Madrid, May 01, 2017 -- Moody's Investors Service has today upgraded the corporate family rating
(CFR) of Wind Tre S.p.A. (formerly Wind Telecomunicazioni
S.p.A.) to B1 from B2 and its probability of default
rating (PDR) to B1-PD from B2-PD.
Concurrently, Moody's upgraded to B3 from Caa1 the rating on the
senior unsecured notes issued by Wind Acquisition Finance S.A.
and affirmed the Ba3 ratings on the senior secured notes issued by Wind
Acquisition Finance S.A. as well as the Ba3 senior secured
term loan and bank credit facility of Wind Tre S.p.A.
The outlook on all ratings is positive.
The rating action follows the completion of the merger between Wind Telecomunicazioni
and H3G S.p.A. (unrated), the Italian operations
of CK Hutchison Holdings Limited (A3 stable), and the amendment
in the documentation of the H3G's shareholder loans in December
2016.
"The upgrade reflects the improvement in Wind Tre's credit
profile owing to its increase in scale and market share, the substantial
synergies to be achieved through the integration of Wind and H3G,
and the significant reduction in the group's leverage,"
says Laura Pérez, Vice President-Senior Analyst and
lead analyst for Wind Tre.
"The positive outlook reflects our expectation for further de-leveraging
given the company's long-term net leverage target of below
3x. However, the entry of Iliad in the Italian market may
delay this improvement," adds Mrs. Pérez.
A full list of affected ratings can be found at the end of this Press
Release.
RATINGS RATIONALE
UPGRADE OF CFR TO B1 FROM B2
The upgrade to B1 reflects the improvement in business profile following
the merger of Wind and H3G. The group has increased its scale and
created the largest mobile operator by subscribers in Italy with a strong
spectrum portfolio. This increased scale has enabled the company
to accelerate 4G/LTE mobile broadband rollout, narrowing the gap
in network quality with peers. The company expects to achieve 99%
4G outdoor coverage by 2019, up from less than 75% at year-end
2016.
The merger with H3G has also led to a significant reduction in leverage
to 4.1x (Moody's adjusted gross leverage) at year-end
2016, down from 5.4x pre-transaction (Wind standalone)
at year-end 2015. The reduction is supported by the absence
of debt at H3G, following the amendment in the documentation of
the shareholder loans, which have become subordinated to the rest
of debt in the capital structure, and now receive full equity credit
under Moody's methodologies.
The merger with H3G is expected to generate substantial synergies,
which will provide a cushion to mitigate potential underperformance in
light of the increasing competitive pressures in the Italian market.
The annual run rate cash synergies are estimated to be EUR700 million,
which represent 11% of combined revenues and 90% of which
are expected to be achieved by 2019.
The rating upgrade also reflects the more conservative financial policy
targets of the merged entity, with a long-term target of
achieving a net leverage ratio of less than 3x (equivalent to a Moody's
adjusted gross debt/ EBITDA ratio of less than 3x-3.2x)
and with predictable dividend policies linked to a reduction in leverage
levels.
The company intends to reach its net leverage target mainly through growing
EBITDA, boosted by synergies, and to a lesser extent through
the EUR450 million proceeds from the sale of assets to Iliad as part of
the remedy package. The payment from Iliad will reduce leverage
by around 0.2x over the next three years.
Despite the upgrade to B1 with a positive outlook, Moody's
notes the uncertainties linked to the entry of Iliad in the Italian market
in 2017/18, which will likely affect Wind Tre's market share,
revenues and EBITDA, partially offsetting the benefits from the
synergies.
The entry of Iliad will likely put pressure on Wind Tre's market
share given its position as market challenger in more price-sensitive
retail segments. However, top-line pressure will be
partially offset by the revenues from the roaming agreement with Iliad.
While Moody's expects Iliad to be aggressive on prices in order
to gain market share, the rating agency does not expect Iliad to
be as disruptive as it has been in France.
