Obrascon Huarte Lain S.A. -- Moody's downgrades OHL's PDR to Ca-PD, affirms Caa3 instrument ratings and Caa2 CFR

Rating Action: Moody's downgrades OHL's PDR to Ca-PD, affirms Caa3 instrument ratings and Caa2 CFR

Global Credit Research - 26 Jan 2021

Frankfurt am Main, January 26, 2021 -- Moody's Investors Service ("Moody's") has today downgraded to Ca-PD from Caa2-PD the probability of default rating (PDR) of Spanish construction company Obrascon Huarte Lain S.A. ("OHL" or "group"). Concurrently, Moody's affirmed the group's Caa2 corporate family rating (CFR) and the Caa3 instrument ratings on its senior unsecured notes due 2022 and 2023. The outlook on all ratings remains negative.

RATINGS RATIONALE

The downgrade of the PDR to Ca-PD from Caa2-PD reflects OHL's announcement of a planned restructuring of its capital structure, which -- if executed as contemplated -- would be viewed by Moody's as a distressed exchange, which would imply a moderate loss for its current bond holders. At the expected closing of the transaction in May this year, Moody's will append the "LD" designation to the PDR.

OHL's outstanding senior unsecured notes (E323 million outstanding due March 2022 and E270 million outstanding due March 2023) have been affirmed at Caa3, reflecting the expected moderate loss to bond holders following the proposed transaction. The unsecured notes are contractually subordinated to the group's secured debt consisting mainly of a syndicated bank loan (E95 million drawn at the end of 2020). In addition, Moody's views trade payables as being unlikely to be affected in a consensual restructuring scenario and thus ranking in fact senior to the notes. The notes remain, therefore, rated one notch below the CFR, which Moody's has affirmed at Caa2.

The proposed transaction will result in a debt reduction of around E105 million (assuming full consent to the restructuring from existing bond holders) through a combination of a write-off of the existing notes, a conversion to equity and into new senior secured notes with maturities in 2025 and 2026, to be issued by a new entity (New OHL).

Moody's regards the transaction, which could lead to a moderate loss for existing bond holders (estimated at 10% by the issuer), as a means for the group to address the refinancing of the upcoming maturities and to avoid a disorderly default on its current debt structure, which Moody's considers unsustainable. Also part of the transaction forms the contribution of up to E71 million of equity into the company by OHL's shareholders, of which E35 million through a capital increase and an up to E36 million private placement to the Amodio family and Tyrus Capital, who have committed to invest E37 million and E5 million, respectively.

Upon completion of the transaction, which is planned by May 2021, Moody's endeavors to revisit the rating positioning of OHL in its then new legal form with an expected strengthened shareholder structure, balance sheet and leverage metrics on the proposed debt reduction and maturity extension.

RATIONALE FOR OUTLOOK

The negative outlook reflects the possibility of a downgrade if the proposed debt restructuring could not be executed as planned, resulting in a persistently unsustainable capital structure with increasing risk of a disorderly default with a potentially lower recovery for creditors.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The ratings on OHL could be downgraded should the group default on its debt obligations, or if recovery expectations on OHL's debt instruments were to further weaken.

An upgrade of OHL's ratings is unlikely before the execution of its debt restructuring, upon which Moody's will take into account the group's expected strengthening balance sheet and leverage metrics, combined with the progress in its operating performance.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Construction Industry published in March 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1061454. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

COMPANY PROFILE

Headquartered in Madrid, OHL is one of Spain's leading construction groups. The group's activities include (1) its core engineering and construction business (including industrial and services divisions), and (2) concessions development in identified core markets in Europe, North America and Latin America. In the 12 months ended 30 September 2020, OHL reported sales of around E2.9 billion and E78 million of EBITDA.

REGULATORY DISCLOSURES

For 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 https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.

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. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Goetz Grossmann, CFA Vice President - Senior Analyst Corporate Finance Group Moody's Deutschland GmbH An der Welle 5 Frankfurt am Main 60322 Germany JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Christian Hendker, CFA Associate Managing Director Corporate Finance Group JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Releasing Office: Moody's Deutschland GmbH An der Welle 5 Frankfurt am Main 60322 Germany JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454

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