Moody’s cuts Deutsche Bahn junior notes

Moody’s Investors Service said it downgraded to Baa1 from A3 the long-term rating of the backed undated subordinated resettable fixed-rate notes issued by Deutsche Bahn AG, through its subsidiary Deutsche Bahn Finance GmbH. Additionally, the agency affirmed DB’s Aa1 issuer rating, but changed the outlook for both companies to stable from negative.

The lower rating is based on the downgrade of the baseline credit assessment to a3 from a2, the agency said.

“The Baa1 rating of the hybrid is one notch lower than DB's a3 BCA and six notches lower than the company's Aa1 long-term issuer rating. This reflects certain features of the security, which is perpetual, deeply subordinated and allows DB to opt for coupon deferrals on a cumulative basis. Because of these characteristics Moody's believes that, in case of need, government support may not be as strong, or as timely as it would be for senior unsecured debt,” the agency said in a press release.

The revised outlook reflects the company's ongoing recovery in earnings and cash flow and a forecast that leverage will even out at around 7x in the next 18-24 months, Moody’s said.

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