MOODY’S ASSIGNS Aa3 LONG TERM SENIOR UNSECURED DEBT RATING TO RTP’S NEW LOAN FACILITY
Moody’s Investors Service assigned a Aa3 senior unsecured long-term debt rating to the new €800 million ten year loan facility of Radiotelevisao Portuguesa SA (RTP). Moody’s noted that draw down under the loan remains subject to certain remaining conditions precedent, the most important of which is the enactment of the New AudioVisual Laws, recently officially published and signed by the President and Prime Minister of the Republic of Portugal.
Moody’s said that the Aa3 rating reflects the very close linkage between RTP and the Portuguese Government, which in Moody’s view implies the strong likelihood of government support for RTP in case of need, and helps offset RTP’s weak stand-alone credit fundamentals. The close relationship between the State and RTP should be strengthened and clarified by the shortly anticipated enactment of the New AudioVisual Laws. The Aa3 rating also takes account of the steps taken by RTP, under new management, to cut its cost base, to shed underperforming activities and to focus on debt reduction. Finally, the Government’s overall support for RTP as reflected in the new concession agreement and the financial restructuring agreement further underpins the Aa3 rating.
On the negative side, the rating takes account of RTP’s weak operating performance record, high indebtedness, and material negative equity position. It also reflects the remaining execution risks surrounding its restructuring and recapitalisation plan, as well as the residual risk that the European Commission might consider certain elements of the plan in breach of EU State Aid regulations.
Moody’s said that the close linkage between RTP and the State is reflected in its 100% indirect ownership by the State and the longstanding position of RTP as the primary public sector broadcaster in the Republic of Portugal. The Aa3 rating anticipates that RTP will become 100% directly owned by the Republic of Portugal upon enactment of the New AudioVisual Laws, at which point RTP will be renamed Radio e Televisao de Portugal, SGPS, SA. The rating also reflects that at that time the general concession for the provision of public service television is to be granted to RTP SGPS for a sixteen year term.
The rating agency said that the Portuguese Government has sponsored wide ranging change to the legal framework for broadcasting in Portugal (the New AudioVisual Laws, approved in the legislature on 15 July, and signed by the President and Prime Minister on 8 August). As part of this, the Government will enter into revised Concession and Financial Restructuring agreements with RTP once the legislation has been enacted as currently planned by early September. The Aa3 rating reflects that these changes should represent a significant improvement over existing legislation. In Moody’s view, the changes promote greater clarity of the responsibilities of the State for financing public service broadcasting, and specify the means by which the State is to recapitalise RTP over a 10 year period.
The Financial Restructuring plan anticipates that RTP should break-even at the operating profit level by 2005, Moody’s said. Since its appointment in 2002, RTP’s incumbent board and management have made progress on reducing its cost base to the annual €240 million targeted in the plan through a series of initiatives: headcount has been reduced by more than 600; non core assets, such as TV Guia, have been sold; and the group’s structure has been simplified. Renegotiation of sports programming rights over the next couple of years should provide further cost-cutting opportunities. As the cost position stabilises, Moody’s anticipates that management should be in a position to devote greater attention to recovering audience share at RTP 1, which showed some signs of recovery to 21.1% in 2002, and 23.4% in the first half of 2003, if still some way behind SIC and TVI, which have 29%-30%.
The rating agency added that given the time frame and scale of the undertaking, there remain risks in the execution of a 10 year recapitalisation plan designed to address negative equity of €985 million at end-2002, and to reduce gross debt approaching €1 billion. However, these should be minimised by the improved clarity surrounding the timing and sources of RTP’s income, the detailed nature of the plan, and the requirement that significant borrowing in excess of that anticipated requires Government approval. With regard to the potential risks associated with the EU rules on State Aid Moody’s noted that RTP has stated that it believes it unlikely either that the State will lose its outstanding case regarding certain past payments to RTP or that the measures taken with the implementation of the Restructuring Plan would be considered State Aid.
Radiotelevisao Portuguesa SA, headquartered in Lisbon, is the public sector broadcaster in Portugal, and is currently 100% indirectly owned by the Portuguese State.
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