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Rating Action:

Moody's places Digi's ratings on review for downgrade

09 Jun 2022

Madrid, June 09, 2022 -- Moody's Investors Service ("Moody's") has today placed the Ba3 corporate family rating (CFR) and the Ba3-PD probability of default rating (PDR) of Digi Communications N.V. ("Digi", "DCS" or "the company") on review for downgrade. Digi is the parent company of RCS & RDS S.A. ("RCS&RDS"), a leading pay-TV and communications services provider in Romania.

Concurrently, Moody's has also placed on review for downgrade the Ba3 rating on the €850 million guaranteed fixed rate senior secured notes (split into two tranches, €450 million due 2025 and €400 million due 2028) issued by RCS&RDS.

"We have placed Digi's ratings on review for downgrade following the publication of the preliminary 2021 report, which includes a qualified audit opinion," says Agustin Alberti, a Moody's Vice President – Senior Analyst and lead analyst for Digi.

Compliance and reporting is a governance consideration under Moody's General Principles for Assessing Environmental, Social and Governance Risks Methodology for assessing ESG risks.

A full list of affected ratings is provided towards the end of the press release.

RATINGS RATIONALE / FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

On May 30, 2022, Digi released [1] its audited 2021 full year non statutory consolidated financial statements. The financial statements were delivered one month later than the company's initial target of April 30, set in September 2021, when the company announced the change of auditor from E&Y to KPMG.

The audit report is qualified, and KPMG set out a number of reasons for the qualification. These reasons relate to the completeness and availability of key information, and to areas of disclosure.

Management claims that the issues raised are not related to the quality of the accounts but caused by insufficient time to complete the audit, since the audit work started in early 2022, which was later than expected. The company expects to release the 2021 audited Dutch statutory consolidated financial statements by the end of August at the latest.

The postponed financial statements for fiscal year 2021 and the qualified nature of the audit report weigh negatively on Moody's assessment of the company's governance and internal controls. In terms of Environmental, Social, and Governance (ESG) considerations, the accounting issues have led the rating agency to change its assessment of the company's Compliance and Reporting to 4 from 2. Governance risks (Issuer Profile Score or "IPS") remains moderately negative (G-3), but risks are skewed to the downside depending on the final report to be released in the next 2-3 months.

The review process will therefore focus on (1) the assessment of the final 2021 audited Dutch statutory financial statements and any financial implications arising from that audit, and (2) the proposed implementation of changes in internal controls to strengthen the reporting consistency.

Prior to placing the ratings on review, Moody's said that downward pressure could be exerted on the rating if (1) Digi's operating performance weakens such that its Moody's-adjusted debt/EBITDA rises above 3.5x on a sustained basis, (2) the company embarks in a debt financed organic or inorganic growth strategy, or (3) the company's liquidity profile weakens (including a reduction in headroom under financial covenants).

Prior to placing the ratings on review, Moody's said that it could upgrade Digi if the company (1) increases its scale and diversification, (2) reports solid operating performance such that its Moody's-adjusted debt/EBITDA remains well below 2.5x; and (3) the company generates positive FCF (after capital spending and dividends) on a sustained basis.

LIST OF AFFECTED RATINGS

On Review for Downgrade:

..Issuer: Digi Communications N.V.

.... Probability of Default Rating, Placed on Review for  Downgrade, currently Ba3-PD

.... LT Corporate Family Rating, Placed on Review for  Downgrade, currently Ba3

..Issuer: RCS & RDS S.A.

....BACKED Senior Secured Regular Bond/Debenture, Placed on Review for Downgrade, currently Ba3

Outlook Actions:

..Issuer: Digi Communications N.V.

....Outlook, Changed To Ratings Under Review From Stable

..Issuer: RCS & RDS S.A.

....Outlook, Changed To Ratings Under Review From Stable

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Pay TV published in October 2021 and available at https://ratings.moodys.com/api/rmc-documents/75741. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.

COMPANY PROFILE

Digi Communications N.V. is the parent company of RCS & RDS S.A., a leading pay-TV and communications services provider in Romania and Hungary. The company completed an IPO in May 2017 and is listed on the Bucharest Stock Exchange. It generated revenues of €1.3 billion and reported EBITDA of €480 million (including IFRS16) in 2020. Digi is ultimately controlled by Romanian entrepreneur Zoltan Teszari, president of the board and founder of the company.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 issuer/deal page for the respective issuer on https://ratings.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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.

REFERENCES/CITATIONS

[1] https://www.digi-communications.ro/en/investor-relations/shares/financial-results-shares/annual-reports-shares

Please see https://ratings.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 issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.

Agustin Alberti
Vice President - Senior 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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