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Rating Action:

Moody's upgrades Virgin Media's Corporate Family Rating to Ba2; Rating Outlook is Positive

28 Jul 2010

London, 28 July 2010 -- Moody's Investors Service has today upgraded the corporate family (CFR) and probability-of-default (PDR) ratings of Virgin Media Inc. ("Virgin Media" or "the company") to Ba2 (from Ba3). While the ratings for the senior secured bank facilities as well as the senior secured notes remain unchanged at Ba1, the ratings for the senior unsecured notes have concurrently been upgraded to Ba3 (from B1). The outlook for all ratings for Virgin Media and its rated subsidiaries remains positive.

Moody's decision to upgrade the CFR to Ba2 with a positive outlook reflects the agency's positive view on: (i) the clarity of Virgin Media's medium-term financial policy; (ii) the recent capital structure actions announced by the company; (iii) Virgin Media's continued robust operating performance into Q2 2010 with mobile and business segments returning back to growth in the quarter; and (iv) the company's strong liquidity position.

Following its Q2 2010 results, Virgin Media announced that over the next two to three years, it will aim to de-lever to approximately 3.0x net debt/ OCF (operating income before depreciation, amortisation, goodwill and intangible asset impairments and restructuring and other charges) -- as calculated by Virgin Media. This ratio stood at 4.0x for the fiscal year ending December 31, 2009 and 3.7x (on an annualised OCF basis) as of June 30, 2010.

"Moody's notes that Virgin Media expects to use approximately GBP325 million of internally generated cash flows for debt reduction effected through open market and/ or privately negotiated transactions (including possible derivative transactions designed to offset potential dilution on conversion of the company's convertible debt)", says Gunjan Dixit, Moody's lead analyst for Virgin Media. "This is over and above the scheduled debt amortisations of GBP525 million between 2011 and 2013. In Moody's view, this debt reduction, in combination with the continued solid operating momentum should allow the company to maintain a gross debt/ EBITDA ratio (as defined by Moody's) well below 4.5x at the end of 2010 with continued de-leveraging over the short to medium term", adds Ms Dixit.

Ratings and outlook factor in Virgin Media's commitment to maintain its cash capex (post sale of VMTV) between 15% to 17% over 2010 and 2011. Moody's notes that the company has currently chosen the share buyback route over increasing dividends for returning value to shareholders. In Moody's view, Virgin Media's strong free cash flow generation (as defined by Moody's -- post dividends and capex) and comfortable liquidity position sufficiently allow it to undertake its announced share buyback programme of up to GBP375 million (including GBP125 million accelerated stock buyback programme) between Q3 2010 and Q2 2011 while continuing to de-lever.

While Virgin Media's overall revenue growth of 2.9% in Q1 2010 was partially offset by the decline in its mobile and business segment revenues, Moody's notes that the company's performance in Q2 2010 has been solid. Total revenues in Q2 2010 grew by 7.1% with mobile and business divisions both registering growth of around 7%. The rating agency believes that Virgin Media's mobile and business segments should continue to grow over the remainder of 2010 although the pace of this growth may be slower than in Q2 2010. Moody's also expects Virgin Media to continue to record good growth in its cable revenues, supported by the company's "scalable" network infrastructure, its improving broadband product mix and its growing interactive television products. However, the intense competition in company's markets in video, telephony and broadband services will remain a challenge for top-line growth, in Moody's view.

Virgin Media's margin increased to 37.6% in Q1 2010 and to 38.3% in Q2 2010. Moody's expects the company's continued cost-control measures to support the OCF margin for the full year 2010.

Upward rating pressure could develop if Virgin Media maintains its strong operating momentum and de-levers so that its gross debt/ EBITDA ratio (as defined by Moody's) is well below 4x while continuing to generate sustained meaningful free cash flow (as defined by Moody's).

The last rating action on Virgin Media was implemented on 28 June 2010 when Moody's changed the outlook on Virgin Media's ratings to positive (from stable).

The principal methodology used in rating this issuer was the "Global Cable Television Industry Rating Methodology", published in July 2009, which can be found at www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. 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.

Virgin Media, headquartered in Hook, Hampshire, is the largest cable operator in the UK. In 2009, the company generated GBP3.8 billion in revenues and GBP1,361 million in reported OCF.

London
Chetan Modi
Senior Vice President
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

London
Gunjan Dixit
Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's upgrades Virgin Media's Corporate Family Rating to Ba2; Rating Outlook is Positive
No Related Data.
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