Our outlook revision reflects the recent improvement in Amadeus' financial credit ratios following its refinancing and asset sales in 2011. Consequently, the company's financial metrics have improved beyond our initial expectations and beyond our base-case scenario for 2012. We now forecast that Amadeus will achieve adjusted debt to EBITDA of 2.0x to 2.2x and adjusted free operating cash flow (FOCF) to debt of about 25% in 2012. Furthermore, we believe that Amadeus' strong financial performance has provided the group with a cushion to withstand any weakening in operating conditions over the next 12 to 24 months potentially resulting from increasingly difficult macroeconomic conditions globally.
We anticipate that Amadeus' revenues and earnings' generation will continue to benefit from market share gains in its Global Distribution Systems (GDS) segment and from strong growth in its IT solutions segment given that a number of airlines have signed contracts to migrate to Amadeus' "Altea Suite" passenger service system. As a result, we estimate that Amadeus will generate FOCF of about EUR500 million in 2012, thanks to an approximately 5% higher revenue base. This should result in sound discretionary cash flow (FOCF after dividends) of more than EUR300 million at the end of the year. In addition, we consider that the company's business model is not overly exposed to the potential impact of unforeseen adverse events in the travel industry.
We consider Amadeus' moderate financial policy an additional positive rating factor because it supports the recent improvements in its financial ratios. The company had an unadjusted leverage target of 1.5x-2.0x by year-end 2011, which it further reduced to less than 1.5x by year-end 2012. We view this policy as supportive of an investment-grade rating (at least 'BBB-'). We are mindful, however, that the company has only a limited public track record of a consistent financial policy given that it has only been listed on the Madrid Stock Exchange since April 2010.
We view Amadeus' liquidity as "adequate", as defined by our criteria. We expect the group's liquidity sources, including cash, funds from operations (FFO), and credit facility availability, will exceed its uses by about 1.5x over the next 12 to 18 months. Furthermore, even if EBITDA declined by 15%, we believe net sources would still exceed cash requirements.
In particular, the group's current liquidity should benefit from:
-- Cash balances of EUR434 million at the end of March 2012, of which the majority are centralized in Spain and easily accessible;
-- Our view that Amadeus' free cash flows should adequately cover its mandatory debt amortization schedule over the next two years. Amadeus generates sound free cash flow, helped by structurally positive changes in working capital. The company has about EUR150 million and EUR306 million in scheduled debt amortization payments and maturities due in 2012 and 2013, respectively. This compares with more than EUR300 million in expected annual discretionary cash flow;
-- A total of EUR300 million of fully available revolving credit facilities(RCFs), of which EUR100 million will mature in May 2013 and another EUR200 million in December 2014;
-- Satisfactory headroom under the current financial covenants for the existing senior loan indentures, which could, in our view, sustain a 30% drop in EBITDA without being breached; and
-- Our view of Amadeus' sound relationship with banks and a satisfactory standing in credit markets. The group renegotiated its revolving credit facilities and closed on a EUR200 million nine-year European Investment Bank loan in May 2012, thereby further diversifying its debt funding base. As part of the RCF renewal, Amadeus repaid EUR350 million of the outstanding EUR456 million bridge loan maturing in May 2013. We expect that the remainder will be repaid at maturity, using the company's cash sources.
The positive outlook reflects our view Amadeus will likely further improve its credit ratios over the next 12 to 24 months thanks to its resilient free cash flow generation and supported by further market share gains in the GDS segment and continued strong growth in its IT solutions segment. We also anticipate that Amadeus will continue to pursue a moderate financial policy.
We could take a positive rating action if under these circumstances Amadeus achieves adjusted debt to EBITDA of 2.0x or less and a ratio of adjusted FOCF to debt more than 25%.
we could revise the outlook to stable if weaker than expected operating performance delayed or reversed Amadeus' deleveraging trend. We could also revise the outlook if Amadeus' financial policy became significantly more aggressive than we currently expect, especially regarding acquisitions or shareholder returns, leading to weaker credit measures.
Related Criteria And Research
All articles listed below are available on RatingsDirect on the Global Credit Portal, unless otherwise stated.
-- 2008 Corporate Criteria: Ratios And Adjustments, April 15, 2008
-- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008
-- Methodology And Assumptions: Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011
-- Criteria Methodology: Business Risk/Financial Risk Matrix Expanded, May 27, 2009
Ratings Affirmed; CreditWatch/Outlook Action
Amadeus IT Holding S.A.
Corporate Credit Rating BBB-/Positive/A-3 BBB-/Stable/A-3
Amadeus Capital Markets S.A .Sociedad Unipersonal
Senior Unsecured* BBB-
Amadeus IT Group S.A.
Senior Unsecured* BBB-
*Guaranteed by Amadeus IT Holding S.A.