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Rating Action:

Moody's places Ziggo's ratings (CFR at Ba1) under review for downgrade

28 Jan 2014

London, 28 January 2014 -- Moody's today placed all ratings of Ziggo N.V. ('Ziggo', 'the company') and its rated subsidiaries under review for downgrade. This follows the announcement that Ziggo and Liberty Global plc ('Liberty Global'; CFR at Ba3) have reached a conditional agreement pursuant to which Liberty Global, through a wholly-owned subsidiary, will acquire full ownership of the company, in which it currently owns an equity stake of 28.5%.

The following ratings are placed under review :

- the Ba1 CFR and Ba1-PD PDR at Ziggo N.V

- the Baa3 ratings of the senior secured notes at Ziggo Finance B.V (due 2017) and at Ziggo B.V. (due 2020)

- the Ba2 rating of the senior notes at Ziggo Bond Company B.V. (due 2018)

Liberty's offer for Ziggo, which consists of 0.2282 Liberty Global Class A shares, 0.5630 Liberty Global Class C shares (adjusted for dividend) and EUR 11.0 in cash has been recommended by Ziggo's management and supervisory boards, but is subject to shareholder acceptance and regulatory approval. The transaction values Ziggo at an enterprise value of around EUR 10.0 billion. The cash element of the purchase price, which equates to around EUR 1.6 billion will largely be funded from debt to be raised at Ziggo. This will bring Ziggo's leverage broadly in line with Liberty Global's corporate target of managing debt so that a ratio of Debt/EBITDA (Liberty Global definition) of between 4.0 and 5.0 is maintained. In addition, Ziggo and Liberty Global expect to incur approximately EUR 300 million in transaction and financing costs, including costs associated with refinancing, tendering and/or exchanging Ziggo debt, which will be funded from available cash resources at Ziggo and Liberty Global as well as from the incremental debt to be raised at Ziggo.

Moody's aims to conclude its review upon completion of the transaction at the latest, which is expected for the second half of 2014 following shareholder approvals (under certain circumstances) and regulatory reviews. Moody's currently anticipates that the review will result in a downgrade of Ziggo's Ba1 CFR by three notches to B1, reflecting amongst other things the increased indebtedness and weaker credit metrics expected for the company at transaction closing. This is subject to the transaction closing as currently anticipated and refers to Ziggo as a stand-alone legal entity. Moody's notes that Ziggo has announced an exchange offer for up to Euro 934 million outstanding under its EUR 1.2 billion senior notes due 2018, a tender offer and consent solicitation for its EUR 750 million senior secured notes due 2020 and its EUR 750 million senior secured notes due 2017 have been called.

To the extent that any senior secured debt remains outstanding, and assuming a three-notch downgrade of the CFR, Moody's currently anticipates that the ratings are likely to be downgraded by three notches to Ba3 (from Baa3), while the rating for the unsecured debt is likely to be downgraded to B3 (from Ba2). This is based on our current expectation that Ziggo's post-transaction capital structure will include around EUR 3.7 billion of senior secured debt (excluding capital leases) and approximately EUR 0.9 billion of senior unsecured debt. The rating of the senior secured debt in particular remains sensitive to the exact composition of the company's capital structure at closing. Moody's has also assumed that in case shareholder loans are introduced to Ziggo's capital structure, they will meet Moody's criteria for equity-equivalent treatment.

RATINGS RATIONALE

The rating action reflects Moody's expectation that Ziggo's post-transaction credit profile will become measurably weaker. The increased indebtedness will reduce Ziggo's financial flexibility and free cash flow generation. The review for possible downgrade will also consider Moody's assumption that under Liberty Global's ownership Ziggo's leverage tolerance will be aligned with that of Liberty Global (Debt to OCF in the range of 4.0-5.0x) and that leverage will remain at the upper end of the corridor for some time following the change in ownership.

Specifically, the transaction is expected to result in an increase in Ziggo's debt to around EUR4.7 billion (compared to EUR3.1 billion as of December 31, 2013), leading to an increase in the Debt/ EBITDA ratio (as calculated by Moody's) to around 5.3x (on a 2013 pro-forma basis) compared to 3.5x for the year ending December 31, 2013. In 2014, Ziggo's free cash flow will be utilized to fund the acquisition and Moody's anticipates future free cash flows will largely be up-streamed to Liberty Global.

In addition, Moody's believes that competition is likely to remain intense for Ziggo over the short to medium term. While the company has reported encouraging subscriber trends in the two most recent quarters, particularly in broadband, its key competitor KPN continues its fibre roll-out, albeit it at a reduced pace, and it remains uncertain whether recent price discipline with 2013 price increases by both Ziggo and KPN can be maintained, as KPN remains under pressure to regain the initiative in terms of RGU net add momentum.

Moody's does not expect a material change in Ziggo's strategy following the acquisition by Liberty Global. The company's focus will be on continuing to offer higher value services at competitive prices with better content choice, speed, functionality and service quality than those of the competition. Exploiting cross-selling opportunities to further increase the presentation of the "All-in-1" bundle and of digital pay TV will also remain planks of the strategy. Here, Moody's anticipates that Liberty Global will aim to capitalize on its investment in its next generation TV capabilities to revitalize Ziggo's flagging digital Pay-tv activities. Moody's also expects that Ziggo will want to retain growth momentum in its B2B activities and to continue the roll-out of its mobile business. For 2014 this will translate into modest revenue growth in the company's core cable business augmented by growth generated from mobile. Given continued elevated levels of promotional and marketing spending and the absence of any meaningful contribution from its mobile activities, the company has indicated that its 2014 EBITDA will be flat compared to 2013.

It is currently unclear how long Ziggo will remain a stand-alone legal entity post-closing, however, Moody's believes that it is likely that a full merger with Liberty's UPC Netherlands unit will be effected eventually. However, work on operational integration of the two companies will start immediately, guided by a joint integration committee. Through their combined networks the two cable companies will cover over 90% of Dutch homes. Moody's therefore expects visible synergies to develop from the reduction of operating expenses (marketing costs, administrative expenses such as call centres) and from capex efficiencies, which should benefit Ziggo's EBITDA and cash flow generation going forward. Although limited in scale, Moody's also anticipates that Ziggo's enhanced status as national player can be translated into some revenue synergies.

While Moody's takes comfort from Liberty Global's solid track record in integrating acquisitions and achieving planned synergies (expected synergies from the integration of Virgin Media are now almost twice the amount initially planned), the achievement of these synergies for Ziggo, which Ziggo and Liberty Global believe can reach EUR 160 million by 2018 on an annual run-rate basis, is subject to the timely and successful integration of Ziggo into Liberty Global's operations.

Moody's currently anticipates that Ziggo's liquidity profile on completion of the transaction will be adequate for its ongoing operational needs. While cash on balance sheet is unlikely to exceed EUR 50-100 million, in line with the levels of cash kept at Liberty Global's other credit pools, Moody's also expects the company to have access to an adequately-sized revolving credit facility.

The principal methodology used in these ratings was the Global Pay Television - Cable and Direct-to-Home Satellite Operators published in April 2013. 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.

Ziggo, headquartered in Utrecht, The Netherlands is the largest cable operator in the Netherlands. In the fiscal year ending 31 December 2013, the company generated EUR1.56 billion in revenue and EUR887 million in adjusted EBITDA (as reported by the company).

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 Ziggo's ratings (CFR at Ba1) under review for downgrade
No Related Data.
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