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Investing.com -- Fitch Ratings has downgraded the Long-Term Issuer Default Rating (IDR) and senior unsecured rating of Mobico Group Plc (MCG) from ’BBB-’ to ’BB+’. The ratings agency has also placed MCG on Rating Watch Negative (RWN), indicating the possibility of further downgrades.
The downgrade is a reflection of MCG’s weaker business profile following the disposal of its North American School Bus (NASB) operations and a concentration of earnings in Spain. Fitch’s EBITDAR forecasts for 2025-2027, excluding NASB, remain flat and lower than previous expectations. This is due to slower progress in the UK and German rail sectors, partially offset by higher profits at Automóviles Luarca, S.A. (ALSA) and the remaining US business.
The final decision on the RWN depends on MCG’s ability to refinance its hybrid debt by February 2026. Failure to do so would result in a loss of 50% equity credit and an increase in EBITDAR net leverage by 0.7x, leading to a further downgrade.
MCG’s disposal of NASB significantly reduces its exposure to the US market and results in the loss of contracted revenue. This, coupled with ongoing operational issues in the UK and Germany, will shift the group’s earnings towards ALSA, primarily in Spain. ALSA is expected to contribute approximately 65% of EBIT during 2025-2027.
MCG sold its NASB business to I Squared Capital for an enterprise value of up to GBP457 million, which is lower than previous estimates. The deal includes upfront cash proceeds of around GBP218 million-233 million, with a potential additional earn-out of up to GBP53 million. The sale is expected to complete in early 3Q25.
MCG is also considering refinancing options for its GBP500 million hybrid, callable between November 2025 and February 2026. If MCG opts to keep the existing instrument outstanding beyond February 2026, it will cease to receive 50% equity credit, leading to an immediate increase in EBITDAR net leverage by around 0.7x and making a downgrade highly likely.
Fitch anticipates EBITDAR to be GBP315 million-350 million a year during 2025-2027. MCG faces ongoing operational challenges with its Rhine-Ruhr Express contracts through 2033, with severe train driver shortages increasing service cancellations and penalties.
In contrast, Spain’s ALSA delivered robust growth across regional, urban and long-haul services in 2024, benefiting from improved passenger demand and new contracts. However, MCG’s UK business faces major profitability challenges, despite revenue growth.
MCG is geographically more diversified than FirstGroup plc (FG), with key operations across the US, the UK, Spain, and Germany. However, MCG’s credit profile has weakened due to the slow recovery of profits post-pandemic and OCPs in its German rail division. As a result, its EBITDAR net leverage is significantly higher than FG’s, leading to a two-notch rating difference.
Fitch’s key assumptions within its rating case for MCG include revenue growth of 3% in 2025, EBITDA margin of 8.5% in 2025, and no dividend payment until 2027 as net debt remains outside management’s target of 2x EBITDA.
Finally, Fitch outlined several factors that could lead to further negative or positive rating action, including EBITDAR net leverage remaining above 4.3x or sustained below 3.5x, respectively.
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