Moody's assigns P-2 to VINCI's CP programme; outlook stable

Stocks and Financial Services Press Releases Thursday May 31, 2012 09:36
London--31 May--Moody's
London, 30 May 2012 -- Moody's Investors Service has today assigned a Prime-2 rating to the EUR1.5 billion commercial paper (CP) programme of VINCI S.A. ("VINCI"). The outlook is stable.
RATINGS RATIONALE

The rating of the CP programme reflects the terms and conditions, including the ranking of any notes issued under it as unsecured obligations ranking pari passu with all other unsecured and unsubordinated obligations of VINCI, together with the existing Prime-2 short-term issuer rating of VINCI.

Moody's rating assessment of VINCI reflects the group's position as a successful integrated concession and construction group. The group's diversified construction activities, which tend to be cyclical, are balanced with a broad portfolio of concessions, which generate more stable cash flows.

The rating further reflects: (i) the strong contribution of the concessions division to VINCI's cash flows; (ii) the generally good performance of the contracting businesses through the macroeconomic downturn; (iii) the group's moderate financial leverage; and (iv) its strategic emphasis on moderating its overall business risk profile by (a) reducing its exposure to large, international projects, except where linked to a potential concession, and shifting its portfolio towards smaller, high value-added contracts, and (b) raising the contribution from more stable sources of earnings and ensuring reasonable provisioning levels.

Moody's regards the credit quality of VINCI's concession businesses on a stand-alone basis to be consistent with the upper end of the Baa rating range. The 4,385 km network of VINCI Autoroutes (which combines the networks of ASF, Escota, Cofiroute and Arcour) represents half of France's motorway network under concession. It is considered to be of the highest credit quality within the rated toll road sector, reflecting its size and diversity together with a well-established and stable competitive environment. Despite the strong business profile, however, the rating agency notes that the concession division has a highly leveraged financial profile.

Moody's assessment of VINCI's contracting operations takes into account the group's well-diversified and sizeable portfolio of contracts across different geographies. Although VINCI's contracting businesses operate in markets that are fragmented and in which strong local players operate, the group benefits from a strong position in many of its business sectors, particularly in its domestic market (which accounted for 58% of its contracting revenue in 2011). Despite the economic backdrop, VINCI has maintained its strong order book, which at 31 March 2012 stood at EUR32.6 billion, representing around 12 months of activity. VINCI's order backlog, the diversity of its business segments and the good contribution from recurring and stable activities support the group's prospects for robust revenues and cash flow generation in the short to medium term.

In Moody's view, to support the current rating, VINCI would need to maintain a funds from operations (FFO)/debt ratio in the mid-teens and a minimum FFO interest coverage ratio of 3.5x on a consolidated basis. This guidance reflects VINCI's current business profile and will be adjusted over time to reflect developments in the risk profile of the group as the concession life shortens, as well as any material changes in financial policies including a reduction in the cash held.

The stable outlook reflects VINCI's positioning as an integrated concessions and construction group. VINCI's key credit metrics are well positioned for its rating category and provide some flexibility for the group to absorb cyclicality in markets. However, this cyclicality may at some point negatively impact the currently robust levels of activity in the group's contracting divisions.

WHAT COULD CHANGE THE RATING UP/DOWN

Upward pressure on VINCI's rating could develop as a result of a material reduction in indebtedness across the group in conjunction with continued good prospects for the contracting divisions, which resulted in a sustainable strengthening of key credit metrics to levels materially in excess of the consolidated guidance given above for the current rating.

Downward rating pressure could develop if VINCI were to record a poor operating performance or make further material debt-financed acquisitions leading to a decline in the group's key financial metrics below the expected minimum financial profile stated above (i.e. FFO/debt persistently below the mid-teens in percentage terms and FFO interest coverage below 3.5x).

PRINCIPAL METHODOLOGIES

The methodologies used in this rating were Operational Toll Roads published in December 2006, and Global Construction Methodology published in November 2010. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

VINCI is the holding company of one of Europe's largest concession and construction groups. Over recent years, it has enjoyed solid growth through a combination of organic expansion and selective acquisitions. The group has developed its construction business, building on its strong franchise in France through a series of acquisitions, many of which have been specialist businesses intended to boost margins whilst providing a base from which the group can develop in new markets. In addition, and as a part of a strategy to increase the resilience of the group, VINCI has grown revenues in more stable and complementary sectors, principally motorway concessions and through public-private partnership infrastructure projects. VINCI employs close to 184,000 people in some 100 countries. Its revenues amounted to EUR37 billion as at 31 December 2011.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

Information sources used to prepare the rating are the following : parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service information, and confidential and proprietary Moody's Analytics information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

The rated entity has received a Rating Assessment Service within the last two years preceding the Credit Rating Action.

Moody's Investors Service may have provided Ancillary or Other Permissible Service(s) to the rated entity or its related third parties within the two years preceding the credit rating action. Please see the special report "Ancillary or other permissible services provided to entities rated by MIS's EU credit rating agencies" on the ratings disclosure page on our website www.moodys.com for further information.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

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Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

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