September 25 (SeeNews) - Moody's Investors Service said that it has assigned a Ba1 rating to the 500 million euro ($584 million) senior secured notes to be issued by Central and Eastern Europe-focused PPF Telecom Group under its EMTN program with a stable outlook.
PPF Telecom Group is expected to use the proceeds from the issuance for general group funding needs, including repayment of an existing bank loan, Moody's Investors Service said in its statement, published on Thursday.
In Southeast Europe, PPF Telecom Group is present in Bulgaria, Serbia and Montenegro through 100%-owned units which it acquired from Norwegian mobile operator Telenor in 2019.
Moody's Investors Service also said in its statement:
"RATINGS RATIONALE
The Ba1 rating on the €500 million senior secured notes is in line with the group's CFR.
PPF Telecom's Ba1 rating reflects (1) the company's leading position as the integrated incumbent in the Czech Republic with a corporate structure that separates the service provision from the infrastructure management; (2) the group's good geographical diversification in the CEE region; (3) the higher revenue growth potential in PPF Telecom's footprint relative to the European average; (4) its financial policy and commitment to manage leverage within management's published guidance of less than 3.2x; and (5) its good margins and resilient operating cash flow generation even in the current coronavirus crisis.
The rating also reflects (1) the group's moderate scale; (2) the mobile-centric position of the acquired assets in CEE in an environment with growing convergence trends; (3) potentially heightened competition in the retail market in the Czech Republic resulting from market consolidation; (4) low retained cash flow metrics as a result of high dividend payments in line with financial policy; and (5) PPF Telecom's structurally subordinated position relative to debt raised at operating companies, as the parent relies on dividends from the operating companies to service its debt.
RATIONALE FOR STABLE OUTLOOK
The ratings have a stable outlook based on Moody's expectation that the group will achieve gradual organic deleveraging based on the strength of the cash flow generated at the operating subsidiaries and subject to the group's financial policy of sustaining net reported leverage between 2.8x and 3.2x.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
Because of PPF Telecom's complex group structure, upward rating pressure is unlikely until there is a simplification in the debt allocation within the broader group structure and a clearer policy on the debt distribution between PPF Telecom and the operating subsidiaries to minimize structural subordination.
Over the long term, Moody's could consider a rating upgrade if PPF Telecom's operating performance improves beyond Moody's current expectation, such that adjusted debt/EBITDA remains comfortably below 2.75x and retained cash flow (RCF)/debt remains above 20% on a sustained basis.
Moody's could consider a rating downgrade if PPF Telecom's operating performance materially deteriorates, such that adjusted debt/ EBITDA increases above 3.5x and retained cash flow (RCF)/debt declines below 10% on a sustained basis. Additionally, negative pressure could be exerted if PPF Telecom's financial policies become more aggressive or if it needs to support operating subsidiaries of lower credit quality within the broader PPF Group."
($ = 0.8565 euro)