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Rating Action:

Moody's places Numericable's ratings (CFR at B1) under review for upgrade

Global Credit Research - 10 Apr 2014

London, 10 April 2014 -- Moody's today placed the ratings of Ypso Holding S.a.r.l ("Numericable"; CFR at B1) and those of its subsidiary Numericable Finance & Co. S.C.A under review for upgrade.

The rating action follows the announcement that Numericable Group S.A. ("Numericable Group" or "the company"), Numericable's parent company, has entered into a binding agreement to acquire SFR S.A. (SFR), France's largest alternative communications provider for EUR 13.5 billion in cash and a 20% equity stake in the enlarged Numericable Group, valuing SFR at around EUR 15.6 billion (before synergies and earn-out) on an enterprise value basis.

The following ratings are placed under review for upgrade :

- the B1 CFR and B2-PD PDR at Ypso Holding S.a.r.l

- the B1 ratings of the senior secured notes at Numericable Finance & Co. S.C.A (Numericable Finance) due in 2019.

Moody's has also assigned ratings to the transaction financing, in particular a (P)Ba3 rating to Numericable Group's proposed new 5.6 billion EUR-equivalent 6-year term loan B (with EUR and USD tranches), and a (P)Ba3 rating to the proposed new 6 billion EUR-equivalent senior secured notes with a weighted average maturity of no less than 7 years (including EUR and USD tranches). Proceeds from the issue of the new notes will be deposited in escrow until the acquisition of SFR is consummated. A portion of the new term loan B will be used to refinance Numericable's existing debt on or around the issuance date for both new financings.

Ahead of the SFR acquisition, funds affiliated with Cinven Ltd. and Carlyle Group, which currently together own 35% of Numericable Group will transfer their holdings in Numericable Group to Altice S.A. (Altice), Numericable Group's controlling shareholder (through Altice France S.A. (Altice France), in a share and cash transaction. Immediately following the share transfer, Altice will hold or direct just under 75% of Numericable Group (from 40% previously).

To fund the SFR transaction, Numericable Group will raise around EUR 11.6 billion in new bank and bond debt and around EUR 4.7 billion of new equity. It will also refinance all of its existing debt. Altice will take up around EUR 3.5 billion of the new equity and EUR 1.2 billion will be publicly placed. Moody's understands that all financings are fully underwritten. This will result in Altice holding or directing 60% of the new Numericable Group post closing of the SFR transaction, with Vivendi holding 20% and public shareholders also 20%. Moody's has also assumed that in case subordinated shareholder funding is introduced to Numericable Group's capital structure at any stage, it will meet Moody's criteria for equity-equivalent treatment.

Moody's aims to conclude its review upon completion of the transaction at the latest, which is expected by the fourth quarter of 2014, following conclusion of the deal's regulatory review. Moody's currently anticipates that the review will result in an upgrade of Numericable's B1 CFR by one notch to Ba3 and a transfer of the CFR to Numericable Group. Before completion Numericable will be merged into Numericable Group with the latter as the surviving entity. The anticipated upgrade is subject to the transaction closing as currently laid out.

Moody's issues provisional ratings in advance of the final sale of securities and these ratings reflect Moody's preliminary credit opinion regarding the transaction only. Upon a conclusive review of final documentation and of the ultimate outcome of the underlying transaction, Moody's will endeavour to assign a definitive rating to the facilities. A definitive rating may differ from a provisional rating.

RATINGS RATIONALE

The rating action reflects Moody's expectation that Numericable Group's post-transaction operational profile will become stronger, reflecting amongst other things the substantially increased scale and scope of the new entity and the strong industrial logic of the proposed business combination with significant cost savings potential. These factors are counterbalanced by a continuing harsh operating environment in the French telecoms market and the very substantial increase in debt (in absolute terms) the new entity will incur, which Moody's expects to result in leverage as measured by the Debt/EBITDA ratio (Moody's definition) in the 4.0 to 4.5x range on a 2014 pro forma basis. In addition, much of the new Numericable Group's free cash flow after capex will be distributed to shareholders. This is driven by Altice's need to cover interest payments on new debt of EUR 4.2 billion at the holdco level and will weigh on Numericable Group's rating.

