Rating Action: Moody's assigns A2 rating to Total's proposed hybrid notes
Global Credit Research - 27 Aug 2020
Frankfurt am Main, August 27, 2020 -- Moody's Investors Service, ("Moody's") has today assigned an A2 rating to the proposed junior subordinated ("hybrid") euro medium term notes to be issued by Total SE ("Total" or "the Company"). Total's existing ratings remain unchanged. The outlook is negative.
The A2 rating assigned to the proposed hybrid notes is two notches below Total's Aa3 senior unsecured rating, because they will be deeply subordinated to the senior unsecured backed obligations of Total SE and its subsidiaries and rank senior only to common and preferred shares. They will be perpetual and there will be no events of default. Total may opt to defer coupon payments on a cumulative basis.
The proposed hybrid notes will qualify for the "basket C" and a 50% equity treatment of the borrowing for the calculation of the credit ratios by Moody's (please refer to Moody's Hybrid Equity Credit methodology published in September 2018). The notes will share similar structural considerations as Total's existing hybrid instruments, which also qualify for "basket C" treatment.
Given that the proceeds from the proposed hybrid notes will eventually be used to repay Total's existing hybrids instruments, the issuance will not have a material impact on Total's leverage and interest coverage on a pro-forma basis. As such, Total's Aa3 senior unsecured rating remains unchanged.
The negative outlook reflects increasing likelihood that in the next 12-18 months Total will not be able or willing to sustain credit metrics commensurate with an Aa3 rating, such as retained cash flow (RCF)/net debt sustainably above 30% in the currently difficult operating environment.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
As the rating of the hybrid notes is positioned relative to the senior unsecured rating of Total, their rating could be impacted either by (i) a change in the Aa3 senior unsecured rating of Total, or by (ii) a re-evaluation of its relative notching.
Negative rating pressure on the Total's Aa3 senior secured rating could develop if there are indications of more aggressive financial policy or weakening of the business profile in the currently challenging environment, leading to RCF/net debt sustainably below 30%.
Moody's would consider upgrading Total's Aa3 senior secured rating if the company delivers on the forecasted production growth which should lead to further improving operating cash flow generation and sustainable free cash flow generation after dividends. Quantitatively, high cash flow coverage as measured by the RCF/net debt metric at around 40% would indicate positive rating pressure.
The principal methodology used in this rating was Integrated Oil and Gas Methodology published in September 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1172345. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
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 rating has been disclosed to the rated entity or its designated agent (s) and issued with no amendment resulting from that disclosure.
This rating is 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_1133569.
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.
Martin Fujerik 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 Matthias Hellstern MD - Corporate Finance 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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