Moody’s downgrades OHLA’s rating to Caa1 on weak liquidity

Investing.com -- Moody’s Ratings has downgraded Obrascon Huarte Lain S.A. (OHLA) to Caa1 from B3, with a stable outlook, the rating agency announced Friday.

The downgrade affects OHLA’s corporate family rating, probability of default rating, and the backed senior secured notes issued by subsidiary OHL (BME:OHLA) Operaciones S.A.U. This action concludes the review for downgrade that began on April 4, 2025.

Moody’s cited OHLA’s weak liquidity at the holding level as the primary constraint on its rating. Despite receiving €150 million in cash equity injections through February 2025, a €107.8 million cash collateral release, and €31.7 million from selling its 25% stake in CHUM, the company needed a third capital increase of €50 million to cover a €39.6 million cash outflow from an unfavorable ruling on a Kuwait road project in March 2025.

The rating agency expects OHLA’s liquidity to remain vulnerable to working capital fluctuations, potential legal rulings, and cost overruns amid economic uncertainties. While the company faces no immediate refinancing risk before December 31, 2029, its 5.1% fixed cash coupon and increasing PIK interest component could weaken future free cash flow generation.

Despite construction industry challenges, OHLA posted solid results in 2024 and Q1 2025. The company maintains an €8.3 billion order backlog (excluding Services division), providing 23.7 months of sales visibility. The construction division, representing 86% of the backlog with 42.4% exposure to the US market, increased its EBITDA margin to 5.0% in the twelve months to March 2025, up from 4.7% in 2024.

OHLA’s total reported EBITDA margin rose slightly to 4.1% in the last twelve months from 3.9% in 2024. Moody’s expects the company to maintain solid operating performance with an EBITDA margin between 4.1% and 4.7% in the next 12-18 months.

The Amodio family has demonstrated shareholder support through €128 million in cash equity injections from May 2020 to May 2025. OHLA has also restructured its Board of Directors following allegations of conflicts of interest, now including 5 independent members out of 10.

The stable outlook reflects expectations that OHLA will maintain solid operating metrics and continue efforts to enhance liquidity ahead of upcoming PIK interest increases.

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