low capital requirements.

A negative rating action would most likely follow material or transformative 
debt-funded acquisitions because Comexposium operates in the highly fragmented 
global trade show market, material debt-funded shareholder returns, or 
operational underperformance. This would result in a delayed deleveraging on a 
weighted-average basis to incorporate the seasonality between even and odd 
years. We could also lower the rating if Comexposium underperformed 
operationally, leading to deterioration of profitability, negative FOCF, and 
weakened liquidity.

An upgrade of Comexposium is remote over the next 12 months. We could raise 
our rating on Comexposium if adjusted debt to EBITDA decreased sustainably to 
below 5x, combined with sizable FOCF. Any rating upside would hinge on the 
group having adequate liquidity and committing to a more conservative 
financial policy than in the past.

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