London, 23 March 2011 -- Moody's Investors Service has today assigned a B2 corporate family rating
(CFR) and probability-of-default rating (PDR) to Musketeer
GmbH ('Musketeer'), the parent of Kabel BW Erste Beteiligungs
GmbH ('KBW' or 'the company'). At the same
time, Moody's has assigned provisional ratings to the following
debt instruments of the different group entities:
- EUR 1.57 billion (in a combination of euro and U.S.
dollars) worth of senior secured notes due 2019 and senior secured floating
rate notes due 2018 to be issued by Kabel BW Erste Beteiligungs GbmH and
Kabel Baden-Wuttemberg GmbH & Co. KG: (P)B1
- EUR 680 million of senior notes due 2021 to be issued by Musketeer
GmbH: (P)Caa1
The outlook for all the ratings is stable. This is the first time
that Moody's has assigned ratings to Musketeer. Moody's notes
that following completion of the planned post debt-issuance re-organization
process, Kabel BW Holdings will assume all the debt obligations
of Kabel BW Erste Beteiligungs GbmH and Kabel Baden-Wuttemberg
GmbH & Co. KG to become the sole issuer of the senior secured
notes as well as the RCF.
RATINGS RATIONALE
"The B2 CFR reflects the weak post deal credit metrics for Musketeer,
mitigated by the strength of KBW's business risk profile," says
Gunjan Dixit, Moody's lead analyst for Musketeer.
The acquisition of KBW by Liberty Global ('LGI') was announced
on 21 March 2010 and values the company at EUR3.16 billion,
excluding transaction costs (8.1x 2011 EBITDA including synergies
-- as estimated by LGI). The deal is subject to regulatory
approval and is expected to close in the second half of 2011.
EQT Funds IV and V ('EQT'), the current owners of KBW
will be re-capitalizing the company with EUR 2.25 billion
of new debt. This will fund financing fees of EUR 60 million,
refinance KBW's existing debt (EUR 1.18 billion) and repay
most of a shareholder loan from EQT (EUR 1.0 billion). Post
this repayment, a residual amount of EUR 100 million will remain
outstanding under this loan, which Moody's has treated as
debt within its credit metrics for Musketeer. Musketeer's
capital structure is complemented by common equity. Moody's
notes that Musketeer will have cash and cash equivalents of EUR 105 million
post closing of the transaction.
The new capital structure is expected to be assumed by LGI upon completion
of the transaction. Once the regulatory approval is obtained,
LGI will pay EUR 910 million as final acquisition consideration to EQT
and thereafter gain complete control of KBW. Once the transaction
is consummated by LGI, UPC Germany HoldCo 1 GmbH (a subsidiary of
LGI), would assume the obligations of Musketeer GmbH as the issuer
of senior notes and would become the ultimate holding company for KBW.
At that stage, Moody's would expect to move its CFR to UPC
Germany HoldCo 1.
Should the LGI acquisition not be consummated, Aldermanbury Investments
Limited, a subsidiary of JP Morgan Chase & Co. (the 'Backstop
Purchaser') has agreed to assume rights and obligations of the purchaser
(LGI) under the sale and purchase agreement subject to the terms defined
in the indenture. In such a situation, the Backstop purchaser
expects to sell or otherwise transfer Musketeer ('Backstop Transfer')
to any other purchaser subject to certain conditions. In addition,
if the Acquisition Agreement is terminated after the receipt of the Regulatory
Failure Notice prior to the consummation of the Backstop Acquisition,
EQT will be permitted to, subject to certain conditions, sell
or transfer (the ''EQT Transfer'') Musketeer to
any other purchaser. Moody's notes that no change of control
would be triggered under the indenture for the newly issued bonds upon
the consummation of the acquisition by LGI, or the Backstop Acquisition,
the Backstop Transfer or the EQT Transfer, provided that in connection
with the Backstop Transfer and the EQT Transfer, if the consolidated
net leverage (as defined in the indenture) of the Senior Notes Issuer
and its restricted subsidiaries is 6.25 to 1.00 or less
at the time of such transaction giving pro forma effect thereto.
