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Rating Action:

Moody's downgrades the CFRs of Altice's European credit pools to B2; outlook negative

07 Dec 2018

Madrid, December 07, 2018 -- Moody's Investors Service, ("Moody's") has today downgraded the corporate family ratings (CFR) of Altice Luxembourg S.A. (Altice Luxembourg, "the group"), Altice France S.A. and Altice International S.a.r.l., to B2 from B1, as well as their probability of default ratings (PDR) to B2-PD from B1-PD.

Altice Luxembourg is the holding company for the majority of Altice Europe N.V.'s ("Altice Europe") assets. Altice France is the principal vehicle used to fund the group's telecom operations in France, owning the SFR brand. Altice International is the vehicle used to fund the group's other international operations, such as Portugal Telecom, HOT in Israel, Altice Dominicana in the Dominican Republic, and Teads.

The ratings on the debt instruments issued by Altice Luxembourg, Altice France and Altice International and their financing subsidiaries have also been downgraded by one notch. A full list of affected ratings can be found at the end of this Press Release.

All ratings remain on negative outlook.

"The downgrade reflects our expectation of declining revenue and EBITDA over the next 12 months mainly driven by intensified competitive pressure in France's telecom sector," says Laura Perez, a Moody's Vice President -- Senior Credit Officer -- and lead analyst for Altice.

"Altice is reducing debt by selling infrastructure assets that Moody's believes are critical such as towers and fibre, which is positive for the group's liquidity at a time when its cash flow generation is weak. However, the group's underlying leverage will remain high after taking into account the pro-rata consolidation of its off-balance sheet vehicles and the greater economic operational liabilities from the tower sales. Furthermore, selling these infrastructure assets increases the group's complexity and reduces its operational flexibility when compared with a full ownership model," adds Mrs. Perez.

RATINGS RATIONALE

The group's operating performance has been below Moody's expectations. Moody's expects revenues and EBITDA to continue declining over the next 12 months, mainly driven by intensified competition, especially in France. Moody's also does not see the group's revenue stabilizing until 2020 and it remains subject to execution risk.

The strong net subscriber additions in France over the last nine months to September 2018 has come at a high financial cost, with revenues and EBITDA down by 5% and 7% given strong reduction in prices and increased retention costs together with the one-off impact of VAT. Moody's projects the pressure on top-line revenues in France to slow down next year benefiting from a larger customer base and reduced pressure on ARPU. At the same time, Moody's expects revenues in Portugal to decline modestly driven by competitive pressures and structural declines in traditional business segments.

The group recently sold part of its infrastructure assets that Moody's believes are critical to accelerate debt reduction. The transactions included the sale of half of its towers in France, 75% of its towers in Portugal and all of its towers in the Dominican Republic to financial investors for a total consideration of €2.4 billion. The group also recently announced the proposed sale of a minority equity stake of 49.99% in its SFR FTTH joint venture to a consortium of infrastructure funds for a total cash consideration of €1.8 billion.

SFFR FTTH will not be consolidated in Altice's accounts and it will have a EUR1.8 billion capex facility available to fund the fibre deployment. However, Moody's sees SFR FTTH as a strategic asset for Altice France with strong links with the group, and therefore will also analyze SFR FTTH JV on a pro-rata basis.

Moody's believes the key benefit of the announced EUR4.2 billion disposal of tower and fibre assets is to strengthen the company's liquidity and to improve headroom under covenants, at a time of low cash flow generation. Moody's forecasts free cash flow generation to be negative in 2018 and free cash flow to debt to remain modest at 0%-2% over the next 24 months.

While Moody's expects Altice Luxembourg's gross adjusted leverage (pro-forma for the group reorganization) to decline from 5.8x in 2018 to 5.1x by 2020 driven by these disposals, the group's underlying leverage will remain high at an estimated 5.5x-5.6x, after taking into account greater economic operational liabilities from towers and the pro-rata consolidation of off-balance sheet vehicles.

Moody's believes that the group's reduction in financial debt is partially offset by the increased operational liabilities and dividend leakage arising from the tower sales; together with the pro-rata consolidation of off-balance sheet vehicles. Furthermore, Moody's believes that the announced sale of fibre assets increases the complexity of the group's structure, reduces operational flexibility and creates event risk over the long-term as Altice may buy back these assets once it develops sufficient financial flexibility.

While adjusted leverage levels at Altice France and Altice International are more moderate than at the parent, Altice Luxembourg, their ratings have been downgraded to reflect the growing complexity of the group structure, the overhang that the high leverage at the parent represents for the subsidiaries, and the potential use of Altice France and Altice International's leverage capacity for corporate purposes including dividend distributions.

