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Rating Action:

Moody's assigns definitive instrument ratings to PLAY; stable outlook

12 Feb 2014

Definitive B1 and B2 ratings assigned to senior secured and unsecured notes, respectively

Madrid, February 12, 2014 -- Moody's Investors Service has today assigned definitive ratings to the recent debt issuance of Play Holdings 2 S.à r.l., the ultimate parent of P4 Sp. Z o.o. (PLAY), Poland's fourth-largest mobile network operator.

The definitive ratings assigned are as follows:

- EUR600 million 5.25% senior secured notes due 2019 issued by Play Finance 2 S.A: B1 rating and loss given default (LGD) assessment of LGD4 (58%)

- PLN130 million floating rate senior secured notes (FRNs) due 2019 issued by Play Finance 2 S.A: B1 rating and LGD4 (58%)

- EUR270 million 6.5% senior notes due 2019 issued by Play Finance 1 S.A: B2 rating and LGD 6 (95%)

PLAY's B1 corporate family rating (CFR) and Ba3-PD probability of default rating (PDR) remain unchanged. The outlook for all ratings is stable.

The definitive rating assignment follows the company's dividend recapitalisation, as a result of which PLAY will distribute PLN1.4 billion (EUR340 million) to its shareholders and has refinanced PLN2.5 billion (EUR597 million) of existing bank debt through the issuance of PLN3.8 billion (EUR900 million) worth of senior secured and senior unsecured notes. Around PLN717 million (EUR170 million) of proceeds from the senior unsecured notes issuance have been placed into an escrow account, and will be released to the shareholders or the company subject to certain conditions.

"The assigned B1 rating balances our assessment of, among other things, PLAY's small size, its concentration in Poland, the weakness of its mobile-only model and its foreign currency risk against more positive factors, such as its track record of revenue and market share growth and the expected fast deleveraging profile due to its growing free cash flow generation," says Iván Palacios, a Moody's Vice President - Senior Credit Officer and lead analyst for PLAY.

RATINGS RATIONALE

Moody's definitive ratings on these debt obligations are in line with the provisional ratings assigned on 21 January 2014.

PLAY upsized its senior unsecured notes issuance by EUR30 million (PLN127 million), to EUR270 million. The incremental proceeds will be used to pay a dividend or make another distribution to shareholders. As a result of the upsizing of the bond, Moody's expects PLAY's pro-forma adjusted leverage to increase by 0.1x, a marginal increase that can be accommodated within the current B1 rating category.

The rating on the EUR600 million senior secured notes and PLN130 senior secured FRNs is B1, in line with the CFR, given that they comprise the largest piece of debt in the capital structure. The EUR270 million senior unsecured notes are rated B2, one notch lower than the rating on the senior secured notes. The one-notch difference reflects the high initial leverage and the substantial amount of secured bond debt that effectively ranks senior to the senior unsecured notes. This debt potentially limits the amount of residual collateral value available to the senior unsecured noteholders in a recovery scenario.

PLAY's B1 CFR negatively reflects (1) its small size, its fourth-place position in the Polish mobile market and its concentration in Poland; (2) its mobile-only business model, which Moody's believes is weaker than an integrated business model; (3) its foreign exchange risk, given that the majority of its debt and part of its costs and capex are denominated in foreign currency while revenues are primarily denominated in local currency; (4) the uncertainty regarding the outcome of the 800MHz/2600MHz spectrum auction; and (5) the flexibility embedded in the structure, which allows the shareholders to relever the company up to 3.75x net reported debt/EBITDA in order to distribute additional dividends.

At the same time, the rating positively reflects (1) PLAY's track record of growth in market share and revenues since commercial launch in 2007; (2) the better growth prospects for the Polish market when compared with other European markets; (3) the expected stabilisation of the competitive and regulatory environments in Poland; (4) the expected fast deleveraging profile, as the company benefits from operating leverage and stable capex; (5) its growing free cash flow generation; and (6) its adequate liquidity profile.

RATIONALE FOR THE STABLE OUTLOOK

The stable outlook reflects the initially weak positioning of PLAY's credit metrics for the rating category, but also factors in Moody's expectation that the company will deleverage quickly and maintain an adjusted debt/EBITDA ratio (as adjusted by Moody's) between 4.2x and 3.5x, while it will continue to generate positive free cash flows.

WHAT COULD CHANGE THE RATING UP/DOWN

Upward pressure on the rating could develop if the company delivers on its business plan, such that its adjusted debt/EBITDA ratio drops below 3.5x on a sustained basis. However, upward pressure on the rating may be limited due to the flexibility embedded in the bond indenture, as a result of which the shareholders may relever the balance sheet to distribute additional dividends as long as net debt/EBITDA (as reported by the company) is below 3.75x.

Downward pressure could be exerted on the rating if PLAY's operating performance weakens or the company increases debt as a result of acquisitions or shareholder distributions such that its adjusted debt/EBITDA remains above 4.2x. A weakening in the company's liquidity profile could also exert downward pressure on the rating.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was the Global Telecommunications Industry published in December 2010. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Play Holdings 2 S.à r.l. is the ultimate parent of P4 Sp. Z o.o., Poland's fourth mobile network operator in terms of subscribers. The company operates under the commercial name "PLAY" and offers voice, non-voice and mobile broadband products and services to residential and business customers.

As of September 2013, PLAY had approximately 10.3 million reported subscribers (of which 44% were contract subscribers) and a mobile market share of 18.4%. In the last 12 months ended September 2013, PLAY reported revenues of PLN3.7 billion (c.EUR889 million) and EBITDA of PLN689 million (EUR163 million). PLAY's shareholders are Olympia Development (through Tollerton Investments Limited) with a 50.3% stake, and Novator with a 49.7% stake.

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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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
VP - Senior Credit Officer
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

Paloma San Valentin
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 definitive instrument ratings to PLAY; stable outlook
No Related Data.
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