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Rating Action:

Moody's assigns B1 to Sunrise; outlook stable

04 Oct 2010

Madrid, October 04, 2010 -- Moody's Investors Service has today assigned a B1 corporate family rating (CFR) and probability-of-default rating (PDR) to Sunrise Communications Holdings S.A.("Sunrise"), the ultimate parent of Sunrise Communications AG. At the same time, Moody's has assigned provisional ratings and loss-given-default (LGD) assessments to the following debt instruments of different group entities:

- CHF675 million (equivalent) of senior unsecured bonds due 2018, issued by Sunrise Communications Holdings S.A.: (P)B3/LGD6

- CHF800 million (equivalent) of senior secured bonds due 2017, issued by Sunrise Communications International S.A.: (P)Ba3/LGD3

- CHF500 million senior secured term loan A at Skylight S.à.r.l.: (P)Ba3/LGD3

- CHF320 million (equivalent) senior secured term loan B at Skylight S.à.r.l.: (P)Ba3/LGD3

The outlook for all the ratings is stable. This is the first time that Moody's has assigned ratings to Sunrise.

RATINGS RATIONALE

"The B1 CFR reflects the strength of Sunrise's business-risk profile, which is mitigated by the weakness of its financial profile following the leveraged acquisition of the company," says Iván Palacios, a Moody's Vice President -- Senior Analyst and lead analyst for Sunrise.

The acquisition of Sunrise by funds advised by CVC Capital Partners was announced on 17 September 2010 and values the company at CHF3.3 billion (6.7x 2009 EBITDA). The transaction will be financed with CHF1.0 billion of equity (including preferred equity certificates (PECs) and convertible preferred equity certificates (CPECs), which Moody's has treated as equity) and CHF2.3 billion worth of debt (including bank facilities and bonds).

The rating reflects: (i) Sunrise's strong position in the Swiss telecoms market, as the leading integrated alternative operator with reported market shares of 16% and 23% in the fixed and mobile telephony segments respectively; (ii) the relative stability of the competitive, regulatory and macroeconomic environments in Switzerland; (iii) the company's expected strong and stable cash flow generation; and (iv) a comfortable liquidity position following the completion of the leveraged buyout.

These positive considerations are balanced by the company's high leverage as a result of the acquisition debt, with pro-forma debt/EBITDA of 4.7x (as adjusted by Moody's) for financial year (FY) 2010.

The rating assumes that Sunrise's future operating performance will be characterised by low revenue and EBITDA growth, as a result of the maturity of the Swiss market, the already high levels of penetration (122% mobile penetration as of June 2010), and the level of competition in the market. Sunrise competes with a well-capitalised and dominant incumbent, and Moody's believes that it will be challenging for the company to increase its reported market share in fixed and mobile telephony from its current levels. Nevertheless, Sunrise has a recent track record of sustained customer growth, and it plans to leverage its investment in its mobile network and its ample network capacity to benefit from the expected growth in smartphone penetration in Switzerland.

Moody's notes that Sunrise has a seven-year track record of generating relatively flat revenue and EBITDA. While expecting this revenue stability to continue, the rating agency believes that the company will be able to slowly but progressively improve its moderate EBITDA margin of around 25% (as reported by the company) for FY 2009.

Given that Moody's expects Sunrise's EBITDA to grow only gradually, the company will de-leverage slowly, with debt/EBITDA (as adjusted by Moody's) improving to around 4.2x by FY 2013. Failure to de-leverage the balance sheet as planned could lead to pressure on financial covenants by the end of the rating horizon, as the maintenance financial covenants included in the acquisition facilities tighten over time.

The stable outlook reflects that Sunrise is well positioned in the B1 rating category despite the company's high leverage, with credit metrics expected to gradually improve overtime, while there is no major competitive, macro or regulatory threat envisaged over the near to medium term. The stable outlook also factors an operating and financial performance in line with Moody's expectations detailed above.

Upward pressure on the rating could develop if the management team delivers on its business plan, such that the company's (i) debt/EBITDA ratio (as adjusted by Moody's) reaches 4.0x or below; and (ii) retained cash flow (RCF)/debt ratio (as adjusted by Moody's) trends towards 15% or higher.

Conversely, downward pressure on the rating could be exerted if Sunrise's operating performance weakens such that the company does not de-leverage from current levels. Ratios that could be indicative of downward pressure on the rating are debt/EBITDA (as adjusted by Moody's) higher than 5.0x and RCF/debt (as adjusted by Moody's) below 10%.

The (P)Ba3 rating of the senior secured bank facilities and the senior secured bond, which is one notch above the CFR, reflects the impact of the presence of junior debt in Sunrise's capital structure. The senior secured bond has the same rating and LGD rate as the senior secured facilities, reflecting an Intercreditor Equalisation Agreement that ensures that the proceeds resulting from the enforcement of security for all senior creditors are equalised. The (P)B3 rating of the senior unsecured notes is a result of Sunrise's high leverage and their contractually and structurally subordinated position relative to the company's senior secured bank facilities and senior secured bonds.

Moody's issues provisional ratings in advance of the final sale of securities and these ratings reflect the rating agency's preliminary credit opinion regarding the transaction only. Upon a conclusive review of the final documentation, Moody's will endeavour to assign a definitive rating to the revolving credit facility and the notes. A definitive rating may differ from a provisional rating.

The principal methodologies used in the assignment of this indicative rating were the "Global Telecommunications Industry Rating Methodology", published in December 2007, and "Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA", published in June 2009. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

Headquartered in Zurich, Sunrise is the second-largest integrated telecommunications operator in Switzerland, with CHF2.0 billion of revenues and CHF500 million of EBITDA in FY 2009. In a market dominated by the incumbent, Sunrise is the leading challenger with a reported 23% market share in mobile telephony, a segment that is the largest contributor to the company's consolidated revenues (58% of FY 2009 revenues). The company has an estimated 16% market share in the fixed voice segment and a 12% market share in the asymmetric digital subscriber line (ADSL) segment.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service's information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of assigning a credit rating.

The rating has been disclosed to the rated entity or its designated agents and issued with no amendment resulting from that disclosure.

Moody's Investors Service may have provided Ancillary or Other Permissible Service(s) to the rated entity or its related third parties within the three years preceding the Credit Rating Action. Please see the ratings disclosure page www.moodys.com/disclosures on our website for further information.

MOODY'S adopts all necessary measures so that the information it uses in assigning a credit 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.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service 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 the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Madrid
Ivan Palacios
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Espana, S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

London
Paloma San Valentin
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's Investors Service Espana, S.A.
Barbara de Braganza, 2
Madrid 28004
Spain

Moody's assigns B1 to Sunrise; outlook stable
No Related Data.
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