Feb 27 - 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. The affirmation follows the agency considering the likely impact on the French market of the entry of a fourth mobile operator, Iliad.
“Profits at Vivendi’s telecoms business in France, SFR, are going to come under increasing pressure following the entry of Iliad,” says Damien Chew, Senior Director in Fitch’s European Telecoms, Media and Technology team. “This competitive intensity is likely to persist over the medium term, which is going to reduce the pace at which Vivendi can de-lever after the planned acquisition of EMI’s recorded music operations.”
Vivendi’s headroom in its credit profile remains tight, especially given the significant regulatory and execution risks associated with the EMI transaction. Fitch believes that the erosion of SFR’s cash flow generation ability could be partly offset by the continued strong financial performance in other parts of the group, particularly at GVT.
Fitch has incorporated into its current forecasts that Vivendi will report 2011 results on 1 March in line with its stated guidance, close the EMI and TVN transactions in H212 and complete EUR500m worth of disposals of UMG non-core assets in 2012.
Fitch recognises Vivendi’s track record in acquisitions and the financial discipline management has shown in the past. Vivendi’s rating would come under pressure if there is no sign of deleveraging in 2013, the year after the EMI transaction is expected to close, and if there was no clear expectation of medium-term leverage heading back to below 2.5x on Fitch’s structurally adjusted net debt to EBITDA measure.
Fitch’s methodology recognises that Vivendi cannot freely circulate cash between certain of its subsidiaries (especially Activision Blizzard ) and the agency makes adjustments to key metrics to reflect the group’s structure. To derive structurally adjusted net debt/EBITDA, the agency strips subsidiaries’ EBITDA and debt from consolidated numbers where Vivendi does not have direct access to the cash and replaces EBITDA with dividend streams that Vivendi receives.