Moody's ratings reflect (i) the modest scale of KBW's revenues
relative to rated peers; (ii) high pro-forma leverage of the
company based on 2010 year-end EBITDA; and (iii) de-leveraging
in the near term remaining largely a function of EBITDA growth,
in the absence of amortizing debt. Positively, the ratings
take into account (i) KBW's good market position as a provider of
cable television, broadband and telephony services in the Baden-Württemberg
region; (ii) the company's continued robust operating performance;
(iii) the competitive advantage offered by its advanced network offering
good potential for further growth; (iv) its solid EBITDA margins
translating into positive free cash flow generation.
The Baden-Württemberg ("BW") region offers a good
and growing market to KBW with approximately 5 million households.
The company already has a sizeable network in the region which has been
fully upgraded to DOCSIS 3.0 standard. In this regard,
Moody's notes that KBW is currently ahead of its German peers in
terms of network upgrade. In Moody's opinion, KBW remains
well positioned to benefit from increased demand over the short to medium
term for its "bundled" products, with the introduction of "next-generation"
digital TV and faster-speed broadband services being facilitated
by DOCSIS 3.0 technology.
Over the past five years, KBW's reported revenues have grown
at a CAGR of approximately 18%. During 2010, revenues
of the company increased by 14% driven by the largely resilient
and recurring nature of its revenues from its Basic Cable Services (BCS)
segment (including carriage fees) which accounts for approximately 53%
of total revenues as well as the good growth in the revenues from Internet
& Telephony services (37% of total revenues). KBW increased
its EBITDA margin to 56% in 2010 after 52.7% in 2009.
Given that Moody's expects KBW's EBITDA to grow consistently in 2011 and
beyond, Moody's ratings currently are based on the expectation
that Musketeer's leverage will improve to approximately 6.3x
Gross Debt/EBITDA (as adjusted by Moody's) by the end of 2011.
While Moody's believes that Internet & Telephony followed by
BCS revenues should continue to be the key growth driver for the company
over the medium term, building presence in the Pay TV, Mobile
and B2B services overtime, may still prove relatively challenging
to KBW given (i) the wealth of quality content already available on Free
to Air (FTA) broadcasting in Germany thereby to some extent undermining
the take-up of Pay TV in the country; (ii) competitive pressures
in the mobile services segment; and (iii) the lack of track record
of KBW in providing B2B services.
Reduction in leverage on a Gross Debt to EBITDA (as adjusted by Moody's)
of well below 6.0x; track-record of positive free cash
flow generation and conservative financial strategy could lead to upward
rating pressure. On the contrary, downward rating pressure
could develop with an increase in leverage above 7.0x Gross Debt
to EBITDA (as adjusted by Moody's) and/or material negative free
cash flow on a sustained basis.
The (P)B1 rating of the senior secured bonds is one notch higher than
the CFR cushioned by the presence of senior unsecured notes in the capital
structure. The Super-Senior RCF ranks ahead of the Senior
Secured Notes in the debt waterfall reflecting its priority of payment
from enforcement proceeds. The (P)Caa1 rating of the senior unsecured
notes is a result of Musketeer's high leverage and their contractually
and structurally subordinated position relative to the company's RCF and
senior secured bonds. Moody's notes that the debt incurrence
test for the senior notes has been set at 5.0x consolidated leverage
ratio and 4.0x senior secured leverage ratio. The RCF is
constricted by a leverage based maintenance covenant and we would expect
Musketeer to maintain adequate headroom under the covenant at all times.
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 revolving credit facility and the notes. A definitive
rating may differ from a provisional rating.
The principal methodologies used in this rating were Global Cable Television
Industry published in July 2009, and Loss Given Default for Speculative-Grade
Non-Financial Companies in the U.S., Canada
and EMEA published in June 2009.
Musketeer GmbH, is the ultimate holding company for KBW, which
is the third largest cable operator in the Germany with revenues (including
other operating income) of EUR 563.4 million in 2010.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service information.
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on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
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and issued with no amendment resulting from that disclosure.
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Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
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Please see ratings tab on the issuer/entity page on Moodys.com
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London
Gunjan Dixit
Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
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London
Chetan Modi
Senior Vice President
Corporate Finance Group
Moody's Investors Service Ltd.
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Moody's assigns first time ratings (CFR at B2) to Musketeer GmbH (KBW); rating outlook is stable
