Moody’s downgrades TUI

Moody’s Investors Service said it downgraded the corporate family rating of TUI AG to Ba3 from Ba2. Concurrently, the senior unsecured rating was downgraded to Ba3 from Ba2 and the probability of default rating was downgraded to Ba3-PD from Ba2-PD. The rating outlook remains negative.

“Our decision to downgrade TUI’s ratings reflects the deterioration in the group’s credit metrics following the weak performance in fiscal 2019, which was affected by exceptional costs related to Boeing 737 Max grounding,” said Vitali Morgovski, a Moody’s assistant vice president and lead analyst for TUI, in a press release. “As a consequence of the weakening profitability combined with ongoing growth investments, free cash flow continued to be negative, burdening TUI’s liquidity profile.”

TUI’s operating results for fiscal 2019 ended in September were weak, company defined underlying EBITA was down 26%, in line with previously announced guidance, whilst Moody’s adjusted gross leverage (prior IFRS 16) increased to 4.3x from 3.7x a year ago. The interest coverage (Moody’s adjusted EBITA/Interest) declined to 2.1x from 2.8x in fiscal 2018 (3.1x in fiscal 2017), a level that Moody’s views as weak even for a Ba3 rating.

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