The new notes will have substantially the same terms and conditions as the existing senior unsecured notes issued by MMH. However, the new notes will benefit from a senior guarantee from MMH, but not from the other companies that guarantee the revolving credit facility, the senior secured notes issued by Matterhorn Mobile S.A., or the senior unsecured notes issued by MMH. Matterhorn Midco will use the majority of the net proceeds from the offering to pay an extraordinary distribution to its shareholders worth CHF181 million (EUR150 million).
The following ratings have been affirmed:
Matterhorn Mobile Holdings S.A.:
- EUR225 million (CHF272 million) of senior notes due February 2020: B3/loss given default (LGD) assessment of 6
Matterhorn Mobile S.A.:
- EUR330 million (CHF400 million) of senior secured floating-rate notes (FRNs) due May 2019: B1/LGD4
- CH450 million of senior secured fixed-rate notes due May 2019: B1/LGD4- CHF180 million of senior secured FRNs due 2019: B1/LGD4
The outlook on all the ratings is stable.
Moody's issues provisional ratings in advance of the final sale of securities and these ratings reflect the rating agency's preliminary credit opinion regarding the transaction only. Upon a conclusive review of the final documentation, Moody's will endeavour to assign a definitive rating to the proposed new notes. The definitive ratings may differ from the provisional rating.
RATINGS RATIONALE
The (P)Caa1 rating on the new notes issued by Matterhorn Midco is two notches below the company's B2 CFR and one notch below the B3 rating on the senior unsecured notes issued by MMH. This notching differential reflects the new notes' subordinated position relative to the other debt instruments in the group's capital structure.
Due to the high initial leverage and the substantial amount of secured notes and senior unsecured notes that effectively rank ahead of the new notes in case of enforcement, Moody's expects that the amount of residual collateral value available to the new noteholders in a recovery scenario would be very limited.
The B2 CFR of Matterhorn Midco is one notch below the B1 CFR that Moody's previously assigned to MMH. The differential reflects (1) Matterhorn Midco's increased leverage as a result of the company's new debt issuance, the proceeds of which it will use to pay a dividend to its shareholders; and (2) the financial strategy implemented by the shareholders, which is more aggressive than initially expected.
This is Matterhorn Midco's second dividend distribution funded with new debt in only seven months since the company's completion of its LBO of Orange Switzerland. It follows the company's payment of a CHF90 million dividend in early September 2012. In total, Matterhorn Midco's shareholders have recovered more than one third of their original equity contribution.
Pro forma for the dividend payment, Moody's expects Matterhorn Midco's adjusted debt/EBITDA to increase by 0.5x, to 4.4x compared with 3.9x pre-transaction. This is outside of the 3.5x-4.0x range that the rating agency considers appropriate for Matterhorn Midco to be rated in the B1 category.
The B1 rating on the senior secured notes issued by Matterhorn Mobile S.A. and the B3 rating on the senior unsecured notes issued by MMH remain unchanged after this transaction. This is because the new notes will absorb the first losses in a recovery scenario, providing an additional cushion for the existing senior secured and senior unsecured notes.
Matterhorn Midco's B2 CFR continues to reflect both a relatively weak business risk profile and a relatively stronger financial profile compared with similarly rated peers such as Sunrise, Polkomtel or Wind Telecomunicazioni. Specifically, the rating reflects Matterhorn Midco's leveraged capital structure following its acquisition of Orange Switzerland by funds advised by Apax Partners LLP. Matterhorn Midco's high business risk reflects its small size, lack of fixed-line business, and the strategic challenges ahead linked to the company's separation from its previous owner, the France Télécom group. The rating also reflects the track record of aggressive financial policies implemented to date by the shareholders, as well as Moody's expectation that the shareholders are likely to make use of the financial flexibility that Matterhorn Midco will develop over time as it progressively deleverages.
The stable outlook reflects Moody's expectation that Matterhorn Midco's adjusted debt/EBITDA will remain in the 4.0x-4.5x range on a sustained basis and that the company can broadly achieve its objectives in terms of operational metrics.
WHAT COULD CHANGE THE RATING UP/DOWN
Upward pressure on the rating could develop if Matterhorn Midco's financial profile improves, such that the company's (1) adjusted debt/EBITDA ratio decreases to 4.0x-3.5x on a sustained basis; and (2) RCF/adjusted debt ratio increases well above 15%. Upward pressure on the rating would require a track record of deleveraging, with indications of a more conservative financial strategy to be implemented by the shareholders.
Conversely, downward pressure could be exerted on the rating if Matterhorn Midco's operating performance weakens such that the company's adjusted debt/EBITDA trends towards 5.0x and its RCF/adjusted debt falls below 10% on a sustained basis. In addition, downward pressure could be exerted on the rating if Moody's becomes concerned about the company's liquidity -- including, but not limited to, a reduction in covenant headroom.
PRINCIPAL METHODOLOGY
The principal methodology used in rating Matterhorn Midco & Cy S.C.A., Matterhorn Mobile Holdings S.A., and Matterhorn Mobile S.A. was the Global Telecommunications Industry Methodology published in December 2010. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.
Orange Communications S.A. ("OCH") is the number three mobile network operator in Switzerland, with a reported mobile revenue market share of around 20% and a subscriber market share of around 17% for the six months ended June 2012. The company has more than 1.6 million customers. For the 12 months ended June 2012, the group reported revenues of CHF1.3 billion (EUR1.06 billion) and adjusted EBITDA of CHF372.5 million (EUR310 million).
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
The ratings have been disclosed to the rated entities or their designated agent(s) and issued with no amendment resulting from that disclosure.
Information sources used to prepare each of the ratings are the following: parties involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.
Moody's considers the quality of information available on the rated entities, obligations or credits satisfactory for the purposes of issuing these ratings.
However, the rating for Matterhorn Midco & Cy S.C.A., Matterhorn Mobile Holdings S.A., and Matterhorn Mobile S.A. was based on limited historical data.
Moody's adopts all necessary measures so that the information it uses in assigning the ratings is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.
Moody's Investors Service may have provided Ancillary or Other Permissible Service(s) to the rated entities or their related third parties within the two years preceding the credit rating action. Please see the special report "Ancillary or other permissible services provided to entities rated by MIS's EU credit rating agencies" on the ratings disclosure page on our website www.moodys.com for further information.
Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.
Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.
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Ivan Palacios VP - Senior Credit Officer Corporate Finance Group Moody's Investors Service Espana, S.A. Calle Principe de Vergara, 131, 6 Planta Madrid 28002 Spain JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 Paloma San Valentin MD - Corporate Finance Corporate Finance Group JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 Releasing Office: Moody's Investors Service Espana, S.A. Calle Principe de Vergara, 131, 6 Planta Madrid 28002 Spain JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 (C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.
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