inspiring connections 3lm6ord_qbwsv6n-yrpmkovav3j6ybp2uq… · company rating belgacom s.a. a...
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requires the prior written approval of Standard & Poor’s. Copyright © 2013
by Standard & Poor’s Financial Services LLC. All rights reserved.
Inspiring Connections 3
Mark Habib
Director
Industry Specialist
Corporate Ratings
Warsaw
June 17, 2015
2
Credit Conditions Supportive of Financing
Low interest environment supports funding and interest coverage ratios.
Search for yield driving demand for corporate assets.
CLO ramp-up.
Benign to positive economic growth conditions in the EU.
Default rates expected to remain stable for the next 12 months.
However, uncertainties relating to fall in oil price, geo-political risk, and speculation over Greek Euro exit, particularly for high yield.
2015 Outlook: Supportive Fundamentals But Vulnerability To Shocks
3
European Leveraged Finance New-Issue Volume
€0B
€40B
€80B
€120B
€160B
€200B
2006 2007 2008 2009 2010 2011 2012 2013 2014 YTD 2014 YTD 2015
Leveraged Loans Mezzanine HY Bonds
Copyright© 2015 by Standard & Poor’s Financial Services LLC (S&P) a subsidiary of The McGraw-Hill Companies, Inc. 1
5
Industry Diversification: 1Q15 – Leveraged Finance
Leveraged Loans High Yield Bonds
13.6%
12.2%
9.9%
9.6%
8.4%
7.6%
6.5%
6.3%
6.0%
5.6%
2.4%
2.0%
2.0%
8.0%
0% 5% 10% 15% 20%
Healthcare
Chemicals
Food & Beverage
Computers & Electronics
Telecom
Retail
Entertainment & Leisure
Printing & Publishing
Cable
Manufacturing & Machinery
Gaming & Hotel
Radio
Insurance
Other
Observations: 47 deals with €20.4B equivalent volume
Source: LCD – S&P Capital IQ
19.3%
12.2%
11.1%
8.8%
8.6%
5.7%
5.1%
4.9%
3.7%
3.3%
3.2%
2.8%
2.4%
1.8%
7.2%
0% 5% 10% 15% 20% 25%
Cable
Automotive
Metals & Mining
Telecom
Healthcare
Gaming & Hotel
Computers & Electronics
Food & Beverage
Forest Product
Entertainment & Leisure
Utilities
Retail Food & Drug
Chemicals
Environmental
Other
Observations: 60 bonds and €27.1B equivalent volume
Telecom Ratings Landscape
6
0
1
2
3
4
5
6
7
8
9
A A- BBB+ BBB BBB- BB+ BB BB- B
European Telecoms Ratings Distribution (Q1-2015)
7
European Telecommunication Companies
Company Rating
Belgacom S.A. A
Swisscom AG A
Telenor ASA A
TeliaSonera AB A-
Vodafone Group PLC A-
Deutsche Telekom AG BBB+
Orange S.A. BBB+
Bouygues S.A. BBB
BT Group PLC BBB
EE Ltd. BBB
Elisa Corp. BBB
TDC A/S BBB
Telefonica S.A. BBB
Telekom Austria AG BBB
Koninklijke KPN N.V. BBB-
Sunrise Communications Holdings S.A. BB+
Telecom Italia SpA BB+
Colt Group S.A. BB
Hellenic Telecommunications
Organization S.A. BB-
Wind Telecomunicazioni SpA BB-
eircom Holdings (Ireland) Ltd. B
Matterhorn Financing & Cy S.C.A. B Stable 77%
Positive 5%
Negative 18%
European Telecoms Outlook Distribution (Q1-2015)
8
European Cable Companies
Stable 73%
Negative 27%
Cable Companies Outlook Distribution (Q1-2015)
0
1
2
3
4
5
6
7
8
9
10
BBB- BB- B+ B
Cable Companies Ratings Distribution (Q1-2015) Company Rating
Liberty Global PLC BB-
Unitymedia KabelBW GmbH¹ BB-
UPC Holding B.V.¹ BB-
Virgin Media Inc.¹ BB-
Ziggo Group Holding B.V.¹ BB-
NorCell 1B AB (publ) (Com Hem) BB-
Altice S.A. B+
Numericable Group S.A. B+
RCS & RDS S.A. B+
Telenet Group Holding N.V. B+
United Group B.V. B
1) 100% owned subsidiary of Liberty Global PLC
9
Key Factors of Telecom Credit Stabilization
Key Factors of Telecom Credit Stabilization
Business Factors
• Economic prospects and
sovereign credit quality
• Softening negative
impacts from regulation
beyond expected cuts in
EU-wide roaming
charges.
• Resilient fixed
broadband with some
revenue upside on Fiber
and IPTV
• Some 4G traction with
modest monetization
opportunities
• Cost cutting
opportunities
Financial Factors
• Sustained investments
expected (LTE & FttX
networks, spectrum)
• Late, but significant
adjustments to
shareholder policies to
match lower cash flows
during 2013-2014
• Capital markets remain
very receptive to the
sector (Equity, Debt,
Hybrids)
• Active M&A
transactions, but within
ratings headroom
Other Segments
• Emerging markets
turbulence affects a
small number of ratings;
weaker economic
landscapes than a year
ago (e.g. Russia)
• Satellite, Data Center,
Towers benefit from
solid, recurring earnings
and rising outsourcing
trends
Source: Industry Report Card: EMEA Telecom Companies' Financial And Cost Discipline Should Offset High
Investments, M&A, And Slack Growth www.globalcreditportal.com
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In maturing markets, we expect higher cash flows as capital intensity decreases.
