Travelex ratings lowered on debt, corporate governance worries

Travelex is controlled by Indian billionaire BR Shetty through Finablr, in which he holds a 66% stake with his son. He is also the founder and former chair of Gulf medical company NMC Healthcare, which has seen its share price plunge over an accounting and shareholder scandal.

S&P lowered Travelex to CCC from B- and its issue rating on €360m in outstanding loan notes to CCC- from B-, adding that it viewed the company's debt as “unsustainable”.

It also lowered its issue rating on a £90m super senior revolving credit facility (RCF) to B- from B+ and and added that all remained on “CreditWatch negative”.

Shetty in January pledged 56% of Finablr’s share capital as security for borrowing at his own financial vehicle BRSV. S&P said it believed if the terms of the loan were breached, it was possible that Shetty “could lose effective control" of Finablr which could in turn trigger a mandatory repayment of the €360m loan through a change-of-control clause.

Travelex on Monday said the impact of a ransomware attack and lower transaction volumes caused by the coronavirus outbreak, which has hit the airline industry, would cut underlying first quarter core earnings by £25m.

“The COVID-19 disruption could also weigh on full-year earnings. In our view, the effect would be to make the capital structure deeply unsustainable,” S&P said.

“Additionally, we believe that an event of default in the debt at BRSV over the next few months could potentially trigger the change-of-control clause under the documentation of Travelex's bonds (through the enforcement of the pledge over Finablr shares).”

S&P forecast a 20% fall in Travelex full year profits, which would imply that the covenant under its £90m RCF would be breached and added that Finablr was reportedly in talks with its lenders.

It added that as Shetty's decision to stay on Finablr's board questioned its independence and it could not rule out "the possibility that market participants may view corporate governance controls at Finablr as weak".

S&P warned that it could lower ratings further over the next few months if its saw potential for a covenant breach under the RCF "or if we expected BRSV to find it difficult to refinance its existing debt, thereby potentially triggering the change-of-control clause under the Travelex bond documentation".

"We could also lower the rating if any corporate governance issues were discovered, or if a going-concern issue were revealed that could result in debt restructuring, a distressed exchange offer, or a payment default at Travelex in the near term," S&P said.