Madrid, October 18, 2017 -- Moody's Investors Service, ("Moody's") has today assigned B1 ratings
to the proposed EUR7,300 million floating rate and fixed rate Senior
Secured notes (EUR and USD denominated) due between 2023-2025 issued
by Wind Tre S.p.A ("Wind Tre"). Concurrently,
Moody's has also assigned B1 ratings to a new EUR3 billion Term Loan A
due in 2022 of Wind Tre.
All ratings have a positive outlook in line with the outlook on Wind Tre's
B1 Corporate Family Rating (CFR).
The company's B1 CFR, B1-PD Probability of Default
Rating (PDR) as well as the ratings on the existing debt instruments of
Wind Tre S.p.A and Wind Acquisition Finance S.A.
remain unchanged. Proceeds from the new notes and new term loan
will be used to refinance the company's whole capital structure.
The ratings on the existing debt instruments will be withdrawn upon repayment.
RATINGS RATIONALE
The B1 ratings on the term loan A and senior secured notes are in line
with Wind Tre's B1 CFR, reflecting the fact that all the debt
ranks pari passu and benefits from the same security package, which
is mainly comprised of share pledges together with receivables of shareholder
loans and upstream loans.
The refinancing of the capital structure is credit positive, as
it will reduce the company's interest expense and improve its cash
flow generation by an estimated EUR250 million. In addition,
the refinancing will extend the debt maturity profile to an estimated
average maturity of 6 years, up from the previous average maturity
of 3 years. The term loan also has a mandatory repayment starting
from 2020.
The refinancing simplifies Wind Tre's capital structure through
the issuance of senior secured and term loans which rank pari-passu
with each other. We expect Wind Tre to have meaningful headroom
under the covenants for the senior secured notes and term loan.
The term loan A has a maintenance covenant based on total net leverage
(including total run-rate synergies as defined in the documentation)
with an opening level set at 5.50x with a step down after 24 months
and 36 months to 4.75x and to 4.50x, respectively.
While the refinancing exercise is viewed as positive, the company's
B1 CFR and positive outlook remain unchanged as it is a leverage neutral
transaction. Moody's expects Wind Tre's adjusted debt
to EBITDA to improve below 4x in the next 18 months driven by the significant
synergies from the merger together with roaming revenues and proceeds
from disposals required in the remedy package, which provide a significant
cushion against increasing competitive pressures. However,
upward pressure on the rating remains somewhat constrained by the uncertainties
linked to the entry of Iliad S.A. in the Italian market
in 2018.
Wind Tre's B1 CFR reflects (1) the improvement in its business profile
following the merger of Wind Telecomunicazioni S.p.A.
("Wind") and H3G S.p.A., including greater
scale and its position as the largest mobile operator by subscribers in
Italy with a strong spectrum portfolio; (2) a significant improvement
in leverage after the merger with Wind and Tre with adjusted gross leverage
which Moody's expects to reduce below 4x in the next 18 months (expected
2017: 4x; Wind standalone: 5.4x pre-transaction
in 2015); (3) its conservative financial policy with a long-term
target net leverage ratio below 3x and predictable dividend policies linked
to leverage reduction, benefitting from the ownership of CK Hutchison
Holdings Limited (A3 stable, CK Hutchison) and VEON Ltd.
(Ba2 stable); (4) our expectation that the merger will generate substantial
synergies, which together with the roaming agreement with Iliad
and proceeds derived from the remedy package, provide a significant
cushion to face revenue pressures as competition increases; and (5)
an adequate liquidity profile over the next 12-24 months.
These strengths are partially offset by (1) the uncertainties linked to
the upcoming entry of Iliad S.A. in the Italian market,
which will likely weaken Wind Tre's market share and revenues; (2)
the company's position as a challenger; and (3) lower quality
network compared to peers, although the company's investment
plan should lead to an improvement over time.
RATIONALE FOR THE POSITIVE OUTLOOK
The positive outlook on the ratings reflects Moody's expectation
of further deleveraging with an adjusted debt to EBITDA ratio consistently
below 4x and a retained cash flow (RCF) to debt ratio sustainably above
15% over the next 18 months. Deleveraging will be driven
by the improving cash flow generation supported by substantial synergies
from the merger together with roaming revenues and proceeds from disposals
required in the remedy package, which will provide a significant
cushion against increasing competitive pressures.
WHAT COULD MOVE THE RATING UP/DOWN
Upward rating pressure could develop if the company demonstrates a resilient
operating performance and continues its deleveraging profile such that
(1) its adjusted debt to EBITDA ratio (as adjusted by Moody's) declines
sustainably below 4.0x, (2) its Moody's adjusted RCF/ Gross
Debt ratio is sustainably above 15%, and (3) its free cash
flow generation is positive and growing over time.
Downward ratings pressure could arise if Wind Tre's operating performance
weakens such that debt/EBITDA (as adjusted by Moody's) is higher than
5.0x and RCF/debt (as adjusted by Moody's) is below 10%
on a sustained basis.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Telecommunications
Service Providers published in January 2017. Please see the Rating
Methodologies page on www.moodys.com for a copy of this
methodology.
Created from the merger of Wind Telecomunicazioni S.p.A.
and H3G S.p.A., Wind Tre S.p.A.
is a leading alternative integrated telecoms operator in Italy.
The company provides wireless, fixed-line voice, internet,
broadband and data services. Based on number of subscribers,
Wind Tre is the largest Italian mobile operator, with a 32.7%
market share, and the second-largest broadband provider,
together with Fastweb, with a 15% market share (all figures
as of 31 March 2017; source: AGCOM). As of June 2017,
Wind Tre reported pro-forma LTM revenues and EBITDA, before
integration costs, of EUR6.5 billion and EUR2.3 billion,
respectively.
LIST OF AFFECTED RATINGS
Assignments:
..Issuer: Wind Tre S.p.A.
....Senior Secured Bank Credit Facility,
Assigned B1
....Senior Secured Regular Bond/Debenture,
Assigned B1
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 credit rating action on the support provider and in relation to
each particular credit 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 credit rating action,
and whose ratings may change as a result of this credit 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.
Laura Perez Martinez
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
Client Service: 44 20 7772 5454
Ivan Palacios
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 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
Client Service: 44 20 7772 5454
