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Rating Action:

Moody's changes the outlook on Wind Tre's B1 ratings to stable from positive

02 May 2018

Madrid, May 02, 2018 -- Moody's Investors Service, ("Moody's") has today changed the outlook on the ratings of Wind Tre S.p.A. (Wind Tre), to stable from positive. Concurrently, Moody's has affirmed the company's B1 corporate family rating (CFR), the B1-PD probability of default rating (PDR), and the B1 rating on the senior secured notes and Term Loan A.

"The decision to change the outlook on Wind Tre's ratings to stable from positive reflects the deterioration in revenues and EBITDA over the second half of 2017 driven by pricing pressures ahead of the upcoming entry of Iliad. These pricing pressures, if sustained overtime, could more than offset the benefit from the additional revenues from the roaming agreement with Iliad and from the cost savings from the merger of WIND and H3G," says Laura Pérez, Vice President-Senior Credit Officer and lead analyst for Wind Tre.

RATINGS RATIONALE

The change in outlook to stable from positive reflects the increasing competitive pressures in Italy ahead of Iliad's entry, which have led to a deterioration in Wind Tre's revenues and EBITDA over the second half of 2017.

Wind Tre's market share has declined at the expense of market share gains from Telecom Italia S.p.A. (Ba1 stable) and Mobile Virtual Network Operators ("MVNOs"). This has contributed to Wind Tre's revenue decline of 7% in the fourth quarter of 2017, well below the flat revenue growth reported in the first half of 2017. Moody's believes the upcoming entry of Iliad will add further pressure to Wind Tre's market share and revenues, and, as a result, the rating agency forecasts a steady annual decline in EBITDA of around 5% to 7% over the next two years.

This fall in EBITDA will weaken the company's adjusted debt/EBITDA ratio (as per Moody's definition) to 4.5x-4.7x over the next two years, up from 4.2x in FYE 2017. Despite this expected deterioration, the company's leverage remains within the ratio guidance for the B1 rating category, of between 4.0x and 5.0x, supporting the stable outlook on the rating.

Furthermore, Moody's expects capital expenditure to remain elevated at an estimated 20%-22% of revenues, as the company invests to improve its network quality, which together with spectrum investments in 2018-2019, will continue to weigh on the company's free cash flow generation.

Moody's believes that Wind Tre's market share will be more impacted by the entry of Iliad than other Italian peers given its challenger position and weaker network quality. However, Wind Tre benefits from meaningful buffers to partly mitigate pressures on its profitability, including synergies from the integration with H3G and the roaming agreement with Iliad.

Wind Tre has an adequate liquidity profile, supported by Moody's expectation of positive free cash flow generation in the next 18 months and an extended debt maturity profile following the November 2017 refinancing. Moody's expects Wind Tre to maintain adequate headroom under the maintenance covenant of the term loan, although this is likely to narrow, given the expected deterioration in leverage and the tightening of the covenant to 4.75x in January 2020, down from the current 5.5x.

Wind Tre's B1 CFR reflects (1) our expectation that Wind Tre will remain one of the largest mobile players in Italy; (2) its integrated product offering; (3) its weaker network quality than peers, although the company's investment plan would reduce the gap over time; (4) the company's conservative financial policy, with a long-term net leverage ratio target below 3.0x, benefitting from the ownership of CK Hutchison Holdings Limited (CK Hutchison, A2 stable) and VEON Ltd. (Ba2 stable); (5) the expectation of modest, but positive free cash flow generation over the next 24 months; and (6) an adequate liquidity profile over the next 12-24 months.

RATIONALE FOR STABLE OUTLOOK

The stable outlook on the ratings reflects the fact that while Moody's expects operating performance to weaken in the next two years, leverage will remain within the ratio guidance for the B1 rating of between 4.0x to 5.0x. Moody's also expects the company to maintain adequate liquidity, supported by positive free cash flow generation and a long-dated debt maturity profile.

WHAT COULD CHANGE THE RATING UP/DOWN

Upward rating pressure could develop if the company improves its operating performance trends, including key performance indicators (churn, ARPU), such that (1) its adjusted debt to EBITDA ratio (as adjusted by Moody's) declines sustainably below 4.0x, (2) its Moody's adjusted RCF/ Gross Debt ratio is sustainably above 15%, and (3) its free cash flow generation is modestly positive and growing over time.

Downward ratings pressure could arise if Wind Tre's operating performance, including KPIs, significantly weakens such that debt/EBITDA (as adjusted by Moody's) is higher than 5.0x and RCF/debt (as adjusted by Moody's) is below 10% on a sustained basis.

LIST OF AFFECTED RATINGS

Issuer: Wind Tre S.p.A.

..Affirmations:

....Long-term Corporate Family Rating, affirmed B1

....Probability of Default, affirmed B1-PD

....Senior Secured Bank Credit Facility, affirmed B1

....Senior Secured Regular Bond/Debenture, affirmed B1

..Outlook Action:

....Outlook changed to Stable from Positive

PRINCIPAL METHODOLOGY

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.

Wind Tre is the largest mobile operator in the Italian market with over 29 million subscribers following the merger between WIND Telecomunicazioni and H3G. The company also provides services to 2.7 million customers in the fixed business where it operates through the brand Infostrada. Wind Tre is ultimately owned by VIP-CKH Luxembourg Sàrl, which is a 50/50 joint venture owned by CK Hutchison Holdings Limited and VEON Ltd. (former VimpelCom Ltd). Wind Tre reported revenues and EBITDA of EUR6.2 billion and 2.2 billion (before EUR266 million of integration costs) respectively at year-end 2017.

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.

Laura Perez Martinez
VP - Sr 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
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 Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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