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Global Credit Research - 26 May 2010
Approximately 1.55 billion financial debt affected
Frankfurt, May 26, 2010 -- Moody's Investors Service today raised the Corporate Family Rating
of Technicolor S.A. to Caa1 from Caa3 and the Probability
of Default Rating to Caa1 from D. At the same time the junior subordinated
bond rating has been withdrawn and the rating outlook has been changed
to stable from negative.
The rating action was prompted by today's closing of Technicolor's
debt restructuring under the 'sauvegarde' proceeding following
the approval of the restructuring plan by the Commercial Court of Nanterre
on 17 February 2010. During the restructuring process Technicolor's
capital structure has been improved through significant debt reduction.
Around 45% of Technicolor's senior debt, comprising
1.1 billion private placement notes and 1.733
billion drawn under the company's syndicated credit facility,
have been converted into 348 million of new equity, 638
million of mandatory convertible bonds (ORA) and 251 million of
disposal notes. The disposal notes will have to be repaid with
net proceeds from ongoing disposals, any shortfall to be covered
through the issuance of new shares or by cash. In total the company's
debt has been reduced by 1.3 billion under Moody's
The withdrawal of the junior subordinated bond rating reflects the fact
that the right of the holders of the 500 million deeply subordinated
notes issued in September 2005 has been reduced to a subordinated claim
in a potential liquidation. - Please refer to Moody's
withdrawal policy on moodys.com. - In line with the
company's restructuring plan owners of these instruments received25
million cash compensation against the right to receive any future coupon
payments leaving these instruments in an equity like position.
However, Moody's notes that certain holders of these instruments
appealed against the decision of the Nanterre Commercial Court to approve
the restructuring plan and that the Court asked Technicolor to enter into
discussions with the respective noteholders in order to attempt to reach
an agreement. The outcome of these discussions is not known at
The Corporate Family Rating of Caa1 balances (i) the completion of the
financial restructuring, (ii) a substantial debt reduction by 1.3
billion (-45%) to 1.55 billion reinstated debt,
(iii) an estimated leverage of 4.0x Net debt / EBITDA down from
6.0x in 2009 and (iv) a business profile that is expected to stabilize
due to new contract wins as well as reliable royalties from the technology
portfolio with (v) still challenging operating performance (sales down
by 21.5% in Q1 year over year), (vi) tight financial
covenants with limited headroom and (vii) the risk of continuing cash
burn from restructuring and the discontinued businesses.
The ratings are currently constrained by Moody's concern that the
headroom under its financial covenants may become tight leaving little
room for underperformance in still challenging market conditions.
The stable outlook balances this with management's aspiration to
continue to gain new business following the recent win of the Warner Bros.
contract, which, if realized, would be positive for
the rating. We expect the company to improve its cash flow generation
once the cash needs for ongoing restructuring measures can be reduced
to a nominal level and the cash outflow for discontinued operations has
come to an end so as to improve its EBITDA reflecting the success of the
restructuring while at the same time moderately reducing outstanding financial
The following ratings are affected by this press release:
..Issuer: Technicolor S. A.
....Probability of Default Rating, Upgraded
to Caa1 from D
....Corporate Family Rating, Upgraded
to Caa1 from Caa3
..Issuer: Technicolor S. A.
....Outlook, Changed To Stable From
..Issuer: Technicolor S. A.
....Junior Subordinated Regular Bond/Debenture,
Withdrawn, previously rated C, LGD5, 83%
Technicolor's ratings were assigned by evaluating factors we believe
are relevant to the credit profile of the issuer, such as i) the
business risk and competitive position of the company versus others within
its industry, ii) the capital structure and financial risk of the
company, iii) the projected performance of the company over the
near to intermediate term, and iv) management's track record
and tolerance for risk. These attributes were compared against
other issuers both within and outside of Technicolor's core industry
and Technicolor's ratings are believed to be comparable to those
of other issuers of similar credit risk.
The last rating action for Technicolor was on December 1, 2009,
when Moody's changed the Probability of Default Rating to D from
Ca/LD following the opening of the 'sauvegarde' proceeding
to implement Technicolor's debt restructuring.
Headquartered in Issy-les-Moulineaux, France,
Technicolor, formerly known as Thomson S.A.,
is a provider of solutions for the creation, management, delivery
and access of video for the Communication, Media & Entertainment
industries operating in three business segments: Technicolor's
Entertainment Services division (formerly Technicolor) offers its content
creator and distributor customer base services related to the creation,
preparation and distribution of video content. Technicolor Connect
(formerly Systems division) supplies satellite, cable and telecom
operators with access and home networking devices and software platforms.
Technicolor conducts extensive research activities to innovate and to
support its solutions to the Communication, Media & Entertainment
industries. The Technology division combines Technicolor's
research and exploitation of its patent portfolio through licensing programs.
Group revenues from continuing activities during 2009 amount to EUR3.5
Senior Vice President
Corporate Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's raises Technicolor's Rating to Caa1, stable outlook
Vice President - Senior Analyst
Corporate Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
No Related Data.
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