Reuters logo
Fitch Affirms Virgin Media at 'BB-'; Outlook Stable
May 11, 2017 / 3:08 PM / 7 months ago

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

(The following statement was released by the rating agency) LONDON, May 11 (Fitch) Fitch Ratings has affirmed Virgin Media Inc.'s (VMED) Long-Term Issuer Default Rating (IDR) at 'BB-'. The Outlook is Stable. Its Short-Term IDR is affirmed at 'B'. All associated instrument ratings have been affirmed at the existing levels. A full list of rating actions is at the end of this comment. Virgin Media's (VMED) ratings are supported by its consistent financial performance, well-developed and stable operating profile, and a competitive, advanced but rational UK broadband/fixed line market - particularly within its most important consumer segment. TV content cost pressures are being managed, helped by the company's access to the widest available range of content in the UK and agnostic approach to content access. The technological advantage of cable and the company's broadband-led business strategy further support the ratings. VMED's strong physical metrics and underlying cash flow support leverage which in Fitch's view is likely to remain close to its ratings threshold, with the business expected to continue to make sizeable shareholder payments to support Liberty Global's (LG) share buyback programme. KEY RATING DRIVERS Solid Physicals, Visible Financials: VMED consistently delivers improvements in physical metrics eg net customer additions, services per customer (revenue generating units per customer) and average revenue per user (ARPU). This is in spite of the maturity of the UK market. Triple-play penetration of the customer base is advanced - 62% at end-2016- but Fitch believes scope remains to improve this metric. Convergence trends in the UK offer further support, although quad-play is most important from a churn management perspective. Fitch views VMED as having one of the most visible revenue and underlying cash flows in the European telecoms portfolio, which is supportive of a relatively high financial leverage. Well Positioned in a Competitive Market: The UK, VMED's most important market, is competitive but rational. This is particularly the case in fixed, by far the most important area for the cable operator. Fixed telephony has proven far more defensive than mobile, with the market consistently pushing through price rises. Consumer revenues in the incumbent's fixed operations are growing strongly, while Sky continues to post mid-single-digit growth helped by its telecoms offer, echoing the performance at VMED. VMED is well positioned: Fitch estimates it is the in-franchise broadband market leader while based on Ofcom data its end-2016 national share of broadband lines was 19.5%. Lightning to Ramp over 2017/2018: VMED's plan to connect an additional 4 million UK homes to its two-way network by 2019-20 has so far (ie at end-2016) added 567,000 homes; a number that was restated following initial year end reporting. Other physicals - penetration, ARPUs and build costs are reported to be within management's targets. It is possible the build profile will take longer than initially thought given the complexity of such a project. The broad parameters remain intact and in Fitch's view, incremental revenue and cash-flow targets seem reasonable. Investment will compress near term free cash flow; longer term benefits are clear and investment likely to be flexible. Cable's Technological Advantage: Cable is likely to retain its broadband speed advantage. VMED is currently offering commercial download speeds of up to 300 Mbps, while the incumbent's most widely available commercial offer provides speeds of up to 76 Mbps. The incumbent's technology roadmap is closing the gap. G.fast technology is expected to enable broadband speeds of up to 500 Mbps, its targets including covering 10 million homes by 2020. BT Group is also targeting 2 million homes with fibre to the premise. DOCSIS 3.1 cable technology nonetheless is capable of delivering 1 Gbit speeds, is deliverable today and likely to be rolled out across all of LG's European cable assets. Leverage, Shareholder Distributions: FFO net leverage has been managed around 5.0x in recent years (5.1x in 2016), and in Fitch's forecasts likely to remain around these levels over the medium term given the cash-flow pressures of Project Lightning and the sizeable shareholder payments VMED makes to parent company LG. This is likely to provide little headroom to our ratings threshold of 5.2x. The importance of VMED's cash flow to the LG group is evident in the GBP1.5 billion shareholder payment in 2016. The overall contribution VMED makes to the LG consolidation provides a certain amount of leverage discipline given's LG's upper net debt /EBITDA threshold of 5.0x. DERIVATION SUMMARY VMED's ratings are underpinned by its strong operating profile, a 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 and VodafoneZiggo (each rated BB-/Stable) - with Telenet arguably its closest peer given the developed stage of their respective business strategies and strong competitive position in their markets. Talktalk is also rated 'BB-'/Stable, but its weaker competitive position in the UK telecoms market means that leverage thresholds are much tighter. The deleveraging capacity provided by VMED's underlying free cash flow and strong operating profile would allow for a higher rating if leverage was lower on a sustainable basis. No Country Ceiling, parent/subsidiary or operating environment aspects impacts the rating KEY ASSUMPTIONS Fitch's key assumptions within our rating case for the issuer include: - revenue growth of around 6%-7% overs over the next few years driven by Project Lightning and some price increases; - modest EBITDA margin expansion from 45% in 2016 to 48% in 2020 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 at around 28-33% over 2017-2019 before reducing as Project Lighting completes; - FFO net leverage to be maintained at the higher end of range of 4.5x-5.0x 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 Virgin Media that the company is adopting a more conservative financial policy (for example, FFO adjusted net leverage of 4.5x) could lead to positive rating action - 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 that was expected to remain above 5.2x on a sustained basis - FFO fixed charge cover that was expected to remain below 2.5x on a sustained basis - Material decline in operational metrics, such as customer penetration, revenue generating units per subscriber and ARPU. Evidence that investment in Project Lightning is being scaled to proven demand will be an important driver LIQUIDITY Sufficient Liquidity Profile: Fitch considers liquidity sufficient with unrestricted cash and cash equivalents of GBP22 million forecast positive FCF and full availability under its GBP675 million revolving credit facility as at FYE16. LG manages liquidity across its credit pools on a flexible basis and would be expected to provide support/reduce shareholder payments from VMED if necessary. 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 SFA Finance Limited -- Senior secured debt rating: affirmed at 'BB+','RR1' Virgin Media Finance PLC -- Senior notes affirmed at 'B','RR6' Virgin Media Bristol LLC -- Senior secured debt rating: affirmed at 'BB+','RR1' Virgin Media Receivables Financing 1 DAC -- Receivables financing notes: affirmed at 'B+'.'RR5' Contact: Principal Analyst James Hollamby Associate Director +44 20 7530 1656 Supervisory Analyst Stuart Reid Senior Director +44 20 7530 1085 Fitch Ratings Limited 30 North Colonnade London E14 5GN Committee Chairperson Damien Chew, CFA Senior Director +44 20 7530 1424 Summary of Financial Statement Adjustments - Financial statement adjustments that depart materially from those contained in the published financial statements of the relevant rated entity or obligor must be disclosed (in bullet points). Analysts should refer to the relevant section of the Data Control Form and discuss and agree the proposed disclosure at the rating committee. This disclosure should appear after the analyst contact information. Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available on www.fitchratings.com. 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 Criteria for Rating Non-Financial Corporates (pub. 10 Mar 2017) here Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers (pub. 21 Nov 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation 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

Our Standards:The Thomson Reuters Trust Principles.
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