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Rating Action:

Moody's upgrades eir to B1; stable outlook

09 Feb 2017

NOTE: On February 10, 2017, the press release was corrected as follows: In the second sentence of the first paragraph, the amount of the senior secured credit facility was changed to EUR 1,611m. Revised release follows.

Madrid, February 09, 2017 -- Moody's Investors Service has today upgraded the Corporate Family Rating (CFR) of eircom Holdings (Ireland) Limited (eir) to B1 from B2. eir's Probability of Default Rating (PDR) has also been upgraded to B1-PD from B2-PD. Concurrently, Moody's upgraded to B1 from B2 the rating on the EUR 1,611m senior secured credit facility raised by eircom Finco S.à.r.l. and the EUR700 million senior secured notes due 2022 issued by eircom Finance Designated Activity Company. The outlook on the ratings is stable.

"The upgrade of eir's ratings to B1 primarily reflects our expectation that the company's operating performance will continue to improve over the next 12-18 months driven by cost savings and moderate underlying revenue growth on the back of its strengthened business profile helped by management's solid execution of the strategy. This improvement will support a gradual de-leveraging profile to reach leverage levels, as measured by Moody's adjusted debt/EBITDA, sustainably below 5x in the next 18 months," says Laura Pérez, a Moody's Vice President -- Senior Analyst and lead analyst for eir.

RATINGS RATIONALE

The rating upgrade reflects Moody's expectations that eir's operating performance will gradually improve, supporting the company's continued, albeit slow, deleveraging profile towards Moody's adjusted debt/EBITDA levels below 5x. In addition, the rating agency expects free cash flow to improve supported by some growth in EBITDA and lower interest costs, although free cash flow will remain modest because of the relatively high capex levels due to the continued investment in fibre.

The turnaround in eir's performance has been evident since 2015. Its enhanced network following the significant investment in fibre and 4G, coupled with recent investments in exclusive content through the acquisition of Setanta Sports Channel Ireland Ltd (rebranded to eir sport), should allow the company to monetize the increasing demand for its products and services, and strengthen its competitive position in the Irish market.

eir has made substantial progress on expanding its fibre network, spending over €440 million to pass over 1.6 million premises (representing 68% of Irish premises) and on track to achieve a target of 1.9 million by December 2018 (80% of Irish premises). At the same time, the company has met ahead of schedule its 4G mobile coverage target of 95% population coverage.

Moody's notes that the rating upgrade also factors in the strong track record of the management team of executing a consistent strategy and delivering on the annual financial objectives.

The rating agency expects operating performance to continue to improve with EBITDA growing by 1%-2% p.a. driven by cost reductions and underlying revenue growth (excluding the impact from mobile termination rates or MTRs), although MTRs will weigh on top-line revenues in the next 12 months (but the impact is broadly neutral on EBITDA).

Whilst the growth in eir mobile's EBITDA will moderate compared to recent years as a result of the company's promotional activity to accelerate its convergence strategy and focus on customer lifetime value, Moody's believes the consolidated operating performance will continue to improve as we expect bundling offers to lead to positive reductions in churn and will likely strengthen the company's pricing power over time.

eir's financial flexibility has further improved in 2016 through various refinancing exercises, which have enabled the company to diversify its capital structure through the issuance of EUR700 million senior secured notes and the access to a new EUR150 million revolving credit facility. At the same time, the company has extended its debt maturities to 2022, and enhanced its headroom under covenants.

Offsetting these strengths, eir's B1 rating also reflects a volatile accounting pension deficit (not reflective of a funding requirement on a cash flow basis), expectations of moderate, yet improving, free cash flow generation, a highly competitive environment in Ireland and still relatively high leverage compared to European incumbents despite expectations of gradual deleveraging.

RATIONALE FOR STABLE OUTLOOK

The stable outlook on the ratings reflect Moody's expectation that eir will continue to make progress on its main KPIs by investing in its fibre networks and increasing convergence, supporting future revenue growth prospects. This together with cost savings will further boost EBITDA. The stable outlook also reflects the expectation that the company will organically deleverage to a Moody's adjusted debt/EBITDA below 5x and continue to improve its free cash flow generation.

WHAT COULD CHANGE THE RATING UP/DOWN

Upward pressure on the rating would be supported by continued improvement in operating performance with revenue and EBITDA growth leading to adjusted debt/EBITDA sustainably below 4.25x and retained cash flow (RCF)/debt sustainably above 15%. Upward rating pressure would also stem from a significant improvement in the company's free cash flow generation.

Downward pressure on the rating could materialise if operating performance weakens with substantial pressure on revenues or a significant deterioration in either margins or main KPIs (subscriber growth, ARPUs, market share), leading to weaker-than-expected credit metrics, including adjusted debt/EBITDA trending sustainably above 5.0x, RCF/debt consistently below 10%, and negative free cash flow generation.

LIST OF AFFECTED RATINGS

Upgrades:

..Issuer: eircom Holdings (Ireland) Limited

....LT Corporate Family Rating, Upgraded to B1 from B2

....Probability of Default Rating, Upgraded to B1-PD from B2-PD

..Issuer: eircom Finance Designated Activity Company

....Backed Senior Secured Regular Bond/Debenture, Upgraded to B1 from B2

..Issuer: eircom Finco S.a.r.l.

....Backed Senior Secured Bank Credit Facility, Upgraded to B1 from B2

Outlook Actions:

..Issuer: eircom Holdings (Ireland) Limited

....Outlook, Changed To Stable From Positive

..Issuer: eircom Finance Designated Activity Company

....Outlook, Changed To Stable From Positive

..Issuer: eircom Finco S.a.r.l.

....Outlook, Changed To Stable From 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.

eircom Holdings (Ireland) Limited is the holding company of the eir group, the principal provider of fixed-line telecommunications services in Ireland, with the largest market share by revenue share in broadband. The group is also the third-largest mobile operator in Ireland, with a subscriber market share of approximately 21% (excluding mobile broadband and Machine to Machine, according to ComReg).

eir reported revenue of EUR1.3 billion and adjusted EBITDA of EUR505 million for the financial year ended June 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
SUBSCRIBERS: 44 20 7772 5454

Ivan Palacios
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 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
SUBSCRIBERS: 44 20 7772 5454

No Related Data.
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