Euronext N.V. Ratings Lowered To 'A-/A-2' On Rising Leverage; Off CreditWatch; Outlook Stable
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Research Update:
Euronext N.V. Ratings Lowered To 'A-/A-2' On Rising
Leverage; Off CreditWatch; Outlook Stable
May 31, 2019
Overview
PRIMARY CREDIT ANALYST
- Euronext N.V. is on track to acquire a majority stake in Oslo Børs VPS after its main competitor Philippe Raposo
Nasdaq withdrew its offer. While Euronext has secured 53.4% of the shares, it still aims to Paris
acquire 100% of Oslo Børs VPS. (33) 1-4420-7377
philippe.raposo
- We expect Euronext's leverage to rise, as measured by increasing debt to EBITDA and falling @spglobal.com
funds from operations to debt, on the back of the announced acquisition and because of
SECONDARY CONTACT
Euronext's ongoing growth strategy.
Giles Edwards
- We are lowering our long- and short-term issuer credit ratings on Euronext to 'A-/A-2' from London
'A/A-1'. We are also lowering to 'A-' from 'A' our issue credit rating on the company's senior (44) 20-7176-7014
unsecured bonds. giles.edwards
@spglobal.com
- The stable outlook reflects our expectation that Euronext will sustain its market position and
ADDITIONAL CONTACT
successfully integrate Oslo Børs VPS in the next two years, while maintaining financial leverage
Financial Institutions Ratings Europe
consistent with an 'A-' long-term rating.
FIG_Europe
@spglobal.com
Rating Action
On May 31, 2019, S&P Global Ratings lowered its long- and short-term issuer credit ratings on
Euronext N.V. to 'A-/A-2' from 'A/A-1'. At the same time, we removed the ratings from CreditWatch
negative, where we placed them on May 21, 2019. The outlook is stable.
We also lowered our issue credit rating on Euronext's senior unsecured debt to 'A-' from 'A' and
removed it from CreditWatch negative.
Rationale
The one-notch downgrade reflects an increase in Euronext's financial leverage over the next few
quarters on the back of the announced acquisition of up to 100% of Norwegian market
infrastructure operator Oslo Børs VPS. The downgrade also reflects our view that due to
Euronext's ongoing debt-financed growth strategy, it will maintain higher leverage in the coming
www.spglobal.com/ratingsdirect May 31, 2019 1Research Update: Euronext N.V. Ratings Lowered To 'A-/A-2' On Rising Leverage; Off CreditWatch; Outlook Stable one-to-two years. This aside, we see Euronext as remaining highly cash-generative, and the Oslo Børs VPS deal as having improved Euronext's revenue diversity. Euronext is soon to formally acquire at the very least an incremental 45.2% of Oslo Børs VPS' capital, which, with the 8.2% that it already owns, will be enough to take control of the entity. Euronext aims to acquire 100% of Oslo Børs VPS, but this would require all the remaining Oslo Børs VPS shareholders to accept Euronext's offer. We believe that the acquisition will reinforce Euronext's business model by adding a presence in the Nordic market and increasing the revenues--including post-trade revenues--in its business mix. The deal will therefore modestly enhance Euronext's revenue stability, thanks to higher diversification. While the matter remains uncertain, in our base-case scenario, we assume that Euronext will acquire more than the 45.2% of Oslo Børs VPS shares that it has already secured. We also consider that Euronext will continue to use its cash-generative business model to acquire companies to accelerate its growth ambitions, instead of retaining cash on the balance sheet to swiftly lower its net debt. Under these assumptions, we believe that Euronext's financial risk profile will weaken following the acquisition. We anticipate that Euronext's S&P Global Ratings-adjusted debt to EBITDA will average 1.75x-2.00x through end-2020, and funds from operations (FFO) to debt will average around 40% over the same time frame. At the same time, and because Euronext is the debt issuer and holding company of the group, we have reviewed whether, relative to creditors at the main operating companies, Euronext's creditors would face a discernable difference in default prospects due to structural subordination. We maintain our view of Euronext as an operating holding company, and see no greater default risk than for any other group operating company. We therefore equalize the ratings on Euronext with Euronext's 'a-' group credit profile, which reflects our assessment of the creditworthiness of the group as a whole. This view acknowledges that Euronext is not an exchange itself, but reflects the company's Dutch regulatory status and prudential requirements as a market operator, and its role as the contractual counterparty with clients in terms of data revenues. While Euronext passes these revenues through to its subsidiaries, we see it as entwined in the contractual arrangements and operating cash flows of the whole group. We understand that Euronext has unfettered access to the group's central cash pool, beyond the limited amount of restricted cash in some jurisdictions. Outlook The stable outlook on Euronext reflects our view that the company will maintain its leading position as a pan-European market operator. While the company will likely continue to undertake some bolt-on acquisitions, we expect that it will remain disciplined about leverage in the next two years, consistent with the modest financial risk profile. Downside scenario We would likely lower the ratings on Euronext if the company increased its leverage beyond our expectations, particularly if this increase was not offset by an improvement in the company's business risk profile. For example, we would be very likely to lower the ratings if, on a sustained basis, the adjusted debt-to-EBITDA ratio moves above 2.25x or FFO to debt falls below 40%. www.spglobal.com/ratingsdirect May 31, 2019 2
Research Update: Euronext N.V. Ratings Lowered To 'A-/A-2' On Rising Leverage; Off CreditWatch; Outlook Stable
Upside scenario
We do not anticipate any short-term upward rating momentum for Euronext because the company
is pursuing a steady growth strategy that we expect will lead to it sustaining higher leverage.
