Informa PLC Downgraded To 'BBB-' From 'BBB' On Expected Releveraging Due To Effect Of Coronavirus; Outlook Stable

  • U.K.-based events, business intelligence, and publishing group Informa PLC has significant exposure to the events industry. We believe that the continuing expansion of the global coronavirus pandemic, leading to the widespread postponement and cancellation of live events, and government-imposed bans on travel and public gatherings, will have negative implications for Informa's earnings.
  • Our base case includes the likely effect of coronavirus in the first half of 2020, noting there is uncertainty as to whether the virus could affect earnings in the second half. Including the effect on the first-half operations, we see an increased risk that the company will exceed the S&P Global Ratings-adjusted leverage of 3.0x we set for a 'BBB' issuer credit rating.
  • We are therefore lowering our long-term issuer and issue credit ratings on Informa to 'BBB-' from 'BBB'.
  • The stable outlook reflects our current expectation that the coronavirus will affect Informa's operating performance primarily during the first half of 2020, noting significant uncertainty as to whether or not the virus will last beyond June. Based on our current assumption that the virus has waned by June, we expect Informa to sustain S&P Global Ratings-adjusted leverage around 3.0x and to generate sufficient cash flow to maintain its liquidity at adequate levels over the next 24 months.
LONDON (S&P Global Ratings) March 17, 2020--S&P Global Ratings today took the rating actions listed above. Informa is exposed to the coronavirus through the events business.
Many live events across the globe have been recently postponed or cancelled. In addition, to stop the spread of the virus, local, state, and federal governments have started imposing travel restrictions and bans on public gatherings. This is affecting conferences, trade shows, exhibitions, sporting events, concerts, theatrical events, and other events that attract large crowds.
We believe Informa, with its global events-related lines of business representing about 65% of group revenues, is more exposed over the near term to the effects of the coronavirus than some of its global media peers. On March 10, Informa announced the re-scheduling of around 115 events from the first half to the second half of 2020, representing around £400 million in revenues for the year. Another 13 events were either cancelled or moved to 2021 with a budgeted revenue of £25 million. In total this represents around 22% of event-related revenues or around 15% of the group's revenues. Taking into account that the coronavirus situation is evolving very rapidly, we do not rule out further cancelations/postponements that will affect the group's revenue, EBITDA, and credit metrics.
Informa's anticipated deleveraging will be delayed as a result of the coronavirus.
Our ratings on Informa have been on negative outlook since June 2018 following the acquisition of UBM PLC. The negative outlook reflected the elevated leverage post-acquisition and our expectation that it will have reduced below 3.0x as of end-2019 and will remain below that level subsequently. The company delivered sound operating performance in 2019 with underlying revenue growth of 3.5% and underlying operating profit growth of 6.5%, which resulted in actual S&P Global Ratings-adjusted leverage declining to 2.9x, from 4.2x in 2018. However, the coronavirus outbreak and the effect it has had on the events industry leads us to believe that Informa's leverage will increase again above 3.0x in 2020, even if its cancellation/postponement activity is temporary and tapers off in a few months. We believe the virus' effect on Informa will be particularly pronounced in its results for the first half of 2020 and anticipate that if the effects are prolonged it could lead to leverage of higher than 3.0x.
Informa has sufficient liquidity to withstand temporary shocks from event cancellations and postponements.
While Informa's cash generation could also be disrupted by a reduction in its sales and operating leverage, we do not expect its liquidity position to be compromised in the near term. This is because it has sufficient secured liquidity facilities of £750 million, with maturity of up to 30 months, and a revolver of £900 million (of which £57 million drawn as of Dec. 31, 2019), of which £300 million is due in February 2023 and £600 million due in February 2025. Informa has also stated that it is working on the implementation of cost-containment strategies to reduce its operating expenses and cope with the anticipated short-term revenue losses, as well as preserve cash. Also, it has some flexibility in delaying capex and dividends and phasing in acquisition and integration costs toward the latter part of the year.
Informa is better positioned in the 'BBB-' category to weather unexpected events.
While there continues to be high uncertainty about the rate of spread and timing of the peak of the coronavirus, modeling by academics with expertise in epidemiology indicates a likely range for the peak of up to June 2020. As a result, we assume the global outbreak will subside during the second quarter this year, which is consistent with our recent report titled "Global Credit Conditions: COVID-19's Darkening Shadow," published March 3, 2020. However, it is too early to determine the ultimate magnitude and duration of the effects on Informa given the continued spread of the virus globally and the negative headlines about travel restrictions and large gatherings. As the situation evolves, we will update our assumptions and estimates accordingly.
Although we expect the effect of the pandemic will be temporary, there is still uncertainty as to how quickly Informa's events business might recover once the virus is contained. Nevertheless, with 35% of revenue coming from subscriptions-related businesses it has a solid base of revenues that are mostly unaffected by coronavirus, and assuming the virus is contained by June 2020, we believe there is headroom for Informa's leverage within our 3.5x downgrade threshold.
The stable outlook reflects our current expectation that the coronavirus will affect Informa's operating performance primarily during the first half of 2020, noting significant uncertainty as to whether or not the virus will extend beyond June. Based on our current assumption that the virus will have waned by June 2020, we expect Informa to be able to sustain S&P Global Ratings-adjusted leverage around 3.0x and to generate sufficient cash flow to maintain its liquidity at adequate levels over the next 24 months.
We could take a negative rating action within the next 24 months if it becomes clear that the event cancellations and postponements are going to extend into the second half of the year, likely resulting in significantly lower revenues and cash flows, and if the broader economic effects are more protracted. This would result in a deterioration of Informa's operating performance, margins, cash flow generation, credit metrics, and liquidity. We could also lower the rating if its S&P Global Ratings-adjusted leverage increased above 3.5x and funds from operations to debt fell sustainably below 20% as a result of either a weakening operating performance or a more aggressive financial policy through debt-financed acquisitions, or by increasing shareholder returns.
A positive rating action is highly unlikely within the next 24 months given the operating pressure Informa is under. However, we could raise the rating if the coronavirus subsides with limited longer-term implications for Informa's credit measures and if it rapidly restores its operating performance by significantly outperforming our forecasts. More importantly, the upgrade will hinge on Informa adhering to financial policies that strengthened and maintained its S&P Global Ratings-adjusted debt to EBITDA below 3.0x at all times, while sustaining discretionary cash flow (DCF) to debt above 10%.
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