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Mooney Group S.p.A. -- Moody's affirms Mooney's B2 CFR; outlook changed to negative

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Rating Action: Moody's affirms Mooney's B2 CFR; outlook changed to negativeGlobal Credit Research - 15 Dec 2021Paris, December 15, 2021 -- Moody's Investors Service ("Moody's") has today affirmed Mooney Group S.p.A.'s (Mooney or the company) B2 corporate family rating (CFR) and B2-PD probability of default rating (PDR). Concurrently, the rating agency has also affirmed the B2 rating on the company's E530 million senior secured notes due 2026. The outlook on all ratings has been changed to negative from stable."The change in outlook to negative reflects the company's weaker-than-expected financial performance over 2020 and 2021, characterized by limited revenue growth, lower-than-expected EBITDA and negative cumulative free cash flow (FCF), which has resulted in a weaker overall financial profile than when Mooney's ratings were first assigned in December 2019", said Fabrizio Marchesi, Vice President and Moody's lead analyst for the company. "Although Moody's expects the company will improve its financial metrics to levels that are consistent with a B2 CFR over the next 12-18 months, Moody's considers that significant execution risks exist, given the company's past underperformance", added Mr. Marchesi.RATINGS RATIONALEMooney's gross revenue and Moody's-adjusted EBITDA, which amounted to E344 million and E79 million, respectively, in the LTM period to 30 September 2021, have remained broadly flat since 2019. The company's Moody's-adjusted FCF over the last seven quarters was negative E31 million, which is well below Moody's previous expectations, and in combination with cash required to meet significant working capital needs, has resulted in the company's revolving credit facility (RCF) being drawn by E70 million. Moody's-adjusted leverage, which stood at 8.0x as at Sep-21, has remained consistently outside the 6.0x leverage threshold, which Moody's considers is consistent with a B2 CFR.Although Moody's expects improved revenue growth following the coronavirus slowdown will lead to an increase in Moody's-adjusted EBITDA towards E82 million in 2021 and E97 million in 2022, Moody's-adjusted leverage as of December 2022 is likely to remain high at around 6.5x. In addition, any improvement in financial performance is subject to execution risk. This includes the need for management to significantly reduce exceptional costs, which have averaged E23 million per year over 2019-2021, in order to improve Mooney's FCF / debt towards the mid-single digit range by December 2022.The B2 CFR also reflects (1) Mooney's relatively small size and lack of geographic diversification outside of Italy; (2) the risk that customers will move away from the proximity channel over the medium-term, although any impact is likely to be gradual and partly offset by market share gains, from other market participants such as the Italian post office and Italian banks (which are reducing their physical network), as well as growth in Mooney's pre-paid card and digital businesses; and (3) the risk of technological changes, regulatory changes or governmental initiatives that encourage bank transfers or other forms of online payment.Concurrently, the CFR also reflects the company's (1) leading market position in the Italian proximity payment sector with a network of approximately 46,000 point of sales; (2) growth prospects in the prepaid cards and digital payments markets, supported by the low penetration of cashless transactions in Italy; as well as (3) the rating agency's expectation that Moody's-adjusted leverage will improve towards 6.5x over the next 12-18 months and that Moody's-adjusted FCF / debt will turn positive and rise above 5% from 2022 onwards.Governance was a key rating driver in line with Moody's ESG framework. Mooney is majority-owned by Schumann Investments S.A., which owns 70% of the company's share capital, with remainder held by Intesa Sanpaolo S.p.A. (Baa1 stable). Schumann is owned by funds advised by private equity group CVC Capital Partners. As is often the case in highly levered, private-equity-sponsored deals, we consider that Mooney's shareholders will have a higher tolerance for leverage/risk, and that governance will be comparatively less transparent, when compared to publicly traded companies.LIQUIDITYMooney's liquidity is adequate. It consists of mainly E49 million cash on balance as of 30 September 2021 and E22 million available under the E92.5 million super-senior revolving credit facility (RCF). There is no financial covenant attached to the RCF. The company's working capital position, which is structurally negative, exhibits significant variability on a weekly basis, driven by the timing of cash collections and payments, with working capital swings of up to E50 million, which is the reason for which the company retains the material cash on balance.STRUCTURAL CONSIDERATIONSThe capital structure comprises E530 million senior secured notes due 2026 and a E92.5 million super-senior RCF due 2026. Both debt instruments are secured by a weak security package, which mainly includes a pledge on shares and intercompany receivables. The super-senior RCF will rank ahead of the notes in an enforcement scenario under the provisions of the intercreditor agreement. The senior secured notes are rated B2, in line with the CFR, reflecting the size of the super-senior RCF.RATING OUTLOOKThe negative outlook reflects Mooney's weak financial metrics, including Moody's-adjusted leverage of 8.0x as of 30 September 2021 and negative Moody's-adjusted FCF over the seven quarters since January 2020 on a cumulative basis, as well as the execution risks related to improving these metrics to levels that are consistent with a B2 CFR over the next 12-18 months.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSA rating upgrade is unlikely over the next 12-18 months. However, the outlook could be changed to stable if it becomes clear that Moody's-adjusted leverage will improve to below 6.0x, and Moody's-adjusted FCF / debt will rise towards mid-single digits, both on a sustainable basis; and liquidity remains adequate.Over time, the rating could be upgraded if the company were to establish a solid track record of consistent growth in revenue and Moody's-adjusted EBITDA so that Moody's-adjusted debt/EBITDA improves to 4.5x on a sustained basis and Moody's-adjusted FCF rises to above 5%, with the company maintaining adequate liquidity.Negative pressure on the rating could develop if it becomes clear that Mooney will not be able to reduce its Moody's-adjusted leverage to below 6.0x on a sustainable basis; Moody's-adjusted FCF remains weak; or liquidity weakens or is no longer adequate.PRINCIPAL METHODOLOGYThe principal methodology used in these ratings was Business and Consumer Services published in November 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1287897. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.COMPANY PROFILECreated through the combination of the Sisal Group S.p.A's payments business and Banca 5's payments business, Mooney is a key player in the Italian proximity payments industry. The company generated gross revenue of E344 million and company-adjusted EBITDA of E93 million in the LTM 30 September 2021 period.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.At least one ESG consideration was material to the credit rating action(s) announced and described above.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. 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