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Rating Action:

Moody's changes outlook on Virgin Media's ratings to positive

28 Jun 2010

London, 28 June 2010 -- Moody's Investors Service has today changed the outlook for Virgin Media Inc. ("Virgin Media" or the company) and its rated subsidiaries to positive from stable. The corporate family (CFR) and probability of default (PDR) ratings for the company are at Ba3.

The revision in outlook to positive is based on: (i) the company's continued strong and resilient operating performance despite a difficult macro-economic environment in 2009 as well as the persistent intensive competition in the UK market; and (ii) its solid liquidity position with a significantly improved debt amortisation profile.

During 2009, Virgin Media's revenues increased by 0.7%, largely supported by an increase in resilient cable revenues (+3.8%) which accounted for ~65% of overall revenues. The cable Average Revenue Per User (ARPU) registered year-on-year improvements across all quarters in 2009 despite the difficult operating environment. However, overall revenue growth was partially offset by declines in mobile revenues (-6%), non-cable revenues (-5.8%) and business segment revenues (-7.2%). In Q1 2010, overall revenue growth of 2.9% was driven by growth in cable revenues of 6% while mobile and business segment revenues continued to decline. During 2010, the company expects the mobile and business segment revenues to return to growth while cable revenues should continue to register good growth benefiting from (i) Virgin's "scalable" network infrastructure; (ii) its improving broadband product mix; and (iii) its growing interactive television products, in Moody's opinion. However, the agency notes the highly competitive nature of the company's markets in video, telephony and broadband services, which continue to pose a challenge for top-line growth.

Virgin Media's reported OCF (operating income before depreciation, amortisation, goodwill and intangible asset impairments and restructuring and other charges -- as calculated by Virgin Media) margin in 2009 increased to 36% (from 34% in 2008) and further to 37% in Q1 2010. Moody's expects the company's continued cost control measures to support the OCF margin in 2010.

The LTM debt/EBITDA (as adjusted by Moody's) for Virgin Media stood at ~4.4x as of 31 March 2010. The company generated free cash flow of GBP351 million (as adjusted by Moody's) in 2009. During 2010, Moody's believes that continued operating momentum should translate into meaningful free cash flow after capex (which company estimates at approximately 16% of revenues). With a significantly improved debt amortisation profile and no debt maturities in 2010, as well as cash in hand (GBP 420.7 million as of March 31, 2010; in May 2010 Virgin used GBP 186 million of its cash to repay its 2014 outstanding Senior Notes) together with the expected proceeds (GBP160 million) from the recently announced sale of VMTV, Virgin currently has a solid liquidity position. The rating agency notes that the company is currently considering options for the future use of cash (e.g. further debt reduction, dividends, expansion capex and so on). While Moody's expects the company to maintain its focus on gradual de-leveraging, uncertainty over the medium term financial policy still remains.

Upward rating pressure would develop if (i) the company continues to maintain solid operating momentum, particularly in the areas of subscriber additions and churn; (ii) its mobile and business segments return to growth in 2010; and (ii) it demonstrates commitment to maintaining its leverage well below 4.5x debt/ EBITDA (as adjusted by Moody's) while remaining focused on free cash flow generation. Further clarity on the company's medium-term financial policy that supports the maintenance of leverage well below a 4.5x threshold (as adjusted by Moody's) over the medium term would be an important consideration for upward rating pressure.

The last rating action on Virgin Media was on 30 March 2010 when Moody's assigned a (P)Ba1 rating to the new senior secured facility and the revolving credit facility granted to Virgin Media Investment Holdings Limited, a subsidiary of Virgin Media. At the same time, Moody's also upgraded the ratings on the existing senior secured notes issued by Virgin Media Secured Finance plc. to Ba1 from Ba2 and on the senior notes issued by Virgin Media Finance plc. to B1 from B2.

The principal methodology used in rating Virgin Media was Global Cable Television Industry (as of July 2009), which can be found at www.moodys.com in the Rating 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 Rating Methodologies sub-directory on Moody's website.

Virgin Media, headquartered in Hook, England, is the largest cable operator in the UK. In 2009, the company generated GBP3.8 billion in revenues and GBP1,361 million in reported OCF.

London
Chetan Modi
Senior Vice President
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

London
Gunjan Dixit
Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's changes outlook on Virgin Media's ratings to positive
No Related Data.
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