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Rating Action:

Moody's changes outlook on Altice Luxembourg's B1 CFR to negative from stable

06 Dec 2017

London, 06 December 2017 -- Moody's Investors Service, ("Moody's") has today changed to negative from stable the outlook on the ratings of Altice Luxembourg S.A. (Altice Luxembourg) a Luxembourg-based holding company which, through its subsidiaries in France, Portugal, Israel and Dominican Republic, provides pay television, broadband Internet and fixed-line telephony, and mobile telephony services to residential and corporate customers. Concurrently, Moody's has affirmed Altice Luxembourg's B1 corporate family rating (CFR), B1-PD probability of default rating (PDR) and its B3 senior unsecured notes rating.

"The decision to change the outlook to negative on Altice Luxembourg's ratings reflects the very weak positioning of the rating and reported revenue weakness in the key markets, France and Portugal, in Q3 2017," says Colin Vittery, a Moody's Vice President -- Senior Credit Officer -- and lead analyst for Altice Luxembourg. "Management changes have come at a critical time for the French business as it battles high customer churn and operational restructuring at a time of reduced liquidity and increasing pressure on financial covenants."

A full list of affected ratings can be found at the end of this Press Release.

RATINGS RATIONALE

The B1 rating reflects (1) the need to stabilize revenues in France and Portugal and reduce high levels of customer churn in France; (2) the need to deliver the synergies expected from the operational restructuring in progress in France; (3) the investment plan to roll-out network infrastructure, which will lead to a peak in capex in 2017 but which will remain at high levels in the coming years; (4) the high leverage (Moody's adjusted debt/EBITDA of 5.65x) and expectation that cash flow metrics will remain weak over the next 18 months owing to restructuring and content investment costs; and (5) the weakened liquidity profile given expectations of negative cash flow generation and limited financial covenant headroom under the revolving credit facility, supported by expected proceeds from disposals.

The B1 rating also recognizes (1) the scale of the business and its strong market positions; (2) the high quality asset base and the progress in capex "catch up" in 2016 and 2017; (3) its ability to provide a convergent product offer; (4) the group's high margin of 39% (as calculated by Moody's); (5) the stable regulatory environment in core markets; (6) the long-dated debt maturity profile, with no significant debt maturities until 2022; and (7) the management's focus on short-term debt reduction, through an asset disposal strategy to reduce leverage.

Moody's adjusted leverage remains very high for the rating and the group continues to face significant and complex operational challenges, particularly in the French market. Moody's expects Altice Luxembourg to continue to maintain leverage at around 5.5x, before any impact of asset disposals, (using Moody's standard adjustments) in the next 12 months, as high exceptional restructuring costs, increased content spend and elevated capex, limit free cash flow.

Given revenue weakness combined with anticipated restructuring costs of EUR800 million across 2017 and 2018 and elevated capex of EUR3.2 billion in 2017 and EUR2.9 billion in 2018, Moody's expects weak cash flow generation in 2017 and 2018 and a weakened liquidity position. High leverage will mean increased pressure on the financial covenants relating to subsidiary revolving credit facilties. Supporting liquidity is the new commitment to sell towers and non-core assets in 2018.

Whilst management is committed to a "back to basics" strategy focusing on the operating turnaround of SFR, without further mergers and acquisitions activity or content acquisition, Moody's remains concerned by the depth of management. For example, Dexter Goei has been appointed CEO of Altice NV in addition to his roles as Chairman and CEO of Altice USA and Dennis Okhuijsen has been appointed CEO of Altice Europe in addition to his role as CFO of Altice NV. The stated asset disposal plans in 2018 add to this management burden.

RATIONALE FOR NEGATIVE OUTLOOK

The negative outlook reflects Moody's view that the new management faces multiple challenges including revenue stabilization in France and Portugal, customer churn reduction at SFR, operational turnaround in France and content monetization in the highly competitive French market. At the same time, group management will be stretched as the company looks to dispose of assets to reduce debt, given the lack of free cash flow generation in 2018.

Moreover, the outlook factors in Moody's expectation that Altice will focus on executing its operational plans for assets owned within Altice Luxembourg. The outlook does not contemplate any material new debt-financed acquisitions before the group has demonstrated a track record in deleveraging from current levels and there is evidence of revenue stabilization / growth in the French and Portuguese telecoms businesses.

WHAT COULD MOVE THE RATING UP/DOWN

Downward pressure on the rating may develop if (1) Moody's adjusted leverage moves materially above the level of 5.5x reported in 2016; (2) there is a failure to stabilize revenues in the French and Portuguese telecoms businesses; (3) there are material debt-financed acquisitions at either the Altice Luxembourg or Altice N.V. level; (4) there are signs of a deterioration in liquidity; (5) there is not demonstrable progress towards asset disposals in the first half of 2018; or (6) there are material setbacks in achievement of synergies in existing company businesses.

Moody's sees no near-term upward pressure on the rating, although such pressure may develop over time should: (1) Moody's adjusted leverage be sustained below 4.5x; (2) the company reports material free cash flow generation; and (3) the company demonstrates sustained revenue and earnings performance from underlying assets, in particular, the SFR Group in France. Upward rating pressure is unlikely until there is a track record of stronger liquidity management at the different credit pools.

LIST OF AFFECTED RATINGS

Affirmations:

..Issuer: Altice Luxembourg S.A.

.... Corporate Family Rating, Affirmed B1

.... Probability of Default Rating, Affirmed B1-PD

....Senior Unsecured Regular Bond/Debenture, Affirmed B3

Outlook Actions:

..Issuer: Altice Luxembourg S.A.

....Outlook, Changed To Negative From Stable

PRINCIPAL METHODOLGY

The principal methodology used in these ratings was Telecommunications Service Providers published in January 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Altice Luxembourg S.A is a Luxembourg-based holding company, which through its subsidiaries Altice International S.a.r.l. and SFR Group S.A. operates a multinational telecommunications and cable business. SFR has its operations mainly in France while Altice International currently has a presence in four regions-- Dominican Republic, Israel, Western Europe and the French Overseas Territories.

Altice Luxembourg was created in the context of a corporate reorganization concluded in August 2015, which saw Amsterdam-listed Altice NV ("Altice" or "the Altice group" ) established as its corporate parent. The Altice group, which during 2015 also acquired US cable operators Cequel Communications Holdings I, LLC ("Suddenlink", B2 positive) and Cablevision Systems Corporation ("Cablevision", B1 stable), is ultimately controlled by French entrepreneur Patrick Drahi. The Suddenlink and Cablevision acquisitions were financed in credit pools that are separate from Altice Luxembourg.

Altice Luxembourg generated revenue of EUR 15.4 billion in the year ended 31st December 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.

Colin Vittery
VP - Sr Credit Officer
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Ivan Palacios
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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