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Rating Action:

Moody's assigns (P)B2 rating to eir's new EUR500 million senior secured notes

07 Jun 2016

Madrid, June 07, 2016 -- Moody's Investors Service (Moody's) has today assigned a provisional (P)B2 rating, with a loss given default assessment of LGD3, to the EUR500 million senior secured notes due 2022 to be issued by eircom Finance Designated Activity Company (eircom Finance DAC), formerly eircom Finance Limited, an indirectly wholly-owned subsidiary of telecommunications company eircom Holdings (Ireland) Limited (eir). The senior secured notes, along with the senior bank facilities issued by eircom Finco S.a.r.l. are guaranteed by eir and certain subsidiaries.

All other ratings remain unchanged, including the B2 corporate family rating (CFR) and B2-PD probability of default rating of eir and the existing instrument ratings. The outlook on all the ratings remains positive.

"We have assigned a provisional (P)B2 rating to eir's proposed bond issuance in line with the company's B2-rated outstanding senior credit facility, as the proposed senior secured notes benefit from the same guarantors and are secured with the same collateral", says Iván Palacios, a Moody's Associate Managing Director and lead analyst for eir.

"This refinancing exercise is credit positive for eir, as the new notes will be used to refinance existing debt at a lower interest rate, thereby improving coverage ratios and covenant headroom, and extending its debt maturity to 2022", adds Mr Palacios.

In addition, the company is in the process of raising a EUR150 million revolving credit facility, which will further strengthen the company's liquidity sources.

Proceeds from this bond issuance will be used to redeem the EUR350 million guaranteed senior secured notes due 2020 issued by eircom Finance DAC, as well as the outstanding EUR159 million term loan B2 issued by eircom Finco S.a.r.l., together with a marginal amount of cash. Moody's will withdraw the B2 ratings on these notes following their redemption, which is expected to be on 17 June 2016, as well as the B2 ratings on the term loan B2.

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 proposed debt instruments. The definitive ratings may differ from the provisional rating.

RATINGS RATIONALE

Today's assignment of the (P)B2 rating on the proposed senior secured notes is in line with eir's CFR and with the rating on the EUR2.0 billion (outstanding) senior credit facility. The new notes are guaranteed by the same entities that guarantee the senior credit facility, and are secured over the same collateral on a pari passu basis with the senior credit facility.

This refinancing exercise is leverage neutral and does not have an impact on eir's rating or its positive outlook. However, there are a number of positive considerations from this refinancing, including (1) the expected improvement in coverage ratios, covenant headroom and cash flow generation, owing to the lower cost of debt of the new notes; and (2) the extension of the debt maturity profile to 2022, from 2020 in the case of the senior secured notes and 2019 regarding the term loan B2.

In addition, the new EUR150 million revolving credit facility will strengthen eir's liquidity profile, increasing its sources of liquidity and enhancing its flexibility in the event of unexpected liquidity needs.

The B2 CFR reflects (1) eir's integrated business model; (2) its strong position in the fixed-line market as Ireland's incumbent operator, and its position as the third-largest operator in the mobile segment; (3) the potential for its competitive position to strengthen over time, as a result of its accelerated investment plan in fibre and 4G networks; and (4) Moody's expectation of positive free cash flow generation once eir completes the current investment cycle.

However, the rating also reflects (1) eir's high leverage, although Moody's expects deleveraging from current levels; (2) the challenging competitive environment in the Irish telecoms market; and (3) its IAS 19 accounting pension deficit.

RATIONALE FOR THE POSITIVE OUTLOOK

The positive outlook reflects eir's strong position within the B2 rating category, with the potential for moving to B1 on the basis of further improvements in performance, as well as operational and financial measures taken by management.

WHAT COULD CHANGE THE RATING UP/DOWN

Upward pressure on the rating would be supported by continued improved operating performance, with growth in revenues and EBITDA leading to lower leverage such as adjusted debt/EBITDA sustainably falling below 5.0x. Upward rating pressure would also develop if the group were to generate growing positive free cash flows and to maintain a sound liquidity profile, with comfortable headroom under financial covenants.

Downward pressure on the rating could materialise if the group fails to execute its business plan or if pricing dynamics deteriorate, leading to weaker-than-expected credit metrics, including adjusted debt/EBITDA sustainably above 5.5x, and persistently negative free cash flow generation. Given the volatility of eir's IAS 19 pension deficit, the B2 rating with a positive outlook incorporates the potential for moderate deviations from these ranges on a temporary basis.

Moody's would also be concerned if eir's liquidity came under stress as a result of a weaker-than-expected operating performance or larger-than-planned cash outflows for capex or voluntary leavers.

LIST OF AFFECTED RATINGS

Assignments:

..Issuer: eircom Finance Designated Activity Company

....Backed Senior Secured Regular Bond/Debenture, Assigned (P)B2 (LGD 3)

PRINCIPAL METHODOLOGIES

The principal methodology used in this rating was Global Telecommunications Industry published in December 2010. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.

eircom Holdings (Ireland) Limited is the holding company of the eir group, the principal provider of fixed-line telecommunications services in Ireland, with a revenue share of the fixed-line market of approximately 49% (according to ComReg). The group is also the third-largest mobile operator in Ireland, with a subscriber market share of approximately 21% (excluding mobile broadband and Machine to Machine, according to ComReg). eir reported revenue of EUR1.3 billion and adjusted EBITDA of EUR518 million for the last 12 months ended March 2016.

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.

Ivan Palacios
Associate Managing Director
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
SUBSCRIBERS: 44 20 7772 5454

Michael J. Mulvaney
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 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
SUBSCRIBERS: 44 20 7772 5454

Moody's assigns (P)B2 rating to eir's new EUR500 million senior secured notes
No Related Data.
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