TEXT-Fitch:Liberty Global's bid may not be negative for Telenet rating

Sept 24 - Fitch Ratings says that Liberty Global's (LGI) non-binding and conditional offer for the remaining shares in Telenet that it does not own might not be negative for Telenet's rating. Fitch will wait until additional details relating to the offer, and the offer itself, are clarified before deciding whether any rating action should be taken.

Fitch understands that the change of control clause under the senior facilities agreement will not be triggered by LGI's outright ownership and that distributions under the senior facilities agreement are not allowed if Telenet's leverage is greater than 5x. If LGI is not able to upstream cash to fund the transaction and leverage Telenet to higher than 5x, then Telenet's rating could be maintained at 'B+'.

Fitch also notes that the offer is currently non-binding and is conditional upon no material adverse change occurring with respect to the financial situation\prospects of Telenet or the financial markets in general. As the offer is non-binding, cancellable depending on the conditions of the ever volatile financial markets, and the impact on Telenet's capital structure has yet to be announced, Fitch will wait for more clarification on the process before considering any potential rating action.

Telenet's current leverage policy is between 3.5x to 4.5x, however this excludes finance leases which add another .5x to Fitch's calculation of the metric. The finance leases are not included in the metric calculation for covenant purposes, implying that Telenet has another .5x of headroom before reaching the permitted payment covenant threshold. LGI's own leverage policy is to maintain a leverage ratio of between 4x and 5x. LGI's other major subsidiaries - Unity Media, KBW, and UPC are all run at leverage higher than Telenet's current policy.

Telenet generates best in class EBITDA margins and is capable of generating pre-dividend free cash flow margins of 18%. These characteristics imply that the company has the potential to be rated at a higher level than the current 'B+'. This strength could mitigate the negative effects of higher leverage to a certain extent.