S&P GLOBAL, INC.
oThe airports sector in
oWe expect a sharp reduction in
oOur current base case is a 25% decrease in passenger traffic for 2020, and we expect ADP to take several actions to reduce the impact of this decline, including cost and capital expenditure (capex) savings and dividend reduction. However, we believe these initiatives will be insufficient to offset the effect of the reduced demand on the company's credit metrics.
oTherefore, we are lowering by one notch our long-term issuer and issue credit ratings on ADP to 'A' from 'A+'.
oThe negative outlook indicates that we could lower the ratings further if the pandemic proves more severe and long lasting than we currently expect, placing further pressure on ADP's credit metrics, notably S&P Global Ratings-adjusted funds from operations (FFO) to debt below 10%.
We expect ADP's credit metrics to weaken sharply in 2020, relative to our prior expectations, due to the effects of the coronavirus pandemic.
Based on our forecast of 25% lower passenger traffic in 2020, and a rebound of air traffic in the 24 months following containment of the outbreak, we now expect that S&P Global Ratings-adjusted FFO to debt could significantly decline toward 13% in 2020, compared with about 20.5% in 2019 and our previous 2020 forecast of 19.0%-20.0%. We expect ADP's EBITDA to decline to the same extent as traffic, despite the high proportion of fixed costs inherent for an airport. While we expect ADP to proactively manage costs and reduce capex and dividends, we believe the present situation will consume the company's rating headroom. ADP's credit metrics were already under strain following the recently announced debt-funded acquisition of the
Liquidity remains adequate, despite our expectations of lower cash flow generation over the next 12 months.
One of the company's credit strengths in the current environment is its liquidity position. We continue to see to see the group's liquidity as adequate despite our expectations for lower cash generation over the next 12 months, which lead us to expect that sources of liquidity will be more than 1.2x over this period. As of
The negative outlook reflects ADP's weaker-than-expected credit metrics following the coronavirus outbreak, and the pandemic's negative impact on air travel. It indicates that there is a one-in-three chance we could further lower the ratings if the company is unable to sustain its credit metrics commensurate with its ratings, notably adjusted FFO to debt above 10% on a sustainable basis.
We could lower the ratings should the pandemic prove more severe and long lasting than we currently expect, leading adjusted weighted average FFO to debt to decline below 10% over fiscals 2021 and 2022. This also could happen if the recessionary macroeconomic backdrop is harsher or more prolonged than expected, thereby affecting overall mobility.
We could revise the outlook to stable if passenger traffic recovers in late 2020 into 2021, resulting in FFO to debt sustainably above 10% over the next 18-24 months.
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oCoronavirus Impact: Key Takeaways From Our Articles,
oThe Coronavirus Pandemic Could Reduce Global Air Passengers By Up To 30% In 2020,
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S&P Global Ratings is the world's leading provider of independent credit ratings. Our ratings are essential to driving growth, providing transparency and helping educate market participants so they can make decisions with confidence. We have more than 1 million credit ratings outstanding on government, corporate, financial sector and structured finance entities and securities. We offer an independent view of the market built on a unique combination of broad perspective and local insight. We provide our opinions and research about relative credit risk; market participants gain independent information to help support the growth of transparent, liquid debt markets worldwide.
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