Cushman & Wakefield 'BB-' Ratings Affirmed; Outlook Remains Stable

  • Cushman & Wakefield reported better-than-expected results in 2019, including debt to adjusted EBITDA of 3.9x.
  • However, we expect that potential headwinds from the macro environment could put pressure on EBITDA, particularly from decreases in capital markets activity.
  • We are affirming our 'BB-' issuer credit rating on Cushman & Wakefield and our 'BB-' rating on its first-lien loan.
  • The stable outlook reflects our expectation that Cushman & Wakefield's leverage will increase to 4.0x-5.0x debt to adjusted EBITDA over the next 12 months.
S&P Global Ratings said today it affirmed its 'BB-' long-term issuer credit rating on Cushman & Wakefield (C&W). The outlook remains stable.
At the same time, we affirmed our 'BB-' rating on its first-lien term loan B. The recovery rating on the first-lien debt is '3', reflecting our expectation of meaningful recovery (50%-70%; rounded estimate 65%) in the event of default.
We are affirming our ratings on C&W because despite better-than-expected 2019 results, there is uncertainty regarding the impact recent macro trends may have on 2020 earnings--in particular in C&W's capital markets segment. The capital markets segment generated 15% of total fee revenues for 2019 and has a higher EBITDA margin than other segments. This segment is likely to be the most volatile in times of stress across the commercial real estate services sector, with potential decreases in capital markets EBITDA of as much as 30%-70% in a severe recession scenario, in our view. The company noted at its recent investor day that it has not seen a meaningful impact on transaction activity so far this year and does not expect a significant impact. Although, we believe transaction activity could decline substantially if conditions continue to deteriorate resulting in a global recession.
However, C&W generates a majority of its capital markets revenue in the second half of the year, and in the fourth quarter in particular. So, if conditions normalize during the second quarter, the potential impact may not be as meaningful as we estimate.
We expect the company to continue to invest excess cash flows in cost-reduction projects, recruiting, and in-fill acquisitions. Given the company's ample balance sheet cash, its $1 billion revolver that is currently undrawn, and its stronger ability to generate free cash flow, our assessment of its liquidity has improved to strong.
The stable outlook reflects our expectation that current macro trends could lead to an increase in leverage to 4.0x-5.0x debt to adjusted EBITDA over the next 12 months.
We could lower the rating on C&W if leverage significantly increases and remains above 5.0x debt to adjusted EBITDA. If the company engages in a large debt-funded acquisition that we find to be outside of its current strategy, we could also lower the rating.

If C&W reduces leverage to less than 4x debt to adjusted EBITDA on a sustainable basis with minimal legacy merger-related costs, we would consider raising the rating.
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