Fitch Affirms Vivendi at 'BBB'; Outlook Stable

Wed Apr 17, 2013 2:01am EDT

(The following statement was released by the rating agency) LONDON, April 17 (Fitch) Fitch Ratings has affirmed Vivendi SA's (Vivendi) Long-term Issuer Default Rating (IDR) and senior unsecured rating at 'BBB'. The Outlook on the Long-term IDR is Stable. Vivendi's headroom in its credit profile remains tight, driven by the acquisition of EMI and the erosion of SFR's cash flow generation ability. Fitch continues to believe that possible corporate restructuring at Vivendi would not necessarily be negative for bondholders, as some of the proceeds from any disposals would go to debt reduction. Fitch recognises Vivendi's track record in acquisitions and the disciplined financial management it has shown. Vivendi's rating will come under pressure if there is no sign of deleveraging in 2013. KEY RATING DRIVERS - Strategic review still underway Vivendi is currently undergoing a strategic review following the resignation of Jean-Bernard Levy (chairman of the board) in June 2012. Management have indicated their desire to shift the group's focus away from the more capital-intensive telecoms industry and focus more on media activities. Vivendi has unsuccessfully tried to sell its Brazilian telecoms subsidiary, GVT. The company is currently entertaining bids for its 53% stake in Maroc Telecom and there have been press reports that various options, including joint ventures and cost sharing agreements, are being evaluated for its French telecoms unit SFR. - Competitive French telecoms market Iliad's launch of its mobile service, Free, with its value-based model of low monthly fees and non-subsidised handsets, has increased competitive pressure in the French telecoms market. France Telecom ('BBB+'/Stable) has responded with mobile price cuts and a greater focus on bundling mobile and fixed-line services together, which has increased competitive intensity in the French fixed-line market as well. Vivendi's SFR has also been forced to cut prices which have had a negative impact on EBITDA (minus 13% in 2012). SFR's financial performance has a significant impact on Vivendi's credit profile as SFR generated 40% of Vivendi's 2012 EBITDA (and 55% of Fitch's structurally adjusted EBITDA). Fitch expects SFR's EBITDA to continue to decline by around 14% in 2013 (versus a 12% decline according to Vivendi's public guidance). Given the lack of visibility in when the market will stabilise, in Fitch's opinion the continuation of this downward trend beyond 2013 cannot be ruled out. - Limited headroom should improve Declining EBITDA at SFR and increased leverage from the EMI Recorded Music transaction has left Vivendi with a structurally adjusted net debt to EBITDA of 2.7x at end-2012 (2.2x at end-2011). Vivendi has successfully managed to dispose of assets generating about one-third of EMI's revenue to recover almost half of the initial purchase price. This reduces the increase in leverage from the EMI acquisition, but leverage could still worsen depending on SFR's performance over the medium-term. Vivendi has reiterated its desire to maintain its current credit rating and we would expect to see the proceeds of any asset disposals, such as the sale of its 53% stake in Maroc Telecom, used to bring leverage back towards Fitch's structurally adjusted 2.5x range. - Legal liabilities persist Vivendi's headroom in its credit profile is also limited by potential legal liabilities. In January 2013 a US court upheld Liberty Media's lawsuit against Vivendi regarding the company's 2001 purchase of Liberty Media's stake in USA Networks. Liberty Media won damages for EUR945m including pre-judgement interest. Vivendi has made a provision for this amount but Vivendi plans to appeal against this ruling. The possible outcomes of this case are complex and uncertain and may take up to a few years to conclude. - Fitch's structurally adjusted leverage calculation As Vivendi cannot freely circulate cash between certain subsidiaries (Maroc Telecom and Activision Blizzard), Fitch makes adjustments to key metrics to reflect the group's structure, such as structurally adjusted net debt to EBITDA. Although the stake in Activision Blizzard is specifically excluded from our leverage measure, Vivendi's 61% interest is a valuable asset. The company showed in 2011 that it is willing to sell down this stake, giving it an additional source of liquidity to help lower leverage. Details of how this is calculated can be found in our Update on Vivendi, published on 7 Feb 2013 at www.fitchratings.com. RATING SENSITIVITIES Negative: Future developments that could lead to negative rating action include: - Vivendi's rating will come under pressure if there is no sign of deleveraging in 2013. Fitch will be looking for a clear sign that medium-term leverage is heading back to below 2.5x on Fitch's structurally adjusted net debt to EBITDA measure. - Continued erosion of SFR's market position or cashflow generation would put pressure on Vivendi's credit profile. Positive: Future developments that could lead to positive rating action include: - Positive rating action is unlikely in the medium term as this would require management to pursue a more conservative financial policy. LIQUIDITY AND DEBT STRUCTURE Vivendi ended Q412 with EUR3.89bn of cash and equivalents, which includes EUR2.99bn held at Activision Blizzard. The total amount of the group's confirmed credit facilities amounted to EUR9.04bn. Undrawn credit facilities not used to back commercial paper amounted to EUR3.36bn. Vivendi has enough liquidity to cover debt maturities in 2013 and 2014. At the end of 2012, Vivendi's average term of the group's debt was 4.4 years (compared to 4.0 years as at end-2011). Contact: Principal Analyst Brian O'Brien Analyst +44 20 3530 1127 Supervisory Analyst Damien Chew, CFA Senior Director +44 20 3530 1424 Fitch Ratings Limited 30 North Colonnade London E14 5GN Committee Chairperson Michael Dunning Managing Director +44 20 3530 1178 Media Relations: Francoise Alos, Paris, Tel: +33 1 44 29 91 22, Email: francoise.alos@fitchratings.com; Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available at 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, 'Corporate Rating Methodology', dated 8 August 2012 is available at www.fitchratings.com. Applicable Criteria and Related Research Corporate Rating Methodology here Additional Disclosure Solicitation Status 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 WEBSITE '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. 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.

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