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Rating Action:

Moody's upgrades TDC's ratings to investment grade; stable outlook

Global Credit Research - 20 Jan 2011

Madrid, January 20, 2011 -- Moody's Investors Service has today upgraded the following ratings of TDC A/S (TDC): the company's senior unsecured ratings on the EMTN program to (P) Baa2 from (P) Ba3 and rated bonds under it to Baa2 from Ba3; senior secured ratings to Baa2 from Ba1; and its short-term ratings to (P) Prime-2 from (P) Not Prime. Moody´s has also assigned to TDC a senior unsecured issuer rating of Baa2. As a result of the migration of these ratings to investment grade, Moody's has simultaneously withdrawn the company's probability-of-default rating (PDR), loss-given-default (LGD) rating and corporate family rating (CFR). The outlook for all ratings is stable. Moody's expects to rate any future senior unsecured debt instrument at the same rating level as existing senior unsecured rated instruments.

Moody´s has also withdrawn all the existing ratings of TDC´s parent company Angel Lux Common S.A (Angel Lux now NTC Holding G. P. & Cie S.C.A., hereinafter NTC), including the CFR, LGD and PDR. This is done due to the fact that NTC has used the cash proceeds from the sale of part of its shares in TDC to fully repay the outstanding bonds. Moody's notes that NTC does not have any rated debt outstanding. Moody's Investors Service has withdrawn the credit ratings for its own business reasons. Please refer to Moody's Investors Service's Withdrawal Policy, which can be found on our website, www.moodys.com.

These rating actions conclude the review process which was initiated on September 20, 2010.

RATINGS RATIONALE

"Specifically, the upgrade of TDC's ratings reflects the company's efficient execution of a number of recent transactions as part of its restructuring, including: (i) the disposal of Sunrise in Switzerland, for which TDC collected approximately USD3.2 billion in cash equivalent, which it used to reduce its secured debt by USD1.5 billion, as well as fund a USD1.5 billion share buyback; (ii) the sale of the company's shares by NTC, the proceeds of which NTC used to redeem all its existing high-yield bonds; and (iii) the reduction of the stake of private equity firm NTC in TDC to 55% (59% including issued shares minus treasury shares held by TDC), losing control on the board of directors," says Carlos Winzer, a Moody's Senior Vice President and lead analyst for TDC.

Moody´s has also factored in its rating decision that all of the outstanding secured debt (approximately an equivalent to EUR 2.4 billion) is expected to be refinanced with senior unsecured debt within the next few months and thus all of TDC´s debt will rank pari passu.

"In addition, Moody's rating actions reflect the expectation that the company will adhere to their public commitment to maintaining maximum leverage -- measured as reported net debt/EBITDA -- of 2.1x" adds Mr Winzer.

The stable outlook reflects Moody's expectation that TDC will retain financial metrics commensurate with a Baa2 rating, including a retained cash flow (RCF)/Debt ratio of close to 20% and an adjusted Debt to EBITDA ratio of below 2.5x (as per Moody´s calculations).

Moody´s also stated that there would be negative pressure on the ratings if the financial metrics deteriorated as a result of weak operating performance or an extraordinary use of funding that translated into adjusted Debt to EBITDA exceeding 2.5 x or adjusted RCF to Debt consistently below 17% (as per Moody´s calculations) with unclear improving trends.

On the other hand, positive rating pressure could occur if for example Debt to EBITDA approaches 2x or RCF to Debt exceeds 25% (as per Moody´s calculations) on a sustainable level.

"More broadly, Moody's stated that TDC's ratings reflect the company's: (i) financial strength, which is underpinned by the expected substantial operating cash flow generation; (ii) appropriate liquidity risk management; (iii) a clear and focused strategy; (iv) a track record of delivering stated results; (v) the quality of management and business model; (v) the strategic fit and importance of all of TDC's subsidiaries, particularly its CATV business, which differentiates the company from its European peers and (vi) the strength of the company's operations in Denmark and the Nordic countries.

Furthermore, the new rating reflects Moody's assumption of a significant shareholder distribution policy, which TDC expects to implement from 2012 onwards (with interim dividends to be paid out in Q3 2011). This will constrain management's ability to strengthen its debt protection ratios, mainly free cash flow (FCF) to Debt and RCF to Debt.

However, Moody's expects TDC's low RCF and FCF levels to be partially offset by: (i) the company's strong ongoing commitment to a financial strategy that includes a public commitment to preserving an investment-grade rating and maintaining a maximum reported leverage target of 2.1x Debt to EBITDA; (ii) the fact that TDC will make limited use of its financial strength, with the rating agency noting the company's intention to comply with its de-leveraging targets and that any potential acquisitions will be bolt-on in nature and undertaken within guidance metrics for the current rating; and (iii) the strong liquidity the company is expected to have at all times to avoid any funding constraints.

In addition, Moody's notes the restructuring processes implemented by TDC over recent years, including the disposal of non-performing assets and subsidiaries as well as the process re-engineering and employee reductions. These have already enabled the company to achieve an EBITDA margin exceeding 40%, which the rating agency expects will be sustained or even slightly improved going forward.

TDC will remain a strong fixed and mobile operator in Denmark, which will continue to generate the vast amount of the company's operating cash flow. In addition, in the long term, TDC could further benefit from the growth opportunities resulting from its international diversification strategy in the Nordic countries in which it has operations. Moody's recognizes that TDC faces significant challenges from the very competitive markets in which it operates. However, the rating agency believes that by continuing to focus on efficiency improvements and differentiation through service quality and breadth of product offering, the company will be able to continue to offset much of the impact of a possible further price erosion and loss of market share.

Moody's most recent rating action on TDC and Angel Lux (now NTC Holding G. P. & Cie S.C.A.), was implemented on 20 September 2010, when the rating agency placed on review for possible upgrade all the ratings of TDC and its immediate parent, NTC, following the company's announcement of an agreement to sell its Swiss subsidiary Sunrise AG to CVC Capital Partners for around EUR 2.5 billion in cash.

The principal methodology used in rating TDC and Angel Lux was "Moody's Global Telecoms Industry Methodology", published in December 2010.

Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.

Headquartered in Copenhagen, Denmark, TDC is the principal provider of fixed and mobile voice communications, internet broadband data services and cable TV offerings in Denmark. The company also provides telecoms services to business customers throughout the Nordic region. As of September 2010, revenues excluding Sunrise for the 9 months amounted to some EUR 2.6 billion and EBITDA excluding Sunrise of EUR 1 billion.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, public information and confidential and proprietary Moody's Investors Service information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of maintaining a credit rating.

The rating has been disclosed to the rated entity or its designated agents and issued with no amendment resulting from that disclosure.

Moody's Investors Service may have provided Ancillary or Other Permissible Service(s) to the rated entity or its related third parties within the three years preceding the Credit Rating Action. Please see the ratings disclosure page www.moodys.com/disclosures on our website for further information.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Madrid
Carlos Winzer
Senior Vice President
Corporate Finance Group
Moody's Investors Service Espana, S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

London
Paloma San Valentin
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's Investors Service Espana, S.A.
Barbara de Braganza, 2
Madrid 28004
Spain
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's upgrades TDC's ratings to investment grade; stable outlook
No Related Data.
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