Dec 16 (The following statement was released by the rating agency)
Fitch Ratings has affirmed Luxembourg-based satellite operator SES SA's Long-term
Issuer Default Rating (IDR) at 'BBB' and Short-term IDR at 'F2'. The Outlook is Stable. A full
list of rating actions is below.
SES is one of the leading global satellite operators, generating highly visible
cash flow and protected by relatively high barriers to entry. More capital is
being deployed in the industry, which Fitch expects will lead to increased
supply in some regions and some pricing pressure. With the benefit of economies
of scale and initiatives to reduce the average capital cost of transponders, SES
should be able to manage this change in competitive dynamics and keep its credit
profile within the limits of a 'BBB' rating.
KEY RATING DRIVERS
Highly Visible Revenue Streams
SES's rating is underpinned by highly visible, non-cyclical and geographically
diverse revenue streams, supported by long-term contracts (which can be up to
10-15 years) and by its solid underlying demand drivers. These include the
increasing capacity requirements associated with a growing number of
high-definition TV services, and increasing demand for direct-to-home satellite
services in emerging markets.
Commitment to Maintain Leverage
SES is committed to maintaining its unadjusted net debt/EBITDA below 3.3x even
as the company continues to invest for growth. Fitch considers a ceiling of 3.3x
consistent with a 'BBB' rating for a business with SES's profile, giving the
group an appropriate level of headroom under the 3.5x net debt/EBITDA covenant
contained in its US private placement. Net debt/EBITDA was 3.0x at the end of
Regional Pricing Variations
Strong customer demand, especially in emerging markets, is attracting capital
and the deployment of additional satellites from both global and regional
satellite operators. This could lead to an oversupply of capacity and weaker
pricing. SES needs to manage pricing carefully to take into account these
regional variations in supply and demand. SES also has to manage profitability
as average revenue per transponder in emerging markets is likely to be lower
than in developed markets. To protect longer-term profitability, SES has
introduced initiatives to reduce the average capital cost of transponders.
High Barriers to Entry
Access to the orbital slots needed to operate a geosynchronous satellite is
limited and the most desirable orbital slots rarely change hands, forming a key
industry barrier to entry. This should provide SES with some protection against
excessive pricing pressures.
Few Medium-term Threats
The stability and long-term nature of the satellite industry means that
significant changes in SES's risk profile are unlikely over the next three to
five years. Potential industry challenges over the longer term are primarily
technological (substitution by terrestrial fibre networks or more efficient
transponder use than predicted), which could reduce demand. Widespread satellite
failure across the fleet could have negative implications for the company's
financial profile and rating, but this is mitigated by SES's large fleet and
significant unutilised transponder capacity (74% utilisation rate as at 30
Healthy Cash Flow Outlook
Fitch expects cash flow from operations (CFO) to remain stable over the medium
term, underpinned by the high (over 80%) EBITDA margin in the infrastructure
segment, which accounted for 79% of group revenue (before eliminations) in 9M13.
However, SES's free cash flow (after dividends) margin is expected to close to
0% in 2013 and 2014, according to Fitch's conservative assumptions as the
majority of pre-dividend FCF is paid out as dividends.
Liquidity Not a Concern
SES's liquidity remains healthy. At the end of 30 June 2013, SES had EUR666m of
cash and equivalents, and EUR1.2bn of undrawn credit facilities. SES also issued
a EUR500m 1.875% five-year bond in October. This means SES has enough liquidity
to meet its upcoming debt maturities in 2013 and 2014.
- The stability and long-term nature of the satellite industry makes significant
changes in SES's risk profile unlikely in the three- to five-year rating
horizon. This stable operating environment means that Fitch could tolerate
expectations of unadjusted net debt/EBITDA reaching 3.3x before considering a
negative rating action.
- Pre-dividend free cash flow margin consistently below 10% would indicate
deterioration in the business, which could lead to negative rating action.
- SES's rating is constrained at 'BBB' by its current leverage policy. While
there would be potential for upward migration if this policy was tightened,
Fitch currently has no expectation that this will occur.
The rating actions are as follows:
Long-term IDR: affirmed at 'BBB', Outlook Stable
Short-term IDR: affirmed at 'F2'
Senior unsecured: affirmed at 'BBB'
Commercial paper: affirmed at 'F2'
SES Global Americas Holding GP
Senior unsecured: affirmed at 'BBB'.