Mexico, March 27, 2015 -- Moody's de Mexico has today changed the outlook to stable from negative
on the national scale ratings of Telefonica Finanzas Mexico S.A.
de C.V. and affirmed the Aa2.mx ratings on its Certificados
Bursatiles. These rating actions were based on March 25,
2015's rating actions taken by Moody's to change the outlook to stable
from negative on the issuer's parent, Telefónica S.A.
(Telefónica) and affirm all ratings. The Certificados Bursatiles
issued by Telefónica Finanzas México are unconditionally
and irrevocably guaranteed by Telefónica.
The change in outlook reflects Moody's expectation of an improved
operating environment in Spain, which will drive better revenue
trends, as well as the expected use of the cash proceeds from the
recently announced sale of Telefonica's UK subsidiary O2 UK (O2)
to improve leverage.
"The stable outlook reflects our expectation that the overall macro economic
conditions in Spain are expected to continue to improve, underpinning
the underlying trend towards revenue growth in the domestic market.
In addition, the stable outlook reflects management's commitment
to a maximum reported leverage of 2.35x, which we expect
will be achieved through the use of the cash proceeds from the disposal
of Telefonica's UK subsidiary O2", says Carlos Winzer,
a Moody's Senior Vice President and lead analyst for Telefonica.
RATINGS RATIONALE
Telefonica's Baa2 rating primarily reflects (1) the group's large size
and scale; (2) the diversification benefits associated with its strong
positions in many different markets; (3) the enhanced technology,
exclusive TV-content and bundled offers that improves its market
positioning; (4) management's track record and ability in terms of
executing a well-defined and concise business strategy; and
(5) its operating cash flow generation and management's commitment to
maintaining its reported net debt/EBITDA ratio below 2.35x in the
medium term.
Telefonica's Baa2 rating also continues to reflect (1) management's ability
to continue to execute a strategy that benefits from a strong position
in the Spanish market and has a strong international foothold including
Latin America and Germany; (2) that the group will deliver the financial
policy (including cash preservation measures and a non-core assets
disposal program) that management has publicly committed to, which
supports its deleveraging and strategy to strengthen its finances;
and (3) that Telefonica will maintain its access to the debt capital markets
and as such, retain adequate liquidity, supported by recent
bond issuances and asset sales.
The sale of O2 to Hutchinson Whampoa Group is credit positive as it enables
Telefonica to realize significant cash proceeds by monetizing a non core
asset, while reducing its exposure to the UK market where we believe
competitive dynamics are changing for mobile operators following the acquisition
of EE by BT. Telefonica has indicated in its press release that
it intends to allocate a substantial part of the cash proceeds to achieve
a reported leverage ratio of Net Debt / EBITDA lower than 2.35x.
This evidences management's intention to pursue a financial strategy
supported by a stronger balance sheet through asset optimization and deleveraging.
RATIONALE FOR STABLE OUTLOOK
The stable outlook on the ratings reflects Moody's expectation that although
Telefonica will continue to operate in a challenging domestic market,
the underlying economic conditions will continue to improve and increasing
consumer spending will support medium term growth in revenues.
In addition, Moody's expects that leverage will improve and
to be maintained within management's guided maximum reported 2.35x.
Telefonica's stable outlook also factors in the group's international
diversification which enhances its credit profile.
WHAT COULD CHANGE THE RATING UP/DOWN
Moody's would consider an upgrade of Telefonica's rating to Baa1
if the company's credit metrics were to strengthen significantly as a
result of improvements in its operational cash flows and a reduction in
debt. More specifically, the rating could benefit from positive
pressure if it became clear that the group could achieve sustainable improvements
in its debt ratios, such as an adjusted RCF/net debt ratio above
the mid-twenties in percentage terms and an adjusted net debt/EBITDA
ratio comfortably below 2.5x.
Conversely, a rating downgrade could result if (1) Telefonica deviates
from its financial-strengthening plan, as a result of weaker
cash flow generation or the incurrence or assumption of further substantial
debt in conjunction with the pursuit of acquisitions or more aggressive
shareholder distribution policies; and/or (2) the group's operating
performance in Spain and other key markets continues to deteriorate and
there is no likelihood of any short-term improvement in underlying
trends. Resulting metrics would include an RCF/net adjusted debt
ratio of less than 18% or a net adjusted debt/EBITDA ratio trending
towards 3.0x. In addition, a rating downgrade could
result if we were to downgrade the sovereign rating.
