Madrid, November 16, 2011 -- Moody's has just updated the credit opinion for BT Group Plc.
Please see the issuer page on Moody.com for the most current publication.
Moody's maintains the following ratings on British Telecommunications
Plc and its following affiliates:
Long Term Issuer Rating of Baa2
Senior Unsecured (domestic and foreign currency) ratings of Baa2
Senior Unsecured MTN (foreign currency) ratings of (P)Baa2
Commercial Paper (foreign currency) ratings of P-2
British Telecom Finance B.V.
BACKED Long Term Issuer Rating of Baa2
BACKED Commercial Paper (foreign currency) ratings of P-2
RATINGS RATIONALE
BT's Baa2 rating (and corresponding P-2 short-term rating)
reflects the company's nature as the largest communications service provider
to the residential and business markets in the UK, offset by the
impact of deregulation and competition on BT's market position.
The rating also takes into consideration BT's underlying operating performance,
which has already shown substantial progress in terms of the restructuring
of Global Services, EBITDA margin improvement, cost reductions
and capital expenditure (capex) rationalisation. These improvements
continue to support free cash flow generation, ongoing debt reductions
and an amelioration in financial metrics. At the same time,
the rating continues to recognize that the large and volatile accounting
pension deficit remains a drag on BT's credit metrics.
The stable outlook reflects our expectation that BT will achieve its medium-term
operating performance targets while maintaining sustainable credit metrics
for the current rating category, such as adjusted RCF/net debt solidly
positioned in the 20%-25% range and adjusted total
debt/EBITDA comfortably below 3.5x. Given the volatility
in the pension deficit, the Baa2 rating with a stable outlook incorporates
the potential for moderate deviations from these ranges on a temporary
basis.
Upward rating pressure could develop over time if BT demonstrates growth
in cash flow after capex, regular dividends and pension contributions
such that the adjusted RCF/net debt ratio improves to above 25%
on a sustainable basis (taking into consideration some potential increase
in shareholder remuneration policy), the adjusted total debt/EBITDA
ratio is maintained sustainably below 2.5x and the company reports
solid free cash flow metrics. Nevertheless, we note that
upward rating pressure might be constrained by the volatility in the pension
deficit.
Downward pressure on the rating could emerge if cash flow measures weaken
as a result of operating performance shortfalls with the adjusted RCF/net
debt ratio declining towards 20%, or the adjusted total debt/EBITDA
ratio moving towards 3.5x, combined with the company failing
to deliver sustainable positive free cash flow.
The principal methodology used in rating British Telecommunications Plc
and British Telecom Finance B.V. was the Global Telecommunications
Industry Methodology published in December 2010. Please see the
Credit Policy page on www.moodys.com for a copy of this
methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
The rating has been disclosed to the rated entity or its designated agent(s)
and issued with no amendment resulting from that disclosure.
Information sources used to prepare the rating are the following:
parties involved in the ratings, public information and confidential
and proprietary Moody's Investors Service information.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
Moody's adopts all necessary measures so that the information it
uses in assigning a rating is of sufficient quality and from sources Moody's
considers to be reliable including, when appropriate, independent
third-party sources. However, Moody's is not
an auditor and cannot in every instance independently verify or validate
information received in the rating process.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
two years preceding the credit rating action. Please see the special
report "Ancillary or other permissible services provided to entities
rated by MIS's EU credit rating agencies" on the ratings disclosure
page on our website www.moodys.com for further information.
Please see the ratings disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com
for information on (A) MCO's major shareholders (above 5%)
and for (B) further information regarding certain affiliations that may
exist between directors of MCO and rated entities as well as (C) the names
of entities that hold ratings from MIS that have also publicly reported
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A member of the board of directors of this rated entity may also be a
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however, Moody's has not independently verified this matter.
Please see Moody's Rating Symbols and Definitions on the Rating
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the meaning of each rating category and the definition of default and
recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history. The date on
which some ratings were first released goes back to a time before Moody's
ratings were fully digitized and accurate data may not be available.
Consequently, Moody's provides a date that it believes is
the most reliable and accurate based on the information that is available
to it. Please see the ratings disclosure page on our website www.moodys.com
for further information.
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.
Ivan Palacios
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Paloma San Valentin
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Disclosures on Credit Ratings of British Telecommunications Plc