Fitch: SFR Spin-Off Plan Exposes Vivendi Holders to Event Risk

Thu Sep 12, 2013 10:58am EDT

(The following statement was released by the rating agency) LONDON, September 12 (Fitch) Vivendi's plan to split itself in two exposes bondholders to the risk that they will end up invested in SFR, the group's French telecom operations, rather than its better-performing media assets and Brazil's GVT, Fitch Ratings says. The credit impact on Vivendi's 'BBB' rating would depend mainly on how debt was allocated to the two separate companies in any proposed transaction. Vivendi could end 2013 with a net debt/EBITDA ratio of around 1.3x, assuming it successfully completes its planned disposals of Maroc Telecom and Activision Blizzard, and does not return any cash to shareholders. We believe Vivendi should be able to allocate debt between the two new companies in a way that enables both to achieve 'BBB' ratings, excluding further acquisition-related risks. However, this is likely to mean that more debt will be allocated to SFR as telecoms companies are better suited to sustaining higher leverage than a media company at the same rating level. This assumes that SFR is able to stabilise its financial performance in 2014 and that the price war in the French mobile telecoms market abates. In H113 SFR accounted for 42% of Vivendi's EBITDA from continuing operations. Vivendi has not announced any details of how it would implement a possible demerger of SFR. We believe that the media assets and GVT could be spun off into a new entity, leaving existing Vivendi bondholders invested in the company owning SFR. Change-of-control clauses may not be triggered, meaning Vivendi bondholders are exposed to event risk related to the transaction structure. Vivendi yesterday announced that it is looking at a possible demerger of SFR in 2014. The company also proposed the appointment of Vincent Bollore as Vice-Chairman of the Supervisory Board. Fitch views Mr Bollore's appointment as a signal that the Vivendi board is united behind the plan to demerge SFR. Contact: Damien Chew, CFA Senior Director Corporates +44 20 3530 1424 Fitch Ratings Limited 30 North Colonnade London E14 5GN Michael Dunning Managing Director Corporates +44 20 3530 1178 Simon Kennedy Director Fitch Wire +44 20 3530 1387 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com; Hannah Huntly, London, Tel: +44 20 3530 1153, Email: hannah.huntly@fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. 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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