Deutsche Bahn (Aa1/AA- Pos/AA+) S&P affirms after €14.3b Schenker sale
Ratings on perps also affirmed; Baa1/BB+ Pos.
DB continues to get a favourable look at from S&P. It was already on pos. outlook (on stronger ties/support from German gov.) and S&P has now commented that the Schenker sale (66% of group EBITDA last year) will be a credit positive. As we said pro-forma - even on entire proceeds being used for debt paydowns - we see leverage moving a tad higher. Adding to that remain-co will be lower scale and margins - we view it as a firm credit neg.
Part of S&P's optimism is driven by some aggressive assumptions; on margins it references "EBITDA margin was 16.3% for the integrated rail system in 2019 versus 6.3% for DB Schenker alone." - it's referencing 2019 because that's how far one needs to go to see reasonable earnings in rail. It has since avg'd under 3% and as we said no signs of a recovery in 1H results.; rail EBITDA is down -67% despite increasing passenger numbers and flat revenues; its was blaming strikes and higher wages.
On RV;
- A uplifted co means raters thoughts matter more than fundamentals and on that note S&P's remarks are positive to credit. It is likely the German taxpayer, not credit longs, that will pay if DB can't turn core rail more profitable.
- No firm view from us on the snr curve but re. hybrids as we said the NC'25 and NC'29s were its first hybrid issuances. In it's published maturity profile it does show them to first call dates but a small benefit on front-25 perp if it doesn't; reset at 5Y swap +126 vs. secondary at +200 (€7.5m/yr in interest savings).
- No mention of them today by S&P but last month it said "we assume that the €2 billion hybrid instrument will be refinanced in due course, but expect more clarity on DB's intention to refinance by the end of the year." The 25s are pricing to the first call.