(Alliance News) - Moody's Investors Service on Thursday downgraded Finablr PLC's foreign currency unit Travelex, due to the impact of the coronavirus, an earnings warning following New Year's Eve's cyber attack, and "material governance concerns".
Finablr shares were 15% lower at 41.52 pence each in London on Thursday afternoon. Finablr was downgraded from the FTSE 250 following an index review this week.
Moody's downgraded Travelex's corporate family rating to Caa1 from B3, and its probability of default rating to Caa1-PD from B3-PD. Also victim of a downgrade was Travelex's EUR360 million 8% senior secured notes, due 2022.
The ratings agency added that the outlook for all the scores remains negative.
It's been a testing time for Finablr recently. On Monday, it warned of a GBP25 million underlying earnings before interest, tax, depreciation and amortisation hit following the cyber attack on New Year's Eve.
The attack led Finablr to take down its online systems to prevent a spread, forcing it to conduct business manually in branches.
Also, contributing to the spate of downgrades, Moody's explained, was a reduction in travel as the coronavirus spreads and concerns over the shareholding arrangements of Finablr's "key shareholder".
Finablr in February "urgently" called on the family of Co-Chair Bavaguthu Raghuram Shetty to clarify "purported arrangements" he has made with two other investors involving shares in the company.
Finablr said: "In relation to purported arrangements between Dr BR Shetty, His Excellency Saeed Mohamed Butti Mohamed Al Qebaisi and Khaleefa Butti Omair Yousif Al Mulhairi, the independent directors of the company have continued urgently to seek further information from the Shetty family to clarify the position as to the respective interests in the company's shares."
Shetty founded Finablr, which now owns currency firm Travelex, in 2018. He is co-chair of the company, alongside Michael Tomalin.
Moody's said: "In the past, Travelex benefitted from consistent support of the key shareholders of its parent company, Finablr plc, which was listed on the London Stock Exchange in May 2019, and has indicated its continued focus on Travelex's business. However, in recent weeks, the independent directors of Finablr have sought information from some of the founding shareholders to clarify their position in the company's shares following these shareholders' resignation from the board of NMC Health PLC and reporting irregularities discovered there.
"This situation presents a corporate governance risk to Travelex, in Moody's view, with regard to Finablr's foregoing ability and interest in supporting Travelex if needed."
On the coronavirus, Moody's expects a "further negative impact on global travel", which will hurt Travelex's consumer business.
"The agency notes positively, though, that according to company reports it was able to sustain its wholesale business through the cyberattack and has not seen customer defections," the ratings agency added.
Travelex on Thursday said "it is disappointed" following a downgrade from S&P Global Ratings, another ratings agency.
S&P said late Wednesday: "Travelex Holdings has published an update, indicating that the knock-on effects of a ransomware attack, combined with lower transaction volumes from covid-19, will reduce its underlying Ebitda for the first quarter of 2020 by GBP25 million. 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."
The ratings agency also added that the "potential reputational and regulatory implications" following the cyber-attack are unknown. It also added that Finablr is in talks with its lenders to replace Travelex's existing GBP90 million super senior revolving credit facility.
Travelex hit back on Thursday: "Travelex is disappointed with the decision to downgrade the Travelex rating, Travelex remains committed to developing its business in 2020.
"As highlighted by the rating agency, Travelex and its listed parent company Finablr are in discussions with major lenders regarding the terms of the Travelex revolving credit facility. Travelex continues to focus on its development plans and customer service. It is taking action to reduce variable costs, ensuring efficiency of cash stocks and reviewing its cost base."
By Eric Cunha; ericcunha@alliancenews.com
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