Hema B.V. -- Moody's appends limited default (LD) designation to Hema's PDR after payment default

Announcement: Moody's appends limited default (LD) designation to Hema's PDR after payment default

Global Credit Research - 14 Aug 2020

Paris, August 14, 2020 -- Moody's Investors Service has today appended a limited default (LD) indicator to Dutch retailer Hema B.V. ('Hema' or 'the company') C-PD probability of default rating (PDR). The PDR has therefore been changed to C-PD/LD. All other ratings are unchanged by this action, including the Ca corporate family rating (CFR), the Caa3 to the EUR600 million guaranteed senior secured floating rate notes (SSN) due 2022 issued by HEMA Bondco I B.V. and the C to the EUR150 million guaranteed senior unsecured notes (SN) due 2023 issued by HEMA Bondco II B.V. The rating outlook remains negative.

RATINGS RATIONALE

Moody's has appended Hema's PDR of C-PD with the "/LD" indicator following the expiration of the thirty-day grace period on the coupon payment that was due on 15 July 2020 in relation to the company's SSN and SN. The "/LD" indicator reflects the fact that the expiration qualifies as a limited default under Moody's definition of default, which is intended to capture events whereby issuers fail to meet debt service obligations outlined in their original debt agreements.

On 30 June 2020 Hema entered into a lock up agreement approved by 85% of Hema's SSN holders. As part of the lock up agreement, Hema's creditors waived any default or event of default resulting from the failure to make the July interest payment.

Despite the waiver on the missed payment event of default, Moody's considers that the failure to pay the interest at the end of the 30-day grace period constitutes a limited default under Moody's ratings definition.

Moody's expects Hema and its creditors to conclude a controlled debt recapitalization as part of the lock up agreement before the end of 2020.

RATIONALE FOR THE NEGATIVE OUTLOOK

The negative outlook reflects Moody's view that Hema's sales and profit margins will remain under pressure, resulting in limited recovery in profitability. The negative outlook also reflects the uncertainties surrounding the final recoveries for bondholders as part of the planned debt recapitalization.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Moody's would consider a downgrade of the current ratings if recoveries are lower than those assumed in the Ca CFR and Caa3 SSN ratings.

Upward pressure on the rating is unlikely in the short term. However, Moody's would consider an upgrade of the ratings if the company as a result of this restructuring, manages to secure a sustainable capital structure with a reduced debt burden and an improved liquidity profile. Positive rating pressure would also require signs of a gradual recovery in net sales growth and improving profitability and cash flow generation.

PRINCIPAL METHODOLOGY

The methodology used in these ratings was Retail Industry published in May 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1120379. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

COMPANY PROFILE

Hema is a general merchandise retailer, operating a network of 762 stores as at the beginning of February 2019, principally in Benelux (645), France (75), Germany (19), Spain (nine) and the UK (10). In 2019, Hema generated net sales of EUR1,274 million and adjusted EBITDA of EUR105 million.

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.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Francesco Bozzano Asst Vice President - Analyst Corporate Finance Group Moody's France SAS 96 Boulevard Haussmann Paris 75008 France JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Jeanine Arnold Associate Managing Director Corporate Finance Group JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Releasing Office: Moody's France SAS 96 Boulevard Haussmann Paris 75008 France JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454

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