December 20, 2017 / 5:39 PM / a year ago

Fitch Affirms Virgin Media at 'BB-'; Outlook Stable

(The following statement was released by the rating agency) LONDON, December 20 (Fitch) Fitch Ratings has affirmed Virgin Media Inc.'s (VMED) Long Term Issuer Default Rating (IDR) at 'BB-' and Short-Term IDR at 'B'. The group's senior secured, receivables financing notes and unsecured ratings are affirmed at 'BB+'/'RR1', 'B+'/'RR5' and 'B'/'RR6', respectively. The Outlook on the Long-Term IDR is Stable. A full list of rating actions can be found at the end of this commentary. The ratings take into account VMED's consistent operating performance, high quality network and well-established customer base, a competitive but rational UK fixed communications market and VMED's measured approach to content aggregation. Operating cash flow is among the strongest in the peer group, providing VMED with a deleveraging capacity that is available to few of its competitors. It also allows management to keep leverage high/ closer to Fitch's downgrade threshold than might otherwise be tolerated without pressure on its ratings. VMED is the largest European company in parent company Liberty Global plc's (LG) portfolio. Investment in Project Lightning, its 4 million new premises network build, and sizeable payments to the shareholder are expected to keep leverage towards the upper end of its target net debt/EBITDA leverage of 5.0x. KEY RATING DRIVERS Consistently Strong Operating Performance: VMED has developed as a strong second incumbent business across the UK and Ireland, its fibre coax network covering approximately 50% of the UK with significant further network build underway. Operating performance is consistently strong; the company enjoys leading in-franchise broadband market share - that part of the telecoms value chain that is generating strongest growth and economic value. The company's broadband-led commercial strategy tied to an agnostic approach to content aggregation drives consistent average revenue per user metrics, high margins and visible cash flow. Competitive but Rational Fixed Market: Competition in the UK communications market is well-developed and intense. BT Group plc (BBB+/Stable) is a progressive incumbent whose service offer has been enhanced by its investment in sports/TV content and fibre and more recently its EE mobile acquisition, while Sky plc's (BBB-/RWP) leading pay-TV business enjoys consistently strong operating metrics and revenue growth, having developed a broad communications offer including the addition of mobile. The market has proven resilient to cyclical downturns with pricing supported by demand for high-quality broadband and pay TV. Broadband-led businesses have proven particularly well positioned. Project Lightning Gaining Momentum: Project Lightning is VMED's project to extend the company's network to pass an additional 4 million UK premises, taking its network coverage to 65% of the population. VMED has a proven track record and established demand for its communications offer; Fitch therefore believes VMED's project target of developing an additional GBP1 billion of revenue once the project is fully mature to be well-founded. With close to 950,000 new homes passed at end-3Q17 the project has started to build scale, with operating metrics so far tracking management's targets. The project is expected by Fitch to keep capex high at least through 2020 and potentially beyond MVNO Might Not Be Enough: VMED is partnered with BT's EE mobile network providing mobile and quad-play services to its fixed subscriber base. Fitch believes a mobile virtual network operator (MVNO) model is appropriate to meet consumer needs at this stage. However, we are less certain service quality will be adequately supported as the market moves from a discounted bundle at present to a more nuanced convergent market where consumers demand seamless content access across multiple technology platforms. Break clauses in its MVNO contract provide a contingent should an owned infrastructure prove more necessary. Such a development would however come at a significant capital cost and the MVNO model remains our medium-term central premise. Capex, Shareholder Payments Drive Leverage: Project Lightning is budgeted at roughly GBP3 billion in incremental investment; Fitch expects the project to keep capex-to-sales in the high 20%/low 30% range through 2019. As stated the project economics appear well thought out and in Fitch's view a good use of capital. VMED is LG's largest European cable asset and strongest cash contributor. LG maintains a sizeable buyback programme and shareholder payments from VMED are therefore likely to remain high. We assume leverage will remain close to the company's upper end of net debt / EBITDA target of 5.0x (excluding vendor finance). DERIVATION SUMMARY VMED's ratings are underpinned by a strong operating profile, developed but rational UK convergent market, technological advantage and broadband-led business strategy. The company's closest peers include fellow Liberty Global-owned cable operators, Telenet N.V, UPC Holding B.V (each rated BB-/Stable) and