Affirmations:
..Issuer: Telefonica Finanzas Mexico, S.A.
de C.V.
....Senior Unsecured Regular Bond/Debenture,
Affirmed Baa2/Aa2.mx
Telefonica S.A., domiciled in Madrid, Spain,
is a leading global integrated telecommunications provider, delivering
a full range of fixed and mobile telecommunications. Telefonica
is one of the world's leading telecommunications carriers, with
some 334 million customers worldwide as of December 2014. In Latin
America (LatAm), Telefonica provided services to around 227 million
customers as of the end of December 2014 and is the leading operator in
Brazil, Argentina, Chile and Peru, with substantial
operations in Colombia, Ecuador, El Salvador, Guatemala,
Mexico, Nicaragua, Panama, Uruguay, Costa Rica
and Venezuela. In addition to its LatAm presence since 1991,
Telefonica has a strong footprint in the UK and Germany, providing
services to around 72 million customers as of December 2014. Approximately
75% of group revenues and 64% of group reported EBITDA were
generated outside Spain. Nevertheless, it's worth noticing
that the EBITDA minus Capex amount generated in Spain represents nearly
58% of total.
The principal methodology used in these ratings was Global Telecommunications
Industry published in December 2010. Please see the Credit Policy
page on www.moodys.com.mx for a copy of this methodology.
The period of time covered in the financial information used to determine
Telefonica Finanzas Mexico, S.A. de C.V.
's rating is between 31/12/2012 and 30/09/2014 (source: Financial
Statements of Telefonica S.A.).
The sources and items of information used to determine de Telefonica Finanzas
Mexico S.A de C.V ratings the unconditional and irrevocable
guaranty from Telefonica S.A. ultimate parent entity and
financial statements from Telefonica S.A as of December 31 2010
to December 31 2014.
Moody's National Scale Credit Ratings (NSRs) are intended as relative
measures of creditworthiness among debt issues and issuers within a country,
enabling market participants to better differentiate relative risks.
NSRs differ from Moody's global scale credit ratings in that they are
not globally comparable with the full universe of Moody's rated entities,
but only with NSRs for other rated debt issues and issuers within the
same country. NSRs are designated by a ".nn"
country modifier signifying the relevant country, as in ".za"
for South Africa. For further information on Moody's approach to
national scale credit ratings, please refer to Moody's Credit rating
Methodology published in June 2014 entitled "Mapping Moody's National
Scale Ratings to Global Scale Ratings".
REGULATORY DISCLOSURES
Information sources used to prepare the rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's information.
The ratings have been disclosed to the rated entity prior to public dissemination.
A general listing of the sources of information used in the rating process,
and the structure and voting process for the rating committees responsible
for the assignment and monitoring of ratings can be found in the Disclosure
tab in www.moodys.com.mx.
The date of the last Credit Rating Action was 22/10/2012.
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
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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.mx.
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.
This Rating is subject to upgrade or downgrade based on future changes
in the financial condition of the Issuer/Security, and said modifications
will be made without Moody's de México S.A. de C.V
accepting any liability as a result.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's considers the quality of information available on the rated entity,
obligation or credit satisfactory for the purposes of issuing a rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a rating is of sufficient quality and from sources Moody's
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received in the rating process.
Please see Moody's Rating Symbols and Definitions on www.moodys.com.mx
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definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com.mx
for the last rating action and the rating history. The date on
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Consequently, Moody's provides a date that it believes is the most
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Please see our website www.moodys.com.mx for further
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invest in any such security and/or issuer.
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for additional regulatory disclosures for each credit rating.
Gabriel Vigueras
Vice President - Senior Analyst
Corporate Finance Group
Moody's de Mexico S.A. de C.V
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Marianna Fernandes Rodrigues Waltz
Associate Managing Director
Corporate Finance Group
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SUBSCRIBERS: 55-11-3043-7300
Releasing Office:
Moody's de Mexico S.A. de C.V
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No. 405 - 502
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Moody's de Mexico has today changed the outlook to stable from negative for Telefonica Finanzas Mexico S.A. de C.V. and affirmed the Aa2.mx ratings
