Nexi’s Ba1 CFR affirmed by Moody’s with positive outlook

Investing.com -- Moody’s Ratings has affirmed Nexi (BIT:NEXII) S.p.A.’s Ba1 long-term corporate family rating (CFR) and the Ba1-PD probability of default rating (PDR). The ratings for the senior unsecured instruments issued by the company have also been affirmed at Ba1. The outlook for the company has been revised to positive from stable.

The rating action reflects Nexi’s robust performance, emphasizing its strong position as a payment solutions provider in Europe. The company’s commitment to enhancing its financial policy, as previously indicated and reiterated in its 2024 results call, has also been considered. These factors increase the likelihood of Nexi achieving and maintaining credit metrics in line with the guidance for a higher rating in the next 12 months.

Nexi recently reaffirmed its commitment to gradually reducing net leverage to 2.0-2.5x on a company-defined EBITDA basis, down from 2.7x as of December 2024. The company has made clear that maintaining strong credit metrics is a priority for its capital allocation. Moody’s-adjusted gross leverage improved to 3.7x in 2024, down from 4.7x in 2023, driven by positive performance and gross debt reduction. The company expects further EBITDA growth and gross debt reduction in 2025, which could improve Moody’s-adjusted leverage to within the expectations for a higher rating level.

In terms of shareholder remuneration, Nexi has established a dividend policy that plans a €300 million distribution in 2025, with gradual growth expected over time. The company also plans to execute another share buyback program during the year, with an additional €300 million. Moody’s assesses that the dividend policy provides sufficient flexibility for the company to improve and maintain strong credit metrics, especially if performance is weaker than expected.

Nexi is expected to continue its disciplined acquisition strategy, likely consisting of small, cash-funded bolt-ons. Any significant divestment would likely consider the company’s commitments to improving and maintaining strong credit metrics. However, significant disposals could also limit the company’s scale and business profile and could constrain further upward pressure.

Nexi’s Ba1 rating is supported by its leading position in key markets, high barriers to entry in the payment processing market, good free cash flow (FCF) generation, and scale. However, the rating is constrained by Nexi’s geographical concentration, with the majority of revenue generated in Italy and Nordic countries, a certain degree of product line and customer concentration, and intense competition.

Nexi’s positive rating outlook reflects the expectation that upward rating pressure could build over the next 12 months if the company develops a track record of improving and maintaining credit metrics in line with the expectations for a higher rating for a sustained period. This outlook assumes that there will be no significant increase in leverage from any future debt-funded acquisitions and that the company will maintain good liquidity.

As of December 2024, Nexi maintained very good liquidity, backed by cash and equivalents on the balance sheet around €1.5 billion, strong FCF generation capacity, and a fully undrawn €1 billion revolving credit facility (RCF). The company also has dedicated clearing and overdraft facilities to cover working capital needs, consisting of factoring lines of up to €4.2 billion and up to €2.4 billion of bilateral credit facilities. These facilities are used to manage Nexi’s working capital needs due to the timing differences of settlement between counterparties in the merchant acquiring business and the funding of customer receivables on behalf of its co-issuer banks in the issuing business. Some loans, mainly maturing in 2025 and 2026, are subject to a net leverage-based financial maintenance covenant currently set at 5.25x. It is expected that the company will maintain ample headroom to this threshold.

All of Nexi’s debt instruments rank pari passu as unsecured liabilities of the company. Therefore, the instruments rated by Moody’s have also been affirmed at Ba1, the same level as the CFR. This reflects the relatively small size of the liabilities of operating subsidiaries, including trade payables, pensions, and operating leases that rank ahead.

Positive rating pressure could develop if Nexi’s revenue, EBITDA, and geographical diversification continue to improve; the company builds a track record of balanced financial policy with company-defined net leverage reaching and stabilizing at its target around 2.0x-2.5x, such that Moody’s-adjusted gross leverage improves towards 3.0x on a sustained basis; and good FCF generation and liquidity are maintained.

Negative rating pressure could develop if Nexi’s revenue and EBITDA development is weaker than anticipated; there is a change in financial policy target or priority from debt repayment to M&A or shareholder remuneration such that Moody’s-adjusted gross leverage is forecast to weaken to above 4.0x on a sustained basis or for a longer period; or FCF generation or liquidity deteriorate.

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