However, we could raise the ratings if Euronext deleverages at a faster pace than we expect, and
management indicates clearly that it will maintain lower leverage going forward. In particular, this
would happen if the company sustained adjusted debt to EBITDA below 1.75x and FFO to debt
above 50%.
Ratings Score Snapshot
To From
Issuer Credit Rating: A-/Stable/A-2 A/Watch Neg/A-1
Business Risk: Satisfactory Satisfactory
Country risk: Low Low
Industry risk: Low Low
Competitive position: Satisfactory Satisfactory
Financial Risk: Modest Minimal
Preliminary anchor: bbb+ a
Clearing and settlement risk: 0 0
Anchor: bbb+ a
Modifiers:
Diversification/Portfolio Effect: Neutral (0) Neutral (0)
Capital Structure: Neutral (0) Neutral (0)
Financial Policy: Neutral (0) Neutral (0)
Liquidity: Strong (0) Strong (0)
Management and Governance: Satisfactory (0) Satisfactory (0)
Comparable ratings analysis: Positive (+1) Neutral (0)
GCP: a- a
Additional factors: 0 (we rate Euronext N.V. in line with the GCP)
Related Criteria
- Criteria | Corporates | General: Corporate Methodology: Ratios And Adjustments, April 1, 2019
- Criteria | Corporates | General: Reflecting Subordination Risk In Corporate Issue Ratings, March
28, 2018
- General Criteria: Methodology For Linking Long-Term And Short-Term Ratings, April 7, 2017
- Criteria | Corporates | General: Methodology And Assumptions: Liquidity Descriptors For Global
Corporate Issuers, Dec. 16, 2014
- Criteria | Financial Institutions | General: Key Credit Factors For Financial Market Infrastructure
www.spglobal.com/ratingsdirect May 31, 2019 3Research Update: Euronext N.V. Ratings Lowered To 'A-/A-2' On Rising Leverage; Off CreditWatch; Outlook Stable
Companies, Dec. 9, 2014
- General Criteria: Group Rating Methodology, Nov. 19, 2013
- Criteria | Corporates | General: Corporate Methodology, Nov. 19, 2013
- General Criteria: Methodology: Management And Governance Credit Factors For Corporate
Entities And Insurers, Nov. 13, 2012
- General Criteria: Use Of CreditWatch And Outlooks, Sept. 14, 2009
Related Research
- Euronext N.V. 'A/A-1' Ratings Placed On CreditWatch Negative On Rising Leverage Due To Oslo
Børs Acquisition, May 21, 2019
- Too Early To Conclude On Rating Implications For Euronext Of Possible Acquisition Of Oslo Børs,
Jan. 15, 2019
- No Immediate Impact On Euronext N.V. 'A/A-1' Ratings From Possible Oslo Bors Acquisition,
Dec. 24, 2018
- Euronext N.V., May 9, 2018
- Euronext N.V.'s EUR500 Million Senior Unsecured Bond Rated 'A', April 11, 2018
Ratings List
Downgraded; CreditWatch/Outlook Action
To From
Euronext N.V.
Issuer Credit Rating A-/Stable/A-2 A/Watch Neg/A-1
Euronext N.V.
Senior Unsecured A- A/Watch Neg
Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors,
have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such
criteria. Please see Ratings Criteria at www.standardandpoors.com for further information. Complete ratings
information is available to subscribers of RatingsDirect at www.capitaliq.com. All ratings affected by this rating
action can be found on S&P Global Ratings' public website at www.standardandpoors.com. Use the Ratings search
box located in the left column. Alternatively, call one of the following S&P Global Ratings numbers: Client Support
Europe (44) 20-7176-7176; London Press Office (44) 20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49)
69-33-999-225; Stockholm (46) 8-440-5914; or Moscow 7 (495) 783-4009.
www.spglobal.com/ratingsdirect May 31, 2019 4Research Update: Euronext N.V. Ratings Lowered To 'A-/A-2' On Rising Leverage; Off CreditWatch; Outlook Stable
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