19 August 2020 by jbchevrel
This week has been relatively subdued in Euro IG CDS space. One CDS, Accor SA (ACFP) displayed some brief under-performance earlier this week. This was as S&P downgraded ACFP to BB+ with a negative outlook. As a consequence, ACFP CDS will not be part of iTraxx Main s34 in next September, although that was not a massive surprise. S&P anticipates weaker earnings and debt metrics for ACFP in 2020 and 2021, due to the effects of the COVID pandemic on travel volumes and the economy in general. The rating agency also noted that they assess that it will take longer and be more expensive than they had expected for ACFP to trim its fixed-cost base and restore its business and financial profile. Demand for hotel rooms could be down by about 50%-60% in 2020 and by 30% in 2021 (vs 2019 levels, as reference). ACFP EBITDA could come as low as -€180M, with restructuring costs and weak operating cash flow until 2022. On top of the downgrade itself, the negative outlook reflects the risk of slower/weaker recovery in the sector, execution risk around asset disposals. The former could result in ACFP's inability to restore its earnings, cash flows, and credit metrics in line with a 'BB+' over the next 24 months. To moderate its view, S&P rightly noted that ACFP still benefits from a solid liquidity position, with €2.7B cash as of Q2-20 and €1.76B available in its 2 revolving credit facilities. That should enable ACFP to avoid liquidity shortfall in the medium term.