Positive revenues trends for cable operators, reflecting continued bandwidth advantage
and subscriber gains from the bundling of telephony and broadband services within existing
cable-TV subscriptions
Cable's pay-TV revenues face rising competition from OTT content (though not a major
threat yet) and continued competition from satellite TV and IPTV services
Limited regulatory headwinds and less elasticity compared to mobile.
Continued very high leverage, but capital market appetite drives cheap refinancing and
IPO opportunities (positive environment to manage capital structure)
High appetite for cable assets by telcos (Kabel Deutschland, ONO, Get)
Stable Rating Outlook for Cable Operators
11
M&A Surge in EMEA Telecom Continues in 2015
Additional M&A possible (Italy, France, etc.), supported by:
• Consolidation to address the high level of market fragmentation
• Convergence to compete in a bundled, potentially quad-play market
• Regulation that has taken a more accommodative stance in favor of investment
12
Telco M&A Activity Continues to Look Strong in 2015
In Discussions
Vodafone / Liberty
Agreement /
Under Review
Telenet / Base
Three / O2
Altice / Suddenlink
BT / EE
Altice / PT Portugal
NJJ Capital / Orange CH
Orange Spain / Jazztel
Completed /
Integration
Telefonica / Canal+(Esp)
Vodafone / ONO
Vodafone / KDG
O2 Germany / E-Plus
Three / O2 Ireland
Three / Orange Austria
Altice / SFR
Zon / Optimus
Key transactions:
Converged operator advantage
• Marketing and network integration benefits
Fixed only
• Footprints often a mismatch with mobile market
• Changing MVNO economics
Mobile only
• Greater competition and investment “treadmill”
13
Non-Network Operators May Face Challenges
Business Profiles: Stable-to-Positive Impact
• Scale, scope and diversity
• Profitability
Financial Profiles: Stable-to-Negative Impact
• Telco-Cable valuation gap
• Shareholder return expectations
• Headroom has declined
• Balance of funding sources
Buyers Have Largely Preserved Their Ratings
14
As of Feb. 12, 2015
15
BRP and FRP Top Telecoms vs. Cable Companies 1Q15 B
US
INE
SS
RIS
K P
RO
FIL
E
S
tro
ng
Liberty Global PLC
BB-/Stable/-
Deutsche Telekom
(BBB+/Stable/A-2)
Telefonica S.A.
(BBB/Stable/A-2)
Swisscom AG
(A/Stable/--)
Vodafone
(A-/Neg/A-2)
Orange
(BBB+/Neg/A-2)
TeliaSonera
(A-/Stable/A-2)
Telenor ASA
(A/Stable/A-1)
Sa
tis
fac
tory
Altice S.A.
B+/Neg/--
Telenet Group
B+/Stable/--
Unitymedia
BB-/Stable/
UPC Holding
BB-/Stable/
Virgin Media
BB-/Stable/--
Ziggo Group
BB-/Stable/--
NorCell 1B AB
BB-/Stable/---
Numericable
B+/Neg/--
Telekom Austria
(BBB/Stable/A-2)
TDC
(BBB/Neg/A-2)
Telecom Italia
(BB+/Stable/B)
Koninklijke KPN N.V.
BBB-/Stable/A-3
BT Group
(BBB/Stable/A-2)
EE Ltd.
(BBB/Stable/A-2)
Belgacom S.A.
(A/Stable/A-1)
Fa
ir United Group B.V.
B/Stable/--
RCS & RDS
B+/Stable/--
We
ak
Highly Leveraged Aggressive Significant Intermediate Modest Minimal
FINANCIAL RISK PROFILE
Vu
lnera
ble
E
xc
elle
nt
Q&A
EMEA Telecom & Technology Team
Frankfurt
Paris
London
Milan
Stockholm
Moscow
Istanbul
Tel-Aviv
MATTHIAS RAAB
DIRECTOR, Frankfurt
PANAGIOTIS PALIAKOUDIS
RESEARCH ASSISTANT, Frankfurt
LUKAS PAUL
ASSOCIATE, Frankfurt
THIERRY GUERMANN
DIRECTOR, Stockholm
SVETLANA ASHCHEPKOVA
ASSOCIATE DIRECTOR, Moscow
TOMMY TRASK
DIRECTOR, Dubai
Madrid
XAVIER BUFFON
DIRECTOR, Paris
MARK HABIB
DIRECTOR, Paris
JUSTINE MIQUEE
Ratings Analyst, Paris
OSNAT JAEGER
ASSOCIATE DIRECTOR, London
osnat [email protected]
MICHELA BARILETTI
SENIOR DIRECTOR. ANALYTICAL MANAGER, London
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Cash Flow Leverage Analysis Ratios -- Standard Volatility
-- Core ratios-- -- Supplementary
coverage ratios-- -- Supplementary payback ratios--
FFO /
debt (%)
Debt /
EBITDA (x)
FFO / cash
interest (x)
EBITDA /
interest (x)
CFO / debt
(%)
FOCF /
debt (%)
DCF /
debt (%)
Minimal > 60 < 1.5 > 13.0 > 15.0 > 50 > 40 > 25
Modest 45 – 60 1.5 – 2 9.0 – 13.0 10.0 – 15.0 35 – 50 25 – 40 15 – 25
Intermediate 30 – 45 2 – 3 6.0 – 9.0 6.0 – 10.0 25 – 35 15 – 25 10 – 15
Significant 20 – 30 3 – 4 4.0 – 6.0 3.0 – 6.0 15 – 25 10 – 15 5 – 10
Aggressive 12 – 20 4 – 5 2.0 – 4.0 2.0 – 3.0 10 – 15 5 – 10 2 – 5
Highly Leveraged < 12 > 5 < 2.0 < 2.0 < 10 < 5 < 2
Standard & Poor’s adjusted ratios.
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