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Related Issuers
Rating Action:

Moody's assigns Ba2 ratings to NDS

17 Feb 2011

London, 17 February 2011 -- Moody's Investors Service has today assigned a Ba2 corporate family rating (CFR) and a Ba3 probability-of-default rating (PDR) to NDS Group Ltd ("NDS" or "the company"), the parent company of NDS Finance Ltd and the indirect parent company of NDS Holdings (Europe) Limited and NDS Treasury (Americas), LLC. Concurrently, Moody's has assigned provisional (P)Ba2 ratings to NDS' USD75 million six year revolving credit facility, EUR183 million six year term loan A and the USD800 million seven year term loan B. The outlook is stable.

The rating assignment follows the announcement on 14 February 2011 by NDS that it would raise USD1.05 billion in credit facilities to repay the company's existing debt, vendor loan note and related fees and expenses. NDS is majority owned by private equity fund Permira; who hold 50.5% of the shares, with News Corp. owning 48.5% and management 1%.

RATINGS RATIONALE

"The Ba2 CFR reflects NDS' leading market position in the digital pay-TV business solutions space, combined with its large customer base of leading pay-TV companies," says Douglas Crawford, Moody's lead analyst for NDS. "The company's business profile is further supported by the large number of long term contracts it holds with these companies to whom it is an integral part of their content security and enabling business."

Moody's expects that NDS' leading market position in the niche digital pay-TV business solutions space will continue to benefit from the company's history of technological innovation.

However, Moody's notes NDS' degree of customer concentration, with the top 3 customers representing around 46% of company revenues. Moreover, the company operates in a market with rapid technological developments, changes in industry standards and changes in customer requirements that pose a significant medium term risk. Over time, these include developments such as over-the-top services.

Moody's views NDS' financial risk profile post the refinancing as appropriate for the rating. The rating agency expects the company to use a high proportion of excess cash flow to repay debt, resulting in leverage of under 4x (Moody's adjusted) by 30 June 2011. Moody's ratings have also not incorporated the prospect of material dividends until the company's metrics have improved.

In Moody's view, NDS' current liquidity profile is good, due to the absence of debt maturities over the next few years and supported, after the refinancing, with an undrawn USD75 million revolving credit facility (RCF) that matures in 2017. The rating agency notes that maintenance financial covenants under NDS' credit facility agreement incorporate de-leveraging assumptions and will be set with headroom of around 30%.

The Ba3 probability of default is one notch below the Ba2 CFR as a result of the assumed Expected Family Recovery Rate (RR) of 65%, given the bank debt-only capital structure. The (P)Ba2 ratings of the USD75 million RCF, EUR183 million Term Loan A and USD800 million Term Loan B, at the same level as the CFR, reflect the lack of a meaningful amount of other liabilities. Moreover, the RCF, and both term loans are all rated (P)Ba2 as they have the same security package and payments will be made pro rata in the event of a default.

The stable outlook reflects Moody's expectation that NDS will maintain its market share and high profitability by continuing to grow subscribers, supported by growth in the pay-TV business solutions space. The rating agency also expects the company to use cash to reduce debt, while maintaining a solid liquidity profile.

Positive pressure could evolve if NDS' leverage reaches 3x and free cash flow-to-debt (FCF/debt) approaches 16%. On the contrary, negative pressure could develop on the rating if leverage reaches 4.0x and FCF/debt approaches 8% or if the criteria set for the stable outlook are not met.

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 term loan. A definitive rating may differ from a provisional rating.

The principal methodologies used in this rating were Global Business & Consumer Service Industry Rating Methodology published in October 2010, and Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009.

Founded in 1988 and headquartered in the UK, NDS is a leading provider of Pay-TV content security and delivery services, including having133 million active NDS-protected set-top-boxes. The company's primary revenue stream comes from providing Conditional Access services to leading Pay-TV operators such as DIRECTV, BskyB and Sky Italia. NDS has 5,300 people in 20 locations, with over 75% dedicated to R&D. In FY2010 the company reported revenue of USD944 million and adjusted EBITDA of USD294 million. The company is majority owned by private equity fund Permira, with 50.5% of the shares, with News Corp. owning 48.5% and management 1%.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, public information, and confidential and proprietary Moody's Investors Service 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.

London
Douglas Crawford
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

London
Chetan Modi
Senior Vice President
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

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 Ba2 ratings to NDS
No Related Data.
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Moodys.com