Rating Action: Moody’s places Stagecoach’s Baa3 ratings on reviewGlobal Credit Research – 16 Mar 2022London, March 16, 2022 — Moody’s Investors Service (“Moody’s”) today placed Stagecoach Group Plc’s (Stagecoach) issuer and senior unsecured Baa3 ratings, along with the Baa3 instrument rating on its £400 million notes due 2025, on review for downgrade. Stagecoach’s ratings were previously on review for upgrade. The outlook remains unchanged at ratings under review.This rating action follows Stagecoach’s announcement on 9 March 2022 that its Board has recommended that its shareholders accept an all-cash offer for the company from Inframobility UK Bidco Limited (“PEIF III Bidco”), a company indirectly wholly owned by Pan-European Infrastructure III, SCSp (“PEIF III”), an infrastructure fund managed and advised by DWS Infrastructure (DWS). This offer values Stagecoach at 105 pence per share or approximately £595 million and reflects a premium over the previous merger proposal from National Express Group PLC (Baa2 negative) announced on 14 December 2021.RATING RATIONALE/FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSToday’s rating action reflects the high likelihood that the merger between Stagecoach and National Express will not proceed as previously anticipated. It also reflects the uncertainty related to the company’s future financial policy under the new ownership if the acquisition is successful.During its review Moody’s will assess DWS’s strategy with respect to Stagecoach including its plans for accelerating investments in fleet electrification and related funding needs, as well as the planned capital structure and financial policy including dividend considerations. Moody’s will also continue to review the recovery of cash flows from the pandemic induced shock over the last two years.On 14 December 2021, National Express made an all-share merger offer to the shareholders of Stagecoach which valued the company at approximately £455 million (based on unaffected National Express share price on 20 September 2021) and gave Stagecoach’s shareholders an approximately 25% stake in the combined entity. The merger was conditional on CMA approval and was expected to close in about 12 months.DWS’s offer represents an approximately 50% premium to the National Express offer based on the unaffected share price on 8 March 2022 and is contingent on receiving 75% of shareholder approvals (although that figure could be reduced at the buyer’s option). DWS has already received an irrevocable undertaking from Dame Ann Gloag with respect to her shareholding of 10.5%, as well as a non-binding letter of intent from Columbia Threadneedle for approximately 17% of the shares. DWS indicated that it expected to close the transaction with an equity contribution from its funds; however, no information is available on its future financial policies for Stagecoach which is a credit risk. In addition, following the acquisition, Stagecoach will no longer be a listed entity reducing transparency for investors.Stagecoach’s operating profit doubled in the first half of fiscal 2022 as compared to the same period in the prior year and its revenues grew by 34.7% in the regional bus business and by 7.2% in the London bus business. These results reflect primarily demand recovery from the coronavirus pandemic. Although the emergence of the Omicron variant slowed down the recovery, Stagecoach reported that in February its passenger journeys were back at 70%-78% of pre-pandemic levels. As a result of strengthened performance and no dividend payments, Stagecoach’s retained cash flow as a percentage of net debt improved to 30% for the twelve months ending October 2021 from 24.5% for the fiscal 2021 (ending May 2021). Simultaneously, the company’s gross leverage measured as debt/EBITDA reduced to 6.0x from 7.3x (including Moody’s standard adjustments). These figures are inclusive of the larger than usual cash balance which is expected to be reduced with the repayment of the £300 million Covid Corporate Financing Facility (CCFF) in early 2022. Stagecoach’s net leverage was at 3.0x for the twelve months ending October 2021, a reduction from 3.6x for the fiscal 2021. Moody’s expects that the company will continue to deleverage going forward.ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONSReduced transparency as a result of delisting and uncertain financial policy of its likely new sponsor, DWS, are the key governance considerations for Stagecoach.From the environmental perspective, public transportation helps alleviate some environmental pressures by reducing individual automobile travel. Still, it is a fuel-consuming industry and the issues of emissions control and transitioning to low carbon fuels are important, along with regulation and public focus in this area. Stagecoach is making good progress by transitioning its fleet to electric vehicles where possible and reducing GHG emissions. The company has set out a goal of operating a zero-emissions UK bus fleet by 2035.Recovery from coronavirus and the related quarantines and economic downturn are key social considerations for the travel industry. The transportation sector, where Stagecoach operates, has been significantly affected by the shock and Stagecoach, along with its peers, has continued to benefit from robust government support most recently with an additional £150 million allocation announced by the Department for Transport on the 1st of March 2022. Apart from the coronavirus, public transportation sector is also highly regulated with respect to health and safety and labour relations. Stagecoach has a good track record of safe operations.LIQUIDITYStagecoach benefits from good liquidity of around £540 million of cash (prior to £300 million CCFF repayment) and £275 million available on its revolving credit facilities due 2025 as of October 2021. The company repaid its £300 million CCFF facility in early 2022 with cash on balance sheet. Stagecoach’s £400 million bond matures in 2025. Moody’s also notes the presence of a net leverage and EBITDA coverage covenants in Stagecoach’s revolving credit facilities which have been waived until October 2022. Positively, Stagecoach did not pay a dividend in fiscal 2021.STRUCTURAL CONSIDERATIONSStagecoach’s £400 million bond due in 2025 is rated Baa3 in line with its issuer rating. Moody’s understands that the bondholders have a put option that could become operative if a change of control event results in the company being downgraded to below investment grade.The rating could be confirmed at Baa3 if Stagecoach’s future financial policies are clarified to be consistent with the rating such that its retained cash flow to net debt ratio is sustained above 20% and the company maintains ample liquidity.The ratings could be downgraded if Stagecoach’s leverage increases such that its retained cash flow to net debt ratio percentage fell below the high teens. Furthermore, major debt-financed acquisition activity or a deterioration of the company’s liquidity profile could result in negative rating pressure.PRINCIPAL METHODOLOGYThe principal methodology used in these ratings was Passenger Railways and Bus Companies published in December 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1299262. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.Stagecoach is a UK-based bus operator, with operations in the UK regional bus market and the London bus market following its exit from the North American bus and UK rail businesses. The majority of Stagecoach’s revenues and profits are generated in the UK regional bus segment, an unregulated business where Stagecoach is the market leader with a share of around 25%. The remaining revenues and profits are derived from the London bus business, a regulated business where Stagecoach is the fourth-largest operator with a market share of around 13%. For its fiscal year ending May 2021, Stagecoach reported revenues of £928 million and an operating profit of £48.1 million.REGULATORY DISCLOSURESFor further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. 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Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.At least one ESG consideration was material to the credit rating action(s) announced and described above.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Maria Maslovsky Vice President – Senior Analyst Corporate Finance Group Moody’s Investors Service Ltd. One Canada Square Canary Wharf London, E14 5FA United Kingdom JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Mario Santangelo Associate Managing Director Corporate Finance Group JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Releasing Office: Moody’s Investors Service Ltd. 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