VodafoneZiggo Group B.V (BB-/Negative) . Telenet is arguably its closest peer given the developed stage of their respective business strategies and strong competitive position in their markets. The overall importance of VMED's cash flow to LG and the latter's sizeable share buyback programme imply that VMED's leverage is likely to be close to historical levels. The deleveraging capacity provided by the company's underlying free cash flow (FCF) and strong operating profile would allow for a higher rating if not for the shareholder's/VMED's stated leverage policy. No country-ceiling, or parent/subsidiary aspects impact the ratings. KEY ASSUMPTIONS Fitch's key assumptions within our rating case for the issuer include: - Revenue growth of around 4%-7% over the next few years, driven by Project Lightning and price increases; - Modest EBITDA margin expansion over the coming years due to benefits of economies of scale as Project Lightning is completed; - Capital intensity (property & equipment additions including those funded through vendor finance as a percentage of revenue) to remain elevated in the high 20%/low 30% range over 2017-2019, before declining as Project Lighting approaches completion; and - Funds from operations (FFO) adjusted net leverage to be maintained at or close to Fitch's downgrade trigger of 5.2x through cash repatriation / repayment of parent company loans. RATING SENSITIVITIES Future Developments That May, Individually or Collectively, Lead to Positive Rating Action -A firm commitment by VMED to a more conservative financial policy (for example, FFO adjusted net leverage of 4.5x). -Continued sound operational performance, as evidenced by key performance indicator (KPI) trends and progress in both investment and consumer take-up with respect to Project Lightning. Future Developments That May, Individually or Collectively, Lead to Negative Rating Action -FFO adjusted net leverage expected to remain above 5.2x (2016: 5.1x) on a sustained basis. -FFO fixed charge cover expected to remain below 2.5x (2016: 3.5x) on a sustained basis. -Material decline in operational metrics, as evidenced by declining KPIs such as customer penetration, revenue- generating units per subscriber and ARPUs. Evidence that investment in Project Lightning is being scaled to proven demand will be an important driver LIQUIDITY Sufficient Liquidity Profile: In Fitch's view the liquidity profile is sufficient on the basis of positive FCF expected during 2017-2020, full availability under VMED's GBP675 million revolving credit facility and unrestricted cash and cash equivalents at end-3Q17 of GBP42.8 million. LG manages liquidity across its portfolio on a flexible basis and would be expected to provide support to or reduce shareholder payments from VMED if necessary. Reported short term maturities at 3Q17 include approximately GBP1.7 billion of vendor financing related debt. This value however includes GBP800 million of receivable financing notes maturing 2024. Nonetheless liquidity is managed more tightly than at other LG portfolio businesses. FULL LIST OF RATING ACTIONS Virgin Media Inc. Long-Term IDR: affirmed at 'BB-'; Outlook Stable Short-Term IDR: affirmed at 'B' Virgin Media Secured Finance Plc Senior secured debt rating: affirmed at 'BB+'/'RR1' Virgin Media Investment Holdings Limited Senior secured debt rating: affirmed at 'BB+'/'RR1' Virgin Media Bristol LLC Senior secured debt rating: affirmed at 'BB+'/'RR1' Virgin Media SFA Finance Limited Senior secured debt rating: affirmed at 'BB+'/'RR1' Virgin Media Receivables Financing 1 DAC Senior secured debt rating: affirmed at 'B+'/'RR5' Virgin Media Finance Plc Senior notes rating: affirmed at 'B'/'RR6' Contact: Principal Analyst Tom Steabler Associate Director +44 20 3530 1661 Supervisory Analyst Stuart Reid Senior Director +44 20 3530 1085 Fitch Ratings Limited 30 North Colonnade London E14 5GN Committee Chairperson Damien Chew, CFA Senior Director +44 20 3530 1424 Media Relations: Adrian Simpson, London, Tel: +44 203 530 1010, Email: Additional information is available on For regulatory purposes in various jurisdictions, the supervisory analyst named above is deemed to be the primary analyst for this issuer; the principal analyst is deemed to be the secondary. Applicable Criteria Corporate Rating Criteria (pub. 07 Aug 2017) here Exposure Draft: Corporate Rating Criteria (pub. 14 Dec 2017) here Non-Financial Corporates Notching and Recovery Ratings Criteria (pub. 16 Jun 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001 Fitch Ratings, Inc. is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (the "NRSRO"). While certain of the NRSRO’s credit rating subsidiaries are listed on Item 3 of Form NRSRO and as such are authorized to issue credit ratings on behalf of the NRSRO (see here), other credit rating subsidiaries are not listed on Form NRSRO (the "non-NRSROs") and therefore credit ratings issued by those subsidiaries are not issued on behalf of the NRSRO. However, non-NRSRO personnel may participate in determining credit ratings issued by or on behalf of the NRSRO.

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below