oEuropcar has announced intentions to commence debt-restructuring discussions with its corporate debt creditors to address the sustainability of its capital structure and liquidity constraints amid COVID-19 disruption.

oGiven the highly uncertain economic conditions, and in light of the group's currently unsustainable capital structure, we think that a debt restructuring is inevitable.

oWhile the exact nature of any restructuring is currently unknown, we see a high probability of default, given the group's goal of lowering its corporate indebtedness to implement its 2021-2023 transformation plan.

oWe are therefore downgrading Europcar to 'CC' from 'CCC+', and lowering our issue ratings on its revolving credit facility (RCF) to 'CCC-', its fleet notes to 'CC', and its senior unsecured notes to 'C'.

oThe negative outlook incorporates the group's intentions to pursue debt-restructuring negotiations with corporate lenders. In our view, there is a high probability it will receive debt holders' consent to pursue negotiations and ultimately restructure its debt. If the company does not obtain consent or the restructuring negotiations fail, we cannot rule out a conventional default.

PARIS (S&P Global Ratings) --S&P Global Ratings today took the rating actions listed above. The downgrade stems from Europcar's announcement that it intends to engage in debt-restructuring negotiations.

On Sept. 7, 2020, Europcar announced that it intends to commence discussions with its corporate debt creditors with the aim of restructuring its financial debt to address the sustainability of its capital structure and liquidity constraints, amid COVID-19 disruptions. To facilitate these discussions, Europcar will first seek consent from its creditors and bondholders to appoint a mandataire ad hoc or conciliateur, without triggering an event of default, as defined in the relevant credit agreements and bond documentations. We understand Europcar will seek consent from RCF lenders and holders of the senior unsecured bond in the coming weeks, subject to ongoing discussions and negotiations with parties.

Given difficult economic conditions in the global leisure and travel sector, and the group's leveraged corporate financial position, we believe Europcar is highly likely to obtain the consent waiver in the near term and will then seek to engage in restructuring negotiations with its corporate lenders in coming months. The company has not released any further details about its intentions or actions regarding its capital structure.

We currently forecast a material deterioration in the group's operating performance in 2020 and 2021 due to COVID-19, resulting in a cash burn of up to EUR500 million in 2020 and EUR200 million in 2021 under our base-case assumptions (see " Europcar Downgraded To 'CCC+' From 'B-' On COVID-19 Disruption And Potential Liquidity Pressure; Outlook Negative ," published May 28, 2020, on RatingsDirect). In our view, the capital structure is unsustainable, and debt restructuring is highly likely, given the high level of debt and servicing costs. We understand that Europcar is in the first instance seeking to negotiate with corporate lenders to reduce the group's corporate debt structure, comprising the EUR670 million senior secured RCF, EUR1.05 billion of unsecured notes, EUR220 million of state-guaranteed loans in France (Prêt Garanti par l'Etat), and EUR50 million bilateral credit line.

Without the benefit of a successful restructuring transaction, we also view the group as potentially exposed to a liquidity shortfall in the short term. As of June 30, 2020, EUR160 million of unrestricted cash was fully available to Europcar Mobility Group S.A., and EUR38 million was available under its corporate RCF. In addition, we understand another EUR200 million in cash is at operating companies, but cannot be transferred to the group. Upcoming maturities include a EUR50 million bilateral credit line due in December 2020 and EUR500 million of fleet notes due November 2022. Lastly, we also note that under current lending documentation the group has permitted indebtedness baskets allowing for a maximum of EUR30 million in additional corporate financing.

oHealth and safety

The negative outlook incorporates that the group intends to pursue debt-restructuring negotiations with corporate lenders. In our view, there is a high probability the group will receive consent from debtholders to pursue negotiations to restructure its debt. If the company does not obtain consent or restructuring negotiations fail, we cannot rule out a conventional default.

We would lower our issuer credit rating on Europcar to either 'SD' (selective default) or 'D' (default) and our issue ratings on the securities involved to 'D', upon a default.

We could also lower our issuer credit and issue ratings to 'D' if Europcar was not successful in completing a restructuring transaction and faced a conventional default. This could occur for example if the company filed for bankruptcy, became insolvent, or fell into payment default.

We could raise the issuer credit rating if Europcar did not receive the consent required to proceed with debt-restructuring negotiations or failed to reach agreement for restructuring with corporate lenders, and concurrently we no longer viewed default as a virtual certainty. In our view, this would likely also include, if the group received material additional extraordinary liquidity support from its shareholders or governments without triggering a default.

Related Criteria

oGeneral Criteria: Group Rating Methodology, July 1, 2019

oCriteria | Corporates | General: Corporate Methodology: Ratios And Adjustments, April 1, 2019

oCriteria | Corporates | Industrials: Key Credit Factors For The Operating Leasing Industry, Dec. 14, 2016

oCriteria | Corporates | General: Recovery Rating Criteria For Speculative-Grade Corporate Issuers, Dec. 7, 2016

oCriteria | Corporates | Recovery: Methodology: Jurisdiction Ranking Assessments, Jan. 20, 2016

oCriteria | Corporates | General: Methodology And Assumptions: Liquidity Descriptors For Global Corporate Issuers, Dec. 16, 2014

oGeneral Criteria: Country Risk Assessment Methodology And Assumptions, Nov. 19, 2013

oCriteria | Corporates | General: Corporate Methodology, Nov. 19, 2013

oGeneral Criteria: Methodology: Industry Risk, Nov. 19, 2013

oGeneral Criteria: Methodology: Management And Governance Credit Factors For Corporate Entities, Nov. 13, 2012

oGeneral Criteria: Criteria For Assigning 'CCC+', 'CCC', 'CCC-', And 'CC' Ratings, Oct. 1, 2012

oGeneral Criteria: Principles Of Credit Ratings, Feb. 16, 2011

Related Research

oEuropcar Downgraded To 'CCC+' From 'B-' On COVID-19 Disruption And Potential Liquidity Pressure; Outlook Negative , May 28, 2020

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