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Rating Action:

Moody's assigns B1 CFR to Ypso Holding (Numericable), outlook is positive

24 Jan 2014

London, 24 January 2014 -- Moody's today assigned a B1 corporate family rating (CFR) and B2-PD probability-of-default rating (PDR) to Ypso Holding S.a.r.l ("Numericable" or "the company"). At the same time, Moody's has withdrawn the B2 CFR and B3-PD PDR of Ypso France S.A.S. Moody's has also upgraded the ratings of the senior secured notes due 2019 issued by Numericable Finance & Co. S.C.A to B1 from B2. The outlook for the ratings is positive.

The rating actions follow the closing of the refinancing of Altice B2B France S.A.S. ("Completel")'s debt by Numericable and the completion of related reorganization steps, which resulted in Numericable becoming the owner of Completel. In November 2013, Numericable Group S.A., (Numericable Group), Numericable's parent company was listed on the Euronext stock exchange.

RATINGS RATIONALE

Numericable's B1 CFR is based on: (i) reduced leverage after the contribution of French B2B telecoms operator Completel to the new Numericable Group with a combined pro forma Debt/EBITDA ratio (as adjusted by Moody's) of 4.7x at the end of September 2013 ; (ii) the benefits of the IPO proceeds partly used to repay debt, albeit mitigated by incremental debt resulting from the debt refinancing; (iii) the company's stated financial policy to maintain leverage (as measured by a Net Debt/EBITDA ratio) between 3.5x and 4.0x during the 2014-16 period; (iv) the positive operating momentum mostly driven by B2C subscriber growth following the successful launch of the set top box "La Box" and (v) the benefits of Numericable's high speed network with last mile access and high node density allowing for a superior product offering compared to DSL-based products.

The CFR remains constrained by (i) execution risk on the company's strategy to upgrade its networks based on the assumption that demand for very-high broadband speed (beyond 30 Mbps) will increase, while the point of customer saturation with regards to download speed remains unclear, (ii) a limited deleveraging path solely relying on EBITDA growth given the absence of near-term debt maturities, (iii) limited FCF generation for the combined group resulting from an aggressive capex plan; (iv) the highly competitive nature of the French telecommunications market, and (v) the diminished contribution from stable B2C video and broadband operations in favour of the more volatile and lower margin B2B business.

Moody's has assumed that there will be no material differences between the consolidated accounts at Numericable and those of its parent company, Numericable Group. Only Numericable Group will provide consolidated accounts going forward. Furthermore the ratings are based on Moody's expectations that Numericable will remain a guarantor for the Ypso France's senior facility agreement and the indirect owner of the Completel assets.

The contribution of Completel to Numericable together with the proceeds from the company's IPO and a subsequent debt refinancing resulted in a visible reduction in leverage (as reported by the company) from 5.1x on a standalone basis to around 4.2x on a combined pro forma basis as of 30 September 2013 and Moody's expects a similar leverage level at the 2013 year-end. This translates into a Moody's adjusted Debt/EBITDA ratio in the region of 4.7x. While Moody's expects some further gradual deleveraging towards 3.5x Net Debt/EBITDA (as reported by the company), the agency also notes Numericable's stated intention to maintain a Net Debt/EBITDA ratio between 3.5x and 4.0x during the 2014-16 period and its plan to consider dividends from 2015 onwards.

Numericable plans to devote cash flows from its operations on a priority basis to growth and the continued upgrading of its network to the EuroDocsis 3.0 technology standard. To do so the company expects to incur capex of approximately EUR220 to EUR230 million during the 2014-2016 period (including for public--private partnership projects such as the "DSP 92" project). Underlying capex not related to upgrades is expected to be EUR300 million annually during the period. Against this backdrop Moody's expects only moderate free cash flow generation in the near term notwithstanding the savings on interest payments post IPO/refinancing. FCF could turn negative in 2015, depending on the size of a possible dividend pay-out.

After a flat 2012, Numericable's combined pro forma revenues grew by 1% in the nine months ended 30 September 2013. This was mainly driven by the B2C segment ( +4.7%, accounting for 67% of total revenues) on the back of good take-up for the company's new high specification set-top box ( "La Box"), launched during Q2 2012. In the B2B segment (23% of total revenues) revenues declined by 4.5% year-on-year negatively impacted by the decrease in termination rates and the issuance of EUR 10 million credit notes issued to corporate customers as compensation for quality issues following the integration of Altitude Telecom. In the last-twelve-months period to 30 September 2013, adjusted EBITDA margins (as reported by Numericable) dropped from 47.8% to 46.8%, negatively impacted by higher subscription acquisition costs associated with customer growth.

Moody's believes that the company's strategy of accelerating the upgrade of its network to EuroDocsis 3.0 in order to continue to leverage its B2C broadband speed advantage over DSL-based competing services will deliver future revenue growth despite the high degree of competition in France and the ambitious fibre roll-out plans announced by Orange. The agency believes there is also potential for visible growth in the B2B segment. The continued growth in demand for data services in particular should allow the company to capitalize further on its network quality and its ability to price competitively. The positive outlook reflects Moody's expectation that successful execution of the current strategy would lead to a sustained increase in revenues and EBITDA margins, on an organic basis. Specifically, ratings do not anticipate a hypothetical combination with French telecoms operator SFR, around which there is currently significant press speculation.

Numericable's near-term liquidity profile is adequate for its needs. The company generates free cash flow and Moody's estimates that as of 30 September 2013 Numericable had approximately EUR100 million of cash on hand, pro forma for the IPO and debt refinancing. In addition, the company had access to a EUR65 million RCF fully undrawn as of 30 September 2013. The company does not face any material debt maturities until 2015 when EUR67 million of bank debt becomes due. While availability under the amended bank debt (including RCF) at Numericable is subject to covenant restrictions including leverage ratios, Moody's anticipates that the company will be in compliance with its covenant requirements during the next 12 to 18 months.

The CFR could be upgraded to Ba3 if (i) a successful execution of the current strategy leads to a sustainable increase in revenues and EBITDA margins; (ii) positive FCF generation is maintained and (iii) leverage as measured by the Debt/EBITDA ratio falls sustainably below 4.5x moving towards 4.25x.

Conversely, downward rating pressure could evolve if on a sustained basis: (i) operating performance was to weaken materially; (ii) leverage began trending towards 5.0x; and (iii) free cash flow generation deteriorated.

The principal methodology used in this rating was the Global Pay Television - Cable and Direct-to-Home Satellite Operators published in April 2013. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Numericable is the sole cable TV operator in France and via its subsidiary Completel is the third largest B2B provider of telecommunications services after Orange and SFR. For the twelve months period to September 2013, Numericable generated EUR1.3 billion in revenues and EUR615 million in adjusted EBITDA (as reported by the company on a combined basis with Completel). Numericable is controlled by Altice S.A (Luxembourg-based investor in cable and telecommunications assets), which also owns Altice VII S.a.r.l (rated B1/Negative), an internationally operating cable and telecommunications company.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain 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 certain 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 certain 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.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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.

Christian Rauch
Senior Vice President
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Chetan Modi
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's assigns B1 CFR to Ypso Holding (Numericable), outlook is positive
No Related Data.
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