Milan, September 15, 2020 -- Moody's Investors Service ("Moody's") has today
assigned a B2 rating to the proposed €900 million euro equivalent
guaranteed senior secured notes due 2028, to be issued by Altice
France S.A. ("Altice France"), a subsidiary
of Altice France Holding S.A. ("Altice France Holding")
The outlook is negative.
Proceeds from this debt issuance will be used to repay the €1,059
million debt facility maturing in 2023 sitting outside the restricted
group, at Altice Corporate Financing S.a.r.l.,
together with €300 million of cash being upstreamed from Altice International
S.a.r.l. ("Altice International", B2
negative). The remaining part of the proceeds will be used to repay
€150 million of drawings under Altice France's revolving credit
facility (RCF).
"The debt push down is credit negative as it will add around 0.2x
of leverage to Altice France Holding's 5.6x leverage expected
at December 2020, and it will reduce by €300 million the amount
of available cash at Altice International," says Ernesto Bisagno,
a Moody's VP-Senior Credit Officer and lead analyst for Altice.
"The transaction follows the announcement of the delisting of Altice
Europe, which will be funded by an additional €2.5 billion
debt raised outside of the Altice France Holding and Altice International
restricted groups. This delisting is also credit negative as governance
could become less transparent, while the new debt raised outside
the restricted groups represents an overhang for Altice France Holding
and Altice International," added Mr. Bisagno.
A full list of affected ratings is provided towards the end of the press
release.
RATINGS RATIONALE
The combination of the €900 million debt issuance and the announcement
of the delisting of Altice Europe [1] have increased downward pressure
on the already weakly positioned ratings of Altice France Holding and
Altice International. However, as Altice France Holding was
currently servicing the debt at Altice Corporate Financing S.a.r.l.
through an upstream of dividends, there will be some interest saving
of around €30 million each year due to the expected lower coupon.
While the new €2.5 billion debt to finance the delisting of
Altice Europe will be raised outside of these two restricted groups,
it represents an additional overhang for Altice France Holding and Altice
International, as it may require a sustained dividend flow from
these entities to service this debt, although the company said this
will be done only if consistent with the deleveraging strategy.
In addition, there is a risk that this debt could be pushed down
overtime once sufficient financial flexibility develops at the two credit
pools.
The delisting is also credit negative because while management has indicated
it remains committed to continue the deleveraging efforts, by being
delisted, the company might also have more freedom to expand its
balance sheet. In addition, Moody's expects that governance
and availability of financial information will comparatively be less transparent
than for a publicly listed company.
Moody's expects Altice France Holdings' EBITDA to continue
to grow in the mid-single-digit percentages in 2020-21
driven by ARPU improvements in mobile, a positive product mix with
stronger contributions from residential fixed-line subscribers
and additional business services revenue on the back of the construction
and maintenance fees paid by SFR FTTH, with a full 12-month
contribution in 2020. Profits will also benefit from additional
cost savings, although weakened economic conditions owing to the
coronavirus outbreak may impact profitability.
Despite Moody's expectation of increased earnings, the rating
agency expects broadly flat operating cash flow because of the higher
interest cost as a result of the debt push down from Altice Luxembourg
in the first half of 2020, and the increased debt following the
€900 million bond issuance.
There will also be additional outflows for content payments impacting
working capital needs, although it is likely that part of those
payments would be reimbursed, given that due to the coronavirus
outbreak, the company has received very limited content throughout
this period. Assuming capital spending of around €2.8
billion (including IFRS 16) and dividends paid to minorities of around
€50 million - €100 million, Moody's expects
negative free cash flow (FCF) generation of around €250 million in
2020, and broadly neutral in 2021.
Despite the increased downward pressure on the rating, the B2 rating
recognizes the company's (1) position as one of the leading convergent
companies in the competitive French market; (2) scale and ranking
as the second-largest telecom operator in France; (3) integrated
business profile; (4) improved operating performance after years
of revenue decline; and (5) improved liquidity, with no significant
debt maturities until 2025.
