Airline Caterer gategroup Placed On CreditWatch Positive After RRJ Capital Acquisition Announcement

  • On March 29, 2019, gategroup Holding AG (gategroup) announced that private equity RRJ Capital, plans to acquire the group's entire ordinary share capital from HNA Group (HNA).
  • We view the proposed change of ownership as positive for the credit rating on gategroup, given that the current rating is constrained by its ownership by a weaker parent, HNA.
  • We are therefore placing our 'B-' issuer credit rating on gategroup on CreditWatch with positive implications with potential rating upside of up to three notches.
  • We aim to resolve our CreditWatch placement as soon as we have further clarity on gategroup's liquidity position and its post-acquisition capital structure, and also after we have assessed its strategy and financial policy under its new private equity ownership.
  • We note the acquisition is expected to close in April, but regardless we will update the CreditWatch as soon as possible and within three months.
LONDON (S&P Global Ratings) April 3, 2019--S&P Global Ratings today took the 
rating action listed above. The CreditWatch placement follows the announcement 
on March 29, 2019, that RRJ Capital plans to acquire gategroup's entire 
ordinary share capital from HNA. 

We view the proposed change of ownership as credit positive given the current 
rating constraint of being owned by weaker parent, HNA. 

gategroup has not yet obtained waivers for the change-of-control clause that 
exists within the CHF350 million senior notes due February 2022. However, we 
believe that--given the positive credit implications of the change of 
ownership and already solid secondary market prices--the risk of the 
bondholders triggering a material accelerated redemption of the notes is low. 
Furthermore, we consider gategroup to have sufficient liquidity to meet a 
fairly sizable redemption if this were to happen. We also believe there would 
be a strong economic incentive for its new private equity owner RRJ Capital to 
provide additional liquidity support in the unlikely event that a majority of 
bondholders immediately redeemed the notes.

Once this refinancing risk falls away--either when the change-of-control 
redemption ends, which we understand is 20 days post-acquisition (April 24) or 
as a result of gategroup mitigating the refinancing risk another way--we see 
potential rating upside of up to three notches. The notching would depend on 
our assessment of the acquisition financing, the group's post-acquisition 
capital structure and financial leverage, and our view of the group's 
financial policy.

Currently, gategroup's stand-alone credit profile is 'bb' and our current 
rating is constrained by its existing ownership under HNA. Following a series 
of aggressive debt-funded acquisitions, HNA has been relying on asset 
disposals for debt repayment. Notwithstanding this, we note that HNA has not 
extracted any cash from gategroup since its takeover in 2016. After HNA's 
exit, RRJ Capital will become the single shareholder of gategroup. Temasek 
will remain invested in gategroup through a five-year mandatory exchangeable 
bond, and will become a shareholder upon conversion.

gategroup is the global leading airline catering, retail-on-board, and 
hospitality products and services provider. It serves over 700 million 
passengers per year in over 60 countries and territories. The group's major 
brands include airline caterer Gate Gourmet, inflight caterer Servair 
(acquired in 2017), onboard retailer gateretail, and food packaging provider 
deSter. In 2018, gategroup generated CHF4.9 billion revenue and CHF370 million 
adjusted EBITDA, with an adjusted debt to EBITDA of about 3x.

We aim to resolve our CreditWatch placement as soon as we have further clarity 
on gategroup's liquidity position and its post-acquisition capital structure, 
and we have assessed its strategy and financial policy under its new private 
equity ownership. We note the acquisition is expected to close in April, but, 
regardless, we will update the CreditWatch as soon as possible and within 
three months.

Post-acquisition, we could consider raising our rating on gategroup by up to 
three notches, provided that any near-term liquidity risk was mitigated, with 
the amount of upside to the rating dependent on our view of the broader groups 
capital structure, liquidity, and financial policies.
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