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Rating Action:

Moody's downgrades to B3 from B1 the CFR of Cableuropa (ONO); negative outlook

27 Feb 2009

Madrid, February 27, 2009 -- Moody's Investors Service has today downgraded the Corporate Family Rating (CFR) of Cableuropa S.A.U. (ONO) to B3 from B1. Moody's has also downgraded to Caa2 from B3 the ratings of (i) the EUR180 million 10.5% senior notes due 2014 issued by ONO Finance Plc and (ii) the EUR270 million 8% senior notes due 2014 issued by ONO Finance II Plc. Loss Given Default (LGD) assessment of LGD6 remains unchanged. This rating action concludes the review for possible downgrade initiated in October 2008. The outlook on all ratings has been changed to negative.

This action reflects Moody's view that the current trading prospects and economic and competitive environment in Spain will adversely affect EBITDA growth and positive free cash flow (FCF) generation capacity in the future, resulting in a deleveraging profile falling short of original expectations and constrained headroom under recently relaxed syndicated bank debt covenant levels. Moreover, notwithstanding on-balance sheet liquid assets, there is potential in Moody's opinion for these to be depleted over time in the absence of significant FCF generation as ONO is facing increasing debt service requirements with refinancing risk developing. Reliance on continued availability through renewals of short-term bilateral lines of credit is also seen as a source of concern in the current capital markets environment, though the company reports that most lines have recently been extended.

The ratings of ONO had been placed on review on 27 October 2008 (Moody's previous rating action) following the company's announcement that it was negotiating with unions to potentially reduce its workforce significantly in view of what the company considered a worsening macroeconomic situation in Spain and a weak outlook for the future. The company regarded the announcement as being in line with its strategy of taking a prudent approach to growth expectations, which is also articulated in a reduction of operating and capital expenditure with a view to conserving liquidity and concentrating on achieving positive free cash flow. Whilst Moody's recognises the merits of this strategy in the short-to-medium term, it also notes that there is a degree of execution risk and potential hampering of ONO's medium-to-long term growth prospects and business profile in a fiercely competitive marketplace. Moody's notes that the expectation of growth in the underlying business and cash flow profile had been considered by Moody's to be an important underpinning to the prior ratings positioning. The current rating positioning following today's action assumes the stabilisation of ONO's management team, including the appointment of a new CEO on a timely basis and a smooth transition process.

The outlook on ONO's ratings is negative. Further downward pressure could be exerted on the rating if ONO shows any of the following: (i) failure to deliver operational performance in line with plan, in terms of continued progress in strengthening credit and cash flow metrics on a quarterly basis; (ii) impaired access to bilateral lines of credit; (iii) a tightening of liquidity negatively affecting debt service capacity or further pressure on covenant compliance headroom; and/or (iv) failure to produce a credible refinancing plan to face debt maturities in 2010 and beyond (including the EUR144 million in June 2010 and EUR270 million in December 2010 under the syndicated credit facility) with a supportive creditor group. In this regard, Moody's notes that any restructuring involving a discounted offer on debt components of the capital structure could be considered a distressed exchange and, by implication, a default under Moody's methodologies.

Conversely, sustainable operating performance and free cash flow generation ahead of plan together with elimination of refinancing risk and a strengthening of liquidity beyond a 12-18 month period could put positive pressure on the rating and/or outlook.

The principal methodology used in rating ONO was Moody's Global Cable Television Industry rating methodology, published August 2005 which is available at www.moodys.com in the Credit Policy & Methodologies directory, in the Ratings Methodologies sub-directory. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Credit Policy & Methodologies directory on Moody's website.

Headquartered in Madrid, Cableuropa S.A.U. (ONO) is the largest cable operator and a leading alternative provider of telecommunications, broadband and internet and pay-TV services in Spain. As of September 2008, ONO offered direct access services to around 1.9 million residential and 69,000 business customers through its own networks, which reach around 6.9 million homes in franchises covering the majority of Spain, including the nine largest cities. In the 12 months to end-September 2008, ONO generated revenues of EUR1.604 billion and EBITDA of EUR685 million.

Madrid
Paloma San Valentin
Senior Vice President
Corporate Finance Group
Moody's Investors Service Espana, S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

London
David G. Staples
Managing Director
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's downgrades to B3 from B1 the CFR of Cableuropa (ONO); negative outlook
No Related Data.
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