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Rating Action:

Moody's assigns B1 ratings to Wind Tre's new senior secured notes and term loan; positive outlook

18 Oct 2017

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 The ratings on the existing debt instruments will be withdrawn upon repayment.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

No Related Data.
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