The B1 rating also reflects the company's weak free cash flow generation
given the significant levels of capex (EUR7 billion in the next 6 years)
to improve its network quality, and the integration costs to achieve
the synergies.
UPGRADE OF SENIOR UNSECURED DEBT RATINGS TO B3 AND AFFIRMATION OF SENIOR
SECURED DEBT RATINGS AT Ba3
The upgrade of the senior unsecured notes to B3 from Caa1 follows the
one-notch upgrade of the CFR to B1 from B2.
The rating of the senior secured notes has been affirmed at Ba3.
The affirmation reflects the relatively lower cushion of subordinated
debt ranking behind the senior secured notes and the trade payables due
to the increase in trade payables as a result of the merger with H3G,
compared with Wind standalone.
RATIONALE FOR POSITIVE OUTLOOK
The positive outlook on the ratings reflects Moody's expectation
for further deleveraging with a debt/EBITDA ratio consistently below 4x
and a retained cash flow (RCF) to debt ratio sustainably above 15%
over the next 18 months. The de-leveraging will be driven
by the substantial synergies arising from the merger, which will
provide a cushion to face competitive headwinds, and by the payments
received from Iliad as part of the remedy package (wholesale revenues
from the roaming agreement with Iliad, payments from the disposal
of spectrum and towers).
WHAT COULD CHANGE THE RATING UP/DOWN
Upward rating pressure could develop if the company demonstrates a resilient
operating performance and continues its deleveraging profile such that
(1) its adjusted debt to EBITDA ratio (as adjusted by Moody's) declines
sustainably below 4.0x, (2) its Moody's adjusted RCF/ Gross
Debt ratio is sustainably above 15%, and (3) its free cash
flow generation is positive and growing over time.
Downward ratings pressure could arise if Wind Tre's operating performance
weakens such that debt/EBITDA (as adjusted by Moody's) is higher than
5.0x and RCF/debt (as adjusted by Moody's) is below 10%
on a sustained basis.
LIST OF AFFECTED RATINGS
Upgrades:
..Issuer: Wind Tre S.p.A.
....LT Corporate Family Rating, Upgraded
to B1 from B2
....Probability of Default Rating, Upgraded
to B1-PD from B2-PD
..Issuer: Wind Acquisition Finance S.A.
....Backed Senior Unsecured Regular Bond/Debenture,
Upgraded to B3 from Caa1
Affirmations:
..Issuer: Wind Tre S.p.A.
....Senior Secured Bank Credit Facility,
Affirmed Ba3
..Issuer: Wind Acquisition Finance S.A.
....Backed Senior Secured Regular Bond/Debenture,
Affirmed Ba3
Outlook Actions:
..Issuer: Wind Tre S.p.A.
....Outlook, Remains Positive
..Issuer: Wind Acquisition Finance S.A.
....Outlook, Remains Positive
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Telecommunications
Service Providers published in January 2017. Please see the Rating
Methodologies page on www.moodys.com for a copy of this
methodology.
Wind Tre is ultimately owned by VIP-CKH Luxembourg Sàrl
(unrated), which is a 50/50 joint venture owned by CK Hutchison
Holdings Limited and VEON Ltd. (former VimpelCom Ltd). Wind
Tre is the combined entity resulting from the merger of Wind Telecomunicazioni
S.p.A (100% owned by VEON) and H3G (100% owned
by Hutchison), which completed in December 2016.
Wind Tre is the biggest mobile operator in the Italian market with over
31 million subscribers following the merger with H3G. The company
also provides services to 2.7 million customers in the fixed business
where it operates through the Infostrada brand. Wind Tre reported
pro-forma revenues and EBITDA of EUR6.5 billion and EUR2.1
billion respectively at year-end 2016.
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 credit rating action on the support provider and in relation to
each particular credit 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 credit rating action,
and whose ratings may change as a result of this credit 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.
Laura Perez Martinez
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Ivan Palacios
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