The B2 rating continues to reflect (1) the scale of the business and its strong market positions in different countries; (2) the high quality asset base; and its ability to provide a convergent product offer; (3) the group's high margin of 40% ; (4) the long-dated debt maturity profile, with no significant debt maturities until 2022; (5) its significant operational challenges, especially in France, including revenue stabilization, customer churn reduction and operational restructuring in highly competitive markets, (6) its complex financial structure with distinct funding credit pools for its various business units and its aggressive financial policy.

RATIONALE FOR NEGATIVE OUTLOOK

The negative outlook reflects Moody's view that Altice continues to face operational challenges including revenue stabilization in France, given recent intensified competitive pressure, as well as in Portugal. At the same time, the group's management will be stretched as the company looks to dispose of assets to reduce debt. Moody's also notes that Altice's capital structure has a modest equity cushion, estimated at 10% of the group's enterprise value.

WHAT COULD MOVE THE RATING UP/DOWN

While Moody's will not make an adjustment on Altice's leverage metrics to reflect the estimated economic impact of the sale of infrastructure assets, the rating agency will require stronger credit metrics for the B2 rating level to reflect (1) the estimated economic impact of the tower disposals and the pro-rata consolidation of SFR FTTH; (2) the growing complexity of the group's structure after the sale of infrastructure assets in Moody's view; and (3) the intensified competitive pressure in France, which diminishes visibility on long-term earnings.

Downward pressure on the ratings may develop if Altice Luxembourg's underlying operating performance weakens beyond current expectations, with sustained declines in revenues and deteriorating KPIs (including churn and ARPU) in France and Portugal, leading to a deterioration in the group's credit fundamentals, such as (1) Moody's adjusted leverage remaining consistently above 5.5x; (2) there is a significant deterioration in free cash flow generation; (3) there are material setbacks in achievement of synergies in existing company businesses, (4) there are material debt-financed acquisitions at either the Altice Luxembourg or Altice Europe N.V. level; (5) there are signs of a deterioration in liquidity.

Moody's sees no near-term upward pressure on the rating, although such pressure may develop over time if the company demonstrates sustained improvement in underlying revenues and KPIs (e.g. churn, ARPU) with growing EBITDA in main markets, especially in France, leading to an improvement in credit metrics such as: (1) Moody's adjusted leverage be sustained below 5.0x; (2) significant improvement in free cash flow generation on a consistent basis; and (3) a strong liquidity profile with no refinancing risks.

The triggers at Altice France and Altice International have been aligned with those of Altice Luxembourg to reflect the overhang that debt at the parent represents for those subsidiaries.

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 Altice France (formerly known as SFR Group S.A.) operates a multinational telecommunications and cable business. SFR has its operations mainly in France, while Altice International's main markets are Dominican Republic, Israel and Portugal.

Over last twelve months to September 2018, Altice Luxembourg generated, pro-forma for the reorganization of the group, revenue and EBITDA of €14.1 and €5.6 billion respectively. France is the main market for the group representing approximately 70% of the its revenue and EBITDA.

Downgrades:

..Issuer: Altice Luxembourg S.A.

.... Probability of Default Rating, Downgraded to B2-PD from B1-PD

.... Corporate Family Rating, Downgraded to B2 from B1

....Senior Unsecured Regular Bond/Debenture , Downgraded to Caa1 from B3

..Issuer: Altice Financing S.A.

....Backed Senior Secured Regular Bond/Debenture, Downgraded to B2 from B1

....Senior Secured Regular Bond/Debenture, Downgraded to B2 from B1

....Senior Secured Bank Credit Facility, Downgraded to B2 from B1

..Issuer: Altice Finco S.A.

....Backed Senior Unsecured Regular Bond/Debenture, Downgraded to Caa1 from B3

....Senior Unsecured Regular Bond/Debenture, Downgraded to Caa1 from B3

..Issuer: Altice International S.a.r.l.

.... Probability of Default Rating, Downgraded to B2-PD from B1-PD

.... Corporate Family Rating, Downgraded to B2 from B1

..Issuer: Altice France S.A.

.... Probability of Default Rating, Downgraded to B2-PD from B1-PD

.... Corporate Family Rating, Downgraded to B2 from B1

....Backed Senior Secured Regular Bond/Debenture, Downgraded to B2 from B1

....Senior Secured Regular Bond/Debenture, Downgraded to B2 from B1

....Senior Secured Bank Credit Facility, Downgraded to B2 from B1

Outlook Actions:

..Issuer: Altice Luxembourg S.A.

....Outlook, Remains Negative

..Issuer: Altice France S.A.

....Outlook, Remains Negative

..Issuer: Altice Financing S.A.

....Outlook, Remains Negative

..Issuer: Altice Finco S.A.

....Outlook, Remains Negative

..Issuer: Altice International S.a.r.l.

....Outlook, Remains Negative

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 - Senior Credit Analyst
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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