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Rating Action:

Moody's assigns (P)B2 rating to ONO's senior secured notes; outlook positive

11 Oct 2010

Madrid, October 11, 2010 -- Moody's Investors Service has today assigned a provisional (P)B2 rating to the EUR500 million of senior secured notes due in 2018 to be issued by Nara Cable Funding Limited (Nara), a financial vehicle incorporated in Ireland that will on lend the funds to Cableuropa S.A.U. (ONO). Concurrently, Moody's (i) affirmed ONO's B3 corporate family rating (CFR) and all other ratings; and (ii) changed the outlook on all ratings to positive from stable.

Moody's issues provisional instrument ratings in advance of the final sale of securities and these ratings reflect Moody'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 notes. A definitive rating may differ from a provisional rating.

RATING RATIONALE

"Moody's decision to change the outlook on the ratings to positive from stable reflects the progress that the company is making in reducing its refinancing risk in 2013 by extending its debt maturity profile," says Iván Palacios, a Moody's Vice President -- Senior Analyst and lead analyst for ONO. "However, Moody's also notes that ONO still faces material refinancing challenges in 2013," adds Mr Palacios.

The proposed bond issuance is the second step of a broader refinancing plan, which was initiated in May 2010, when ONO reached an agreement with its lenders under the senior facilities agreement to incorporate part of the facilities due in 2010-2012 into new forward-start facilities due in 2013.

Nara will now issue EUR500 million of senior secured notes, the proceeds of which will be on lent to Cableuropa, S.A.U. under a new tranche of the EUR3.6 billion senior facilities agreement and used to prepay and cancel an equivalent amount of senior bank debt. The new notes will therefore rank pari passu with the existing senior secured facilities.

The (P)B2 rating of the new notes is one notch higher than the B3 CFR, reflecting the impact of the presence of junior debt in the company's capital structure. This primarily comprises ONO Finance II's EUR270 million senior unsecured bond (due 2014) and ONO Finance's EUR180 million senior unsecured bond (due 2014).

The new bond issuance will have a neutral impact on ONO's leverage, as the proceeds from the proposed bond will be used to refinance existing senior bank facilities. Moody's expects ONO to report leverage of around 5.3x (as adjusted by Moody's) for financial year (FY) 2010. This is a moderate level for the rating category, and a sign that upward pressure could develop on the rating over the short to medium term.

ONO's rating has been constrained by liquidity and refinancing risk considerations, and the issuance of the senior secured bond due in 2018 is positive because it extends the company's debt maturity profile and reduces its refinancing wall in 2013. Nevertheless, the 2013 refinancing wall remains large (around EUR2.7 billion, post transaction) and will require ONO to continue improving its debt maturity profile.

Upward rating pressure could develop if ONO (i) progresses in extending its debt maturity profile; and (ii) management continues to execute the company's revised business plan against the backdrop of the tough economic environment in Spain. More specifically, Moody's will continue to monitor the extent to which ONO delivers sustainable operating performance and free cash flow generation in accordance with its plan and guidance shared with the market in terms of revenue, EBITDA and free cash flow.

Downward pressure could be exerted on the rating as a result of (i) a failure by ONO to deliver operational performance in line with its plan and guidance, in terms of the company making continued progress in strengthening its credit and cash flow metrics on a quarterly basis; or (ii) the re-emergence of liquidity concerns, if ONO fails to proactively address the refinancing of the 2013 debt maturities.

Moody's most recent rating action on ONO was implemented on 16 April 2010, when the company's outlook was changed to stable from negative.

The principal methodology used in rating ONO was Moody's "Global Cable Television Industry Rating Methodology", published in July 2009 and available at www.moodys.com in the Ratings Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Ratings Methodologies sub-directory on Moody's website.

Headquartered in Madrid, Cableuropa, S.A.U. (ONO) is Spain's largest cable operator and leading alternative provider of telecommunications, broadband and internet and pay-TV services. It is the only cable operator with national coverage. In FY 2009, ONO reported revenues of around EUR1.5 billion and EBITDA of EUR730 million.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties 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.

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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.

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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
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 Espana, S.A.
Barbara de Braganza, 2
Madrid 28004
Spain

Moody's assigns (P)B2 rating to ONO's senior secured notes; outlook positive
No Related Data.
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