(The following statement was released by the rating agency)
March 1 - Fitch Ratings says that Vivendi SA's ('BBB'/Stable) headroom in its credit profile is still limited because of the EMI acquisition expected to close later this year and the competitive pressure facing SFR, Vivendi's French telecoms subsidiary. This is despite a better than expected cash-generation performance in Q411 and the announcement of a cut in the cash dividend to be paid in 2012.
"Management has shown it is committed to maintaining Vivendi's rating with the change in dividend policy, which partly offsets the downward pressure on SFR's profitability," says Damien Chew, Senior Director in Fitch's European Telecoms, Media and Technology team. "However, headroom is still limited, with Vivendi's structurally adjusted net debt/EBITDA ratio likely to remain above the key 2.5x level even 12-18 months after the closing of the EMI transaction." Vivendi's guidance of a 12%-15% decline in SFR's 2012 EBITDA is in line with Fitch's expectations. Fitch has also incorporated into its current forecasts that Vivendi will close the EMI and TVN transactions in H212 and complete EUR500m worth of disposals of UMG non-core assets in 2012.
Fitch recognises Vivendi's track record in acquisitions and the financial discipline management has shown in the past. Vivendi's rating would come under pressure if there is no sign of deleveraging in 2013, the year after the EMI transaction is expected to close, and if there was no clear expectation of medium-term leverage heading back to below 2.5x on Fitch's structurally adjusted net debt to EBITDA measure. Fitch estimates that Vivendi ended 2011 with a leverage of around 2.3x based on this metric. Fitch's methodology recognises that Vivendi cannot freely circulate cash between certain of its subsidiaries (especially Activision Blizzard) and the agency makes adjustments to key metrics to reflect the group's structure. To derive structurally adjusted net debt/EBITDA, the agency strips subsidiaries' EBITDA and debt from consolidated numbers where Vivendi does not have direct access to the cash and replaces EBITDA with dividend streams that Vivendi receives. (Caryn Trokie, New York Ratings Unit)