The rating is constrained by (1) the company's highly leveraged capital
structure, with Moody's adjusted debt/EBITDA for Altice France Holding
expected to be at 5.8x in 2020; (2) its weak free cash flow
generation; (3) the complexity of the group structure; (4) the
competitive, although easing, nature of the French telecom
market; and (5) stretched management resources, given the scale
of the group.
LIQUIDITY
Liquidity is adequate, with no major debt maturities until 2025.
Pro-forma for the debt issuance, Altice France Holding has
cash of €625 million, €1,115 million of committed
undrawn revolving credit facilities (RCFs) at Altice France maturing in
2023 and a €186 million committed RCF at the holding level maturing
in 2021.
The RCF at Altice France is subject to a springing (any drawing) net senior
leverage covenant of maximum 4.5x; as a result of the increased
debt, there is currently limited buffer of 5% assuming a
pro forma net senior leverage of 4.3x (based on annualized last
two quarters "L2QA") but should improve marginally in the
next quarters as the first quarter is normally weaker.
The RCF at the holding level is subject to a springing (any drawing) net
leverage covenant of maximum 5.5x, with about 4% buffer,
based on pro forma net leverage of 5.3x (L2QA).
Moody's expects Altice France Holdings' FCF to be marginally
negative in 2020 and to improve in 2021. In addition, the
company will need to fund around €500 million for the acquisition
of Covage in the second half of 2020.
STRUCTURAL CONSIDERATIONS
The B2 rating of Altice France's proposed senior secured notes is at the
same level as Altice France Holding's B2 Corporate Family Rating
(CFR). This reflects the pari-passu ranking with Altice
France's pre-existing senior secured notes, and the bank
credit facilities (including the RCF).
RATIONALE FOR THE NEGATIVE OUTLOOK
As a result of the transaction, rating headroom has diminished further.
The negative outlook on the ratings of Altice France Holding reflects
(1) its high leverage; (2) the highly competitive market conditions,
with only a short track record of stabilisation in operating performance;
(3) the complex financial structure of the group, which has disposed
partial stakes in strategic assets such as towers and fibre networks;
and (4) its weak FCF generation.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Upward pressure on the ratings is unlikely in the short term, but
may develop over time if Altice France Holding maintains strong liquidity
with no refinancing risk and demonstrates a sustained improvement in its
underlying revenue and key performance indicators (KPIs, for example,
churn and ARPU), with growing EBITDA in main markets, leading
to an improvement in credit metrics, such as: (1) Moody's-adjusted
leverage sustained below 5.0x; and a (2) significant improvement
in FCF on a consistent basis.
The ratings could be downgraded if the company's underlying operating
performance weakens, or debt increases further, leading to
a deterioration in the group's credit fundamentals, such as:
(1) Moody's-adjusted leverage not returning below 5.5x;
and (2) FCF generation remaining negative. In addition, any
deviation from management's commitment to deleverage or signs of
deterioration in liquidity will lead to pressure on the ratings.
LIST OF AFFECTED RATINGS
..Issuer: Altice France S.A.
Assignments:
....Backed Senior Secured Regular Bond/Debenture,
Assigned B2
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Telecommunications
Service Providers published in January 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1055812.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
COMPANY PROFILE
Altice France Holding is a leading telecom operator in France.
The company reports its results under three segments: business to
consumer (B2C; 63% of revenue), business to business
(B2B; 33%) and media (4%). Altice France reported
revenue and adjusted EBITDA (as defined by the company and pro forma for
the group reorganisation) of €10.8 billion and €4.2
billion, respectively.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security 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.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
REFERENCES/CITATIONS
[1] Announcement published on Altice Europe's website on 11-Sep-2020
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.
Ernesto Bisagno, CFA
VP - Senior Credit Officer
Corporate Finance Group
Moody's Italia S.r.l
Corso di Porta Romana 68
Milan 20122
Italy
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 Italia S.r.l
Corso di Porta Romana 68
Milan 20122
Italy
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