Numericable Group and Altice have indicated that they expect to achieve run-rate synergies of EUR 1.1 billion by the end of 2017 from capex savings (optimization of networks, fibre roll-out, procurement), opex reduction (unbundling fees, sales & marketing, network operations) and revenue synergies (broadband up-selling to Numericable Group's products, improved commercial efficiency in B2B). While Moody's believes that material synergies should be achievable, the overall size of savings and the timeline to achieve them still appear ambitious. Given the scale of the integration task at hand, execution risk are also material in Moody's opinion, notwithstanding the relatively straightforward nature of some of the cost saving steps such as the closure of the redundant part of the Numericable Group's network. Large scale redundancies are not part of Numericable Group's cost cutting arsenal. Indeed, the company is committed under the terms of the deal to maintain employment levels at SFR, a commitment that Moody's expects to be subject to close public scrutiny. Finally, the agency expects that competitors will try to exploit any operational upheaval during the integration period by aggressively marketing Numericable Group's customers.

Moody's expects the operating environment in the French telecoms market to remain difficult in the near term with limited visibility, in particular for the incumbent mobile operators, including SFR. SFR's continued steep revenue (-9.6% to EUR 10.2 billion) and EBITDA (-16.2% to EUR 2.8 billion) decline in 2013 reflects the evolution of product mix, the impact of price cuts in response to the competitive environment, in particular the disruptive entry of Iliad S.A. into the French mobile market in early 2012 and tariffs cuts imposed by regulators (reduction in termination rates). Against this backdrop Moody's expects SFR revenues (before any synergies from the business combination with Numericable Group) to decline further over 2014 and 2015, albeit less rapidly than in 2012/13 before stabilizing in 2016.

Numericable Group posted a revenue increase of 0.9% (to EUR 1.3 billion) for 2013. This was mainly due to the B2C segment (+4.7%, accounting for two thirds of total revenues) on the back of good take-up for the company's new high specification set-top box ( "La Box"), launched during Q2 2012. In the B2B segment (24% of total revenues) revenues declined by 4.2% year-on-year negatively impacted by the decrease in termination rates and the issuance of EUR 10 million credit notes issued to corporate customers as compensation for quality issues following the integration of Altitude Telecom. Adjusted EBITDA declined by 0.6% and margins dropped to 46.9% from 47.5% in 2012. The strong increase of the Group's B2C customer base came at the price of a significant hike in subscriber acquisition costs (SAC were up 23% in 2013 versus 2012). Moody's believes that the company's strategy of accelerating the upgrade of its network to EuroDocsis 3.0 in order to continue to leverage its B2C broadband speed advantage over DSL-based competing services will deliver future revenue growth. Following the SFR acquisition this advantage can also be leveraged over parts of SFR's customer base. In its analysis of SFR's historic financials Moody's has also utilized information contained in Vivendi's audited consolidated accounts.

The notes will initially be unguaranteed. The (P)Ba3 rating assumes that following completion of the SFR acquisition both notes and bank debt will be (within a period of 90 days) equally secured and guaranteed by operating subsidiaries representing at least 80% of the new Numericable Group's EBITDA. On this basis bank and notes debt are ranked first in the company's capital structure (together with trade payables). Given that there are no other material liabilities in the company's debt capital structure, the new notes and bank debt are rated at the expected Ba3 CFR level.

Moody's currently anticipates that Numericable Group's liquidity profile on completion of the transaction will be adequate for its ongoing operational needs. While cash on balance sheet is likely to be minimal, Moody's expects the company to have access to a EUR 750 million revolving credit facility.

The principal methodology used in these ratings were the Global Pay Television - Cable and Direct-to-Home Satellite Operators published in April 2013 and Global Telecommunications Industry published in December 2010. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Numericable Group is the largest cable communications operator in France and via its subsidiary Completel is the third largest provider of B2B telecommunications services after Orange and SFR. For the year to 31 December 2013, Numericable Group generated EUR 1.3 billion in revenues and EUR 616 million in adjusted EBITDA (as reported by the company on a combined basis with Completel). Numericable Group is controlled by Altice S.A (Luxembourg-based investor in cable, media and telecommunications assets). SFR is active in the broadband, fixed and mobile telephony segments, serving the B2C, B2B and Wholesale markets in France. The company generated combined revenues of EUR €10.2 billion and EBITDA of EUR 2.8 billion for the fiscal year ended December 31, 2013.

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 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.

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.

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.

Christian Rauch
Senior Vice President
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Chetan Modi
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's places Numericable's ratings (CFR at B1) under review for upgrade
No Related Data.
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