20th Mar 2020 06:43
(Alliance News) - Moody's Investors Service on Thursday downgraded the debt ratings of tourism company TUI AG and placed them on review for further downgrade due to TUI's decision to temporary suspend a vast majority of its operations amid the coronavirus pandemic.
The ratings agency downgraded the corporate family rating of TUI to B2 from Ba3. The Anglo-German company's senior unsecured rating was downgraded to B2 from Ba3 and the probability of default rating was cut to B2-PD from Ba3-PD.
Hanover, Germany-based TUI on Monday had said it was suspending the "majority" of its operations over coronavirus fears, and made a request for state aid.
In a press release, TUI, which employs 70,000 people worldwide, said the move would affect its "package travel, cruises and hotel operations". TUI has a presence in over 100 countries and operates a host of airlines, cruise ships and hundreds of hotels.
"Our decision to downgrade TUI's ratings reflects the company's announcement of the temporary suspension of the vast majority of TUI's operations until further notice due to the unprecedented spread of the coronavirus. We expect this will significantly impact TUI's earnings in fiscal 2020 and its cash outflow will be much higher than previously anticipated," said Vitali Morgovski, a Moody's assistant vice president and lead analyst for TUI, on Thursday.
"TUI's liquidity will become dependent on receiving state support that the company applied for, but it remains unclear in what form will it be, in what size and also under which conditions would it be granted," Morgovski added.
Moody's said TUI's credit metrics for the year ending September 30 to be materially weaker than expected for a rating in the single-B category.
The review for possible downgrade reflects the uncertainties over the duration of the operational disruption and the uncertainties to bridge the liquidity needs during an expected period of negative free cash flows, as well as additional measures to mitigate the impact on credit metrics, the ratings agency noted.
By Tapan Panchal; tapanpanchal@alliancenews.com
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