Moody's cuts TUI to negative

Moody's Investors Service said it changed the outlook on the B1 corporate family rating and B3 subordinated rating of TUI AG to negative from stable.

The B1 senior unsecured rating remains on review for possible downgrade, where it was placed on March 20 following the announcement of the planned merger between TUI's tourism division and First Choice plc.

The agency said the negative outlook reflects the weakening in TUI's operating performance in the first quarter of fiscal 2007, with the company reporting an underlying EBITDA loss of €267 million, versus a loss of €171 million a year earlier. The decline was particularly marked in the shipping business, which the company attributed to exchange rate movements and a decline in freight rates, and in spite of increased transport volumes.

Moody's continues to view positively the pending merger between TUI's travel arm and First Choice in terms of potential synergies, with closure expected in the third quarter of 2007 pending regulatory approval. The review for possible downgrade on TUI's senior unsecured rating continues to reflect the expectation that the level of group debt at the operating subsidiaries, and therefore structurally senior to the existing senior debt, will increase once the transaction is completed, the agency said.

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