Moody’s lowers several TAP ratings. The outlook is negative

  • ECO News e Lusa
  • 19 March 2020

In view of the decline in TAP's passenger numbers, Moody's has reduced several airline ratings.

Moody’s financial rating agency downgraded several ratings and TAP’s outlook, including the probability of default, citing exposure to Brazil, the United States and Europe as an aggravating factor in the Covid-19 outbreak.

“Moody’s downgraded today [Thursday] TAP’s Probability of Failure and Business Family ratings to Caa1-PD and Caa1 from B2-PD and B2 respectively. Accordingly, the agency downgraded the Credit Base Rating to Caa2 from B3 and the rating associated with senior unsecured bonds from 375 million euros to Caa2 from B2. The outlook is negative”, can be read in the agency’s statement.

According to Moody’s, “the weakness in TAP’s credit profile, including its exposure to Brazil, the United States and Europe, has left it vulnerable to changes in market sentiment under these unprecedented operating conditions, and TAP remains vulnerable to the continued outbreak [of Covid-19].”

“Moody’s] action today [Thursday] reflects the impact on TAP of the scope and severity of the shock, and the broad deterioration in credit quality that has been triggered,” adds the US financial ratings agency.

The agency’s analysis assumes that there will be “a 50-60% reduction in TAP’s passenger traffic in the second quarter and a drop of 20% over the year, putting in significant negative cases as a total fleet stop during the second quarter”.

“We believe that TAP will need the support of its shareholders during the second quarter,” says Moody’s.

Moody’s points to TAP’s “very sharp decline in passenger traffic”. Virus is responsible

According to Moody’s, the change in TAP’s assessment “was prompted by the very sharp decline in passenger traffic since the onset of the coronavirus outbreak in January 2020, which will result in significant negative cash flow in 2020, a weakened liquidity profile and significantly higher leverage.

“TAP’s previous ratings were based on expectations of improved credit metrics and cash flow generation, which is no longer feasible,” argues Moody’s, noting that “TAP felt the exposure” to the outbreak “later than other companies with exposure to the Asia-Pacific region, but it has been severely hit since the outbreak began spreading across Europe.