Fitch Ratings has affirmed Channel Link Enterprises Finance Plc's (CLEF) notes at 'BBB'.
Fitch has also affirmed Getlink S.E.'s (GET) EUR850 million green bond at 'BB'.
The Outlooks are Stable.
RATING RATIONALE
CLEF's rating is underpinned by the critical nature of the asset managed by Eurotunnel, the long-term maturity of the concession terminating in 2086 and the historical resilience of passenger volumes on the high-speed trains and car shuttle business. Macro short-term uncertainties and management focus on yields rather than on volumes, might weight on short term shuttle traffic trend which Fitch now expects to be weaker than what we anticipated last year with the Fitch Rating Case (FRC) now assuming cars traffic to be at the 2019 level by 2026, and trucks by 2033.
CLEF's average debt service coverage ratio (DSCR) of 1.5x is solid, but we view its credit profile at 'BBB' due to periods of slightly lower coverage under the FRC as well as a limited track record on the ability of Eurotunnel to maintain volume growth given its pricing strategy.
GET is credit-linked to CLEF, which is a ring-fenced vehicle secured by Fixed Link's (FL or Eurotunnel) activities, the fixed railway link between the UK and France. We assess the consolidated profile of GET, comprising Eurotunnel, Eleclink and Europorte, at 'BBB' and apply a three-notch downward adjustment to arrive at GET's 'BB' rating.
GET's 'BB' rating reflects the structural subordination of its debt and its weaker debt structure assessment, reflecting refinancing risk associated with its single bullet debt. This is based upon the subordinated and restricted access GET has to cash flows generated by its wholly-owned subsidiary Eurotunnel Holding SAS and the expected unrestricted, albeit potentially volatile income GET will receive from its subsidiary, Eleclink.
The liquidity position is robust at both Eurotunnel and Getlink Group level. At the Getlink Group level, available cash was EUR1,200 million as of end-December 2022. In addition, Get's debt service reserve account (DSRA) was EUR30 million and it had an unused revolving credit facility of EUR75 million.
KEY RATING DRIVERS
Mixed Traffic Performance - Volume Risk: High-Midrange
Traffic volume proved resilient through economic recessions for Eurostar passengers and car shuttle volumes, while truck shuttle volumes showed significant volatility (-46% in 2007-2009), partly because of the 2008 tunnel fire. Eurotunnel is able to differentiate itself from competing ferry operators in the Dover Strait and command a premium on ferry fares, due to the speed, ease and reliability of its shuttle service. Nonetheless, competition and exposure to discretionary demand are constraints on the rating.
Some Flexibility - Price Risk: Midrange
Shuttle service fares are flexible and can be adapted to market conditions. Historically, this has helped Eurotunnel to quickly recover volume loss on the truck and to a lesser extent, car businesses. The railway usage contract regulates railway network fares, preventing a full pass-through of inflation into tariffs. A low inflation environment could limit the railway network's revenue growth.
Eleclink started its commercial operations in May 2022, adding revenue diversity to GET's consolidated credit profile. However, in our view, this revenue could be volatile due to exposure to electricity price risk in both the French and UK markets.
Largely Maintenance Capex - Infrastructure Development and Renewal: Midrange
Strong UK/French regulatory oversight, Eurotunnel's prudent management policy as tunnel operator and the inclusion of minimum capex in the dividend distribution lock-up covenant calculation mitigate the lack of formal provisioning for capex under the financing documentation. The capex plan is generally funded with projected cash flows and investments are planned in advance and considering market conditions. In our view, this provides some flexibility in delivering the capex programme.
Fully Amortising, Back-Ended - Debt Structure: Midrange (CLEF)
Debt is senior, largely fixed-rate and fully amortising but with a back-loaded repayment profile. Debt is almost evenly split between sterling and euros, substantially mirroring EBITDA exposure. Structural features include standard default/lock-up tests with cash-sweep mechanism and a EUR370 million liquidity reserve, which currently covers 18 months debt service, but reduces to eight months from 2046 due to the increased back-ended repayment profile of the debt. Refinancing and additional debt are subject to rating affirmation.
Single Bullet Debt with Refinancing Risk - Debt Structure: Weaker (Getlink)
The EUR850 million bond is a five-year fixed rate bullet debt due in 2025. Fitch views refinancing risk as high, due to the deep subordination and the use of a single-bullet maturity, which is only somewhat mitigated by the 12-month DSRA and the cash on balance sheet at the GET level. The protective features of the consolidated-based lock-up and incurrence covenants are diminished by the possibility of raising prior-ranking non-recourse debt at subsidiaries and the presence of sizeable baskets for additional debt and dividends.
