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Rating Action:

Moody's places Cablevision and Telecom Argentina under review for upgrade

 The document has been translated in other languages

06 Jul 2017

Buenos Aires City, July 06, 2017 -- Moody's Latin America ("Moody's") has placed Telecom Argentina's B3/Baa1.ar Corporate Family Rating ("CFR") under review for upgrade. At the same time, Moody's has placed Cablevision's global scale rating and Cablevision's Baa1.ar national scale rating of the USD 500 million senior unsecured notes due 2021 rating under review for upgrade.

RATINGS RATIONALE

These rating actions follow the announcement of a potential merger between the two companies through a non-cash share exchange transaction that according to Moody's estimates will create the largest and only integrated telecom operator in Argentina offering a wide array of services, while maintaining good liquidity and strong credit metrics. According to Moody's opinion, if the deal is approved, the new firm will have leading market shares of around 39% in Cable TV, 56% in Broadband, 47% in fixed telephony, and 33% in Mobile.

According to preliminary Moody's pro-forma estimates for the last twelve months ended March 2017 the merged entity would have generated ARS88.4 billion (USD5.87 billion) in net revenues and ARS28.97 billion in EBITDA (USD1.8 billion). The size of the new company in terms of revenues would have been equivalent to 42% of the entire telecom industry revenues in Argentina that amounted to ARS198.8 billion in 2016 according to ENACOM. Accordingly, if the transaction gets approved it will likely create pressure on competitors for investments in infrastructure and could drive additional M&A activity in the sector in Argentina.

According to Moody's preliminary calculations the aggregated pro-forma EBITDA would have reached ARS28.97 billion in the LTM ended March 2017, with a 58/42 contribution ratio between Telecom Argentina and Cablevision, while the EBITDA margin would have been 32.8%, compared with 30.5% for Telecom Argentina alone, for a total debt of ARS22.6 billion. With those figures according to Moody's opinion the merged entity will keep the very low leverage observed in the individual entities at around 0.78x total adjusted debt to EBITDA. According to Moody's opinion liquidity would also look adequate, with the combined cash position covering total short term debt by 322%.

During the review process, Moody's will monitor the approval process of the transaction that will include shareholders, regulator and anti-trust authority, potential synergies, and to what extent the combined company's rating could be decoupled from Argentina's government bond rating currently at B3 positive.

Recent Events

On June 30, the board of directors of Telecom Argentina and Cablevision S.A. have approved a Preliminary Merger Agreement in which the combined company will be enabled, if approved by the regulators and shareholders, to offer the so-called quadruple play services, which include fixed line and cell services as well as pay television and broadband internet access from January 2018.

The transaction follows Argentina national Government decree 1340/2016 issued in January 2017, which aimed to regulate the convergence between the provision of 'audiovisual services' and 'information technology and communications services'. The aforementioned convergence of services would basically allow telephone companies to offer TV/cable services starting on January 2018.

If the transaction is successfully completed, Telecom Argentina will issue 1.184 billion shares, leaving Cablevision shareholders with 55% of the combined company. The exchange ratio approved by the Companies' board of directors provides for 9,871 shares of Telecom Argentina for each Cablevision share. Thus, CVH, the controlling shareholder of Cablevision, and Fintech Media LLC, Cablevision's minority shareholder, will receive a total direct and indirect interest in Telecom Argentina equal to 55% after its capital increase. The current shareholders of Telecom Argentina will retain the remaining 45% of the share capital as a result of the merger. In summary 40.5% will pertain to Fintech while 33.0% will pertain to Clarin, the remaining amount will float in a stock exchange.

Headquartered in Buenos Aires, Argentina, Cablevision is a leading provider of Pay TV and Internet Services in Latin America based on the amount of subscriptions. Mainly focused on the City of Buenos Aires, cities in Greater Buenos Aires, 12 provinces, and Uruguay, Cablevision is dedicated to the installation, operation and broadcasting of data transmission through cable and video. Showing an ongoing expansion, the company reports total revenues of ARS32.9 billion (USD2.2 billion) for the twelve month period ended on March 31st, 2017.

Telecom Argentina S.A. is one of three major telecom providers in Argentina. The company offers mobile voice and broadband services, which account for the majority of sales, as well as fixed voice, broadband, data and IT products to residential, corporate and government sectors. During the last twelve months ended on March, 2017, Telecom Argentina's revenues totaled ARS55.5 billion (USD3.7 billion), which 5% derives from Paraguay where the company is a major mobile service provider.

The principal methodology used in rating CableVision S.A. was the Global Pay Television - Cable and Direct-to-Home Satellite Operators, published in January 2017. The principal methodology used in rating Telecom Argentina S.A. was Telecommunications Service Providers published in January 2017. Please see the Rating Methodologies page on www.moodys.com.ar for a copy of these methodology.

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 May 2016 entitled "Mapping National Scale Ratings from Global Scale Ratings". While NSRs have no inherent absolute meaning in terms of default risk or expected loss, a historical probability of default consistent with a given NSR can be inferred from the GSR to which it maps back at that particular point in time. For information on the historical default rates associated with different global scale rating categories over different investment horizons, please see https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1060333.

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.ar.

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.

For issuers domiciled in Argentina, the regulatory report related to this rating action is available on www.moodys.com.ar.

The below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com.ar, for each of the ratings covered, Moody's disclosures on the lead rating analyst and the Moody's legal entity that has issued the ratings.

Please see www.moodys.com.ar 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.ar for additional regulatory disclosures for each credit rating.

Veronica Amendola
Vice President - Senior Analyst
Corporate Finance Group
Moody's Latin America ACR
Ing. Butty 240
16th Floor
Buenos Aires City C1001AFB
Argentina
JOURNALISTS: 800 666 3506
Client Service: 1 212 553 1653

Marianna Waltz, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 800 891 2518
Client Service: 1 212 553 1653

Releasing Office:
Moody's Latin America ACR
Ing. Butty 240
16th Floor
Buenos Aires City C1001AFB
Argentina
JOURNALISTS: 800 666 3506
Client Service: 1 212 553 1653

No Related Data.
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