oSAS AB's liquidity position has further deteriorated in recent weeks and we now believe that the airline's capital structure appears unsustainable. We think there is a high probability SAS will pursue a restructuring of its debt obligations, which we would likely view as tantamount to default.
oWe believe that travel and other restrictions due to the COVID-19 pandemic will result in an up to 50% decline in air passenger traffic in 2020, which, combined with gloomy recovery prospects and SAS's very high fixed costs, is exacerbating liquidity risk and pressuring the capital structure of SAS.
oWe understand that SAS is evaluating capital structure alternatives under the currently negotiated recapitalization plan, with involvement of key shareholders including the governments of Sweden and Denmark and selected stakeholders.
oWe are therefore lowering our issuer credit rating on SAS to 'CCC' from 'B' and maintaining the rating on CreditWatch with negative implications, reflecting a high probability of a debt restructuring within the next few weeks.
FRANKFURT (S&P Global Ratings) --S&P Global Ratings today took the rating actions listed above.
This is due to the drop in air traffic demand in Scandinavia and globally, caused by the pandemic, not being sufficiently offset by the airline's ongoing initiatives. SAS has been taking steps to cope with the collapse in air travel demand in recent months, including cost-saving, operating efficiency, and cash preservation initiatives, as well as capacity reductions. However, we don't think these will be sufficient to counterbalance the severe slump in revenue. We expect that cost-savings from the extensive personnel restructuring plan, which involves up to 5,000 redundancies to adjust to reduced demand, will materialize only from fiscal 2021 given the required six-month notice period. We estimate that SAS's adjusted EBITDA will turn materially negative in fiscal 2020, which combined with adjusted debt increasing to more than Swedish krona (SEK) 40 billion (compared with SEK37 billion as of April 30, 2020) points to an unsustainable financial leverage ratio. We previously regarded SAS' liquidity as less than adequate. We now expect SAS's liquidity sources will not cover uses over the 12 months started May 1, 2020. Furthermore, we believe the airline is dependent on further state support to meet its financial commitments. According to SAS, any potential solution will require both government and market participation, as well as burden-sharing measures involving stakeholders in the company. We believe there is a high probability SAS will pursue a restructuring of its debt obligations, which we would likely view as tantamount to default.
As a part of our CreditWatch resolution, we will reassess SAS' status as a government-related entity, as well as the likelihood of government support.
At the 'CCC' stand-alone credit profile level, our rating does not factor in any notches for government support.
oHealth and safety.
The CreditWatch negative reflects our view that there is a high likelihood that SAS will embark on debt restructuring--such that lenders would receive less than originally promised and we would likely consider it distressed--in the next few weeks. We will resolve the CreditWatch once we have more details regarding the ongoing recapitalization efforts and clarity if the airline will take steps to restructure its debt.
Related Criteria
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oCriteria | Corporates | General: Corporate Methodology: Ratios And Adjustments, April 1, 2019
oGeneral Criteria: Rating Government-Related Entities: Methodology And Assumptions, March 25, 2015
oCriteria | Corporates | General: Methodology And Assumptions: Liquidity Descriptors For Global Corporate Issuers, Dec. 16, 2014
oCriteria | Corporates | Industrials: Key Credit Factors For The Transportation Cyclical Industry, Feb. 12, 2014
oGeneral Criteria: Country Risk Assessment Methodology And Assumptions, Nov. 19, 2013
oCriteria | Corporates | General: Corporate Methodology, Nov. 19, 2013
oGeneral Criteria: Methodology: Industry Risk, Nov. 19, 2013
oGeneral Criteria: Methodology: Management And Governance Credit Factors For Corporate Entities, Nov. 13, 2012
oGeneral Criteria: Criteria For Assigning 'CCC+', 'CCC', 'CCC-', And 'CC' Ratings, Oct. 1, 2012
oGeneral Criteria: Stand-Alone Credit Profiles: One Component Of A Rating, Oct. 1, 2010
oGeneral Criteria: Use Of CreditWatch And Outlooks, Sept. 14, 2009
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