Structural Subordination - Issuer Structure
GET is not a single-purpose vehicle as it is invested in multiple businesses (Fixed Link, Europorte, Eleclink) and its debt is structurally subordinated to the project finance-type debt at CLEF. There are strong structural protections under CLEF's issuer-borrower structure, including lock-up provisions potentially triggering cash sweep and additional indebtedness clauses subject to rating tests, which limits debt being pushed down from the holding company, GET. These factors drive our rating approach and together with the 'Weaker' debt structure assessment explain the three-notch difference between GET and the consolidated profile, the latter largely driven by Eurotunnel's core activities.
The key rating drivers of the consolidated profile are in line with CLEF, given this dominates the consolidated group's EBITDA generation.
PEER GROUP
Like High Speed Rail Finance (1) PLC (HS1; A-/Stable), CLEF shares exposure to Eurostar. However, CLEF is exposed directly to Eurostar passenger volumes, while HS1 is exposed to the number of train paths, which are inherently less volatile, although ultimately exposed to the same performance drivers. HS1 also benefits from having 60% of its revenues supported by the UK government via underpinned 'availability' payments ultimately leading to its higher rating
Fitch compares GET's structural subordination with that of Gatwick Airport Finance plc (GAF; BB-/Negative). GET's notes are similarly structurally subordinated to cash-flow generation although both have full ownership of the underlying asset. GET has a more diversified dividend stream than GAF and its main controlled subsidiary is not in lock up. This leads to a narrow notching from the consolidated credit profile than that applied to GAF.
Scandlines ApS (SCL; BBB/Stable) operates sea ferry routes between Denmark and Germany. The rating is supported by high barriers to entry within a captive regional market and by SCL's strong ferry operations on two key point-to-point routes between Denmark and Germany. The DSCR at 1.85x is higher than Fixed Link (CLEF), but CLEF is a stronger and more strategic asset.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
CLEF
Annual FRC Fixed Link DSCR consistently below 1.3x.
GET
A downgrade of the consolidated group's credit profile would lead to a downgrade of GET.
Failure to prefund GET debt well in advance of its maturity could be rating-negative, as could a material increase of debt at GET or subsidiary levels.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
CLEF
Annual FRC Fixed Link DSCR consistently above 1.5x.
GET
An upgrade of the consolidated group's credit profile could lead to an upgrade of GET.
The notching difference with the consolidated credit profile could be reduced if ElecLink demonstrates the ability to generate strong and stable cash flow, to which GET continues to have direct and unconditional access.
Best/Worst Case Rating Scenario
International scale credit ratings of Sovereigns, Public Finance and Infrastructure issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of three notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.
CREDIT UPDATE
Despite lower traffic volumes, Eurotunnel's 2022 revenues were 10% higher than 2019 due to higher ticket yields. As a result, EBITDA was 11% above than 2019.
In 2022, passenger shuttles volumes were at 82% of 2019 level with a 63% market share. Truck shuttles volume were 91% of the 2019 level while Eurostar transported 8.3 million passengers, or 75% of 2019 volumes.
Eleclink started operations in May 2022 and posted revenue of EUR420 million taking advantage of the favourable market conditions. Getlink consolidated accounts recognised a provision of EUR142 million in its operating expenses in respect of the profit-sharing condition between the British and French national grids. EBITDA presented was EUR264 million.
FINANCIAL ANALYSIS
The FRC incorporates reasonable conservative assumptions for traffic recovery, reflecting a potential delay in volumes recovery resulting from management's strategy to keep high-yields in an economic environment facing headwinds.
We expect now truck shuttles to fully recover to 2019 levels by 2033, car shuttles by 2026 and Eurostar traffic by 2028. After recovery, we assume volumes will grow well below the blended UK-France GDP. We expect yields on the shuttle business to remain higher than in 2019 after management implemented a segmentation strategy and to partially track inflation beyond 2024, while the railway network will mechanically follow the fares set by the RUC. We have applied stresses to management's opex and capex projections. We have stressed the costs of debt both for Fixed Link's floating-rate notes and for the EUR850 million bonds.
This results in an average DSCR of 1.5x until debt maturity (excluding 2050).
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
GETLINK SE 
