UK. Airport food & beverage specialist SSP has confirmed it is in refinancing talks with its bankers in response to pressures caused by the industry slowdown.

An SSP spokesperson told The Moodie Report on Friday: “We can confirm that we have recently kicked off a process with EQT [the private equity firm that acquired SSP in June 2006 at about 14 times EBIT -Ed] and our banking syndicate in which we are looking at the recapitalisation of the business.”

She confirmed: “This has been driven by more challenging market conditions. These are particularly challenging in the airport sector where, as we all know, passenger numbers are falling in most markets where we operate.”

The spokeperson said that SSP had taken a proactive approach so that the business had the appropriate capital structure to ensure it could continue to trade effectively through what might be – “and which the company had to anticipate might be” – a “sustained recessionary period”.

SSP said that EQT was strongly supportive of the business and very confident about the long-term outlook for the company and the market. “They still fundamentally believe in the attractiveness of SSP and the sector itself,” she said.

Although unable to give figures for the current financial year – SSP’s financial year runs from 1 October to 30 September – she said that SSP achieved strong sales growth of +15% in 2008 and EBITDA of over £130 million.

Year-to-date sales for 2008/09 are up year-on-year, she said without disclosing numbers, adding: “but our EBITDA is slightly down compared with last year”.

SSP’s troubles have been the subject of mounting UK press coverage in recent days.

Quoting a Guardian report, Oddo Securities Financial Analyst Hotels & Catering Guillaume Rascoussier said in a note on Thursday that SSP’s bank discussions had been prompted by a fear that it may breach its banking covenants in the first quarter. It added: “SSP reportedly suffers from heavy debt (£1 billion, i.e. 7.7x EBITDA and 200x EBIT, according to the Guardian’s figures and the statements from J. Hahnel of EQT to Esmerk Swedish News in early January).

“These figures seem realistic to us since we estimate the acquisition price for EQT in mid-2006 at £1.2 billion). The freefall in passenger traffic in airports and railway stations obviously affects SSP’s financial balance (its EBIT fell from £20 million in 2006-07 to £5 million in 2007-08), just as it is weakening [rival] Autogrill.”

Drawing a comparison with SSP’s powerful Italian rival, Rascoussier noted: “Autogrill might also breach its banking covenants by end-H1 2009 if traffic deteriorates further. However, we are convinced that Autogrill benefits from support from shareholder Benetton and could make a capital increase. It seems that SSP is suffering from far more serious financial problems owing to the much heavier debt (by comparison, Autogrill bears debt of 3.3x EBITDA and 6.5x EBIT).”

In an interesting observation that is likely to form the heart of much debate at this year’s Trinity Forum in Macau, Rascoussier noted: “This confirms that development capex for all players in this sector is likely to be reduced. Falling traffic numbers call into question the entire logic of the concessions sector.”

He added: “We are still convinced that the balance of power between solid outsourcers like Autogrill and the companies they contract with is becoming much more favourable for the subcontractors, a break from the trend seen since 2005. Autogrill should increasingly become a cash cow, and we see this outlook as very favourable for the share price.”


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