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Hi Dan,
I guess there are a long list of motivations for posting anonymously on a public BB.. Some days I feel like I work for VOD investor relations and other days not so much..!
The S&P headline talks about a potential change to Bond investment risk rating ie from BBB+ to BBB but the article concludes, 'any imminent material asset disposals that significantly accelerate reduction of adjusted leverage below 3x could lead us to affirm the 'BBB+ . I guess this could be a reference to an anti trust remedy (tbc) or mast sales etc.
In any event, VOD has already been moved to BBB with Moodys back in Feb so could argue is already in the SP.
Hi Longish, thanks for your longish! but very good post, what do you think, Is mickey just someone who see's negative in everything, or does he have a point? Much as I am keen on liberty & surely it will be good in the long run, although maybe damaging to vod's rating in the short run. If I were shorting vod I would post every neg comment, but I don't get someone who wants the sp to rise, to only post negative comments. Any serious (non cynical) bearish comments are always welcome.
(Continued) We acknowledge that the 40% dividend reduction should support Vodafone's leverage reduction prospects over the next three years. However, the 5G spectrum acquisition in Germany amounted to about €1.9 billion, significantly more than we initially expected. This will more than offset the dividend cut in FY2020. In addition, Vodafone is facing additional 5G spectrum auctions in other markets, including the U.K. Although we think these auctions will be more benign than the ones in Italy and Germany, they could still prevent meaningful reduction in leverage over the next two years.
In addition, Vodafone has been facing operational challenges in Spain, which we think will continue--albeit to a lesser extent--in FY2020 on the back of the loss of soccer rights. It also faces macroeconomic weakness in South Africa, which has harmed consumer spending in a wireless telecom market that is predominantly prepaid. We currently forecast only flat organic revenue growth for Vodafone's European operations in FY2020, reflecting continued weakness in Spain and the remaining fallout from repricing in Italy in FY2019.
As a result, absent further significant disposals, we expect only a very gradual reduction in leverage from 2021, predominantly supported by cost efficiencies and, to a lesser extent, discretionary cash flow generation, after spectrum acquisition and dividends. We also expect integration costs during the two years following the acquisition to largely offset the contribution of synergies. We forecast that adjusted debt to EBITDA will decline to about 3.2x by FY2022. We do not anticipate reduction to less than 3x under our forecast horizon, absent any meaningful asset sale, which we generally see as more opportunistic in nature.
We take into account Vodafone's dividend cut and commitment to create headroom under its net debt to EBITDA target of 2.5x-3x. However, Vodafone has not committed to remaining at or below 2.5x, so we currently see this mainly as supportive for its prospects of maintaining a 'BBB' rating after the closing of the acquisition.
We intend to resolve the Credi****ch placement upon closing of the acquisition of assets from Liberty Global, which we expect will take place within the next three months.
We expect to lower the rating by one notch to 'BBB' upon the transaction's completion. This reflects our view that credit metrics will not be commensurate with a 'BBB+' rating for at least two years following the closing of the predominantly debt-funded acquisition (in other words, by first quarter FY2022).
That said, we do not currently see any further downside beyond the one-notch downgrade. This is because we expect the revised dividend policy, as well as operating expenditure efficiencies, to support medium-term reduction in leverage from the initial peak of 3.4x-3.5x.
In addition, any imminent material asset disposals that significantly accelerate reduction of adjusted leverage below 3x could lead us to affirm the 'BBB+
Thanks Mike, here is the S&P article
https://www.standardandpoors.com/en_US/web/guest/article/-/view/type/HTML/id/2265090
'We think there is a high likelihood that the European Commission will approve Vodafone Group PLC's acquisition of Liberty Global PLC assets within the next three months.
We have assessed the majority of the funding for the acquisition as debt.
Furthermore, we do not anticipate rapid reduction in Vodafone's S&P Global Ratings-adjusted debt to EBITDA from a forecasted peak of 3.4x-3.5x for the financial year ending March 31, 2020 (FY2020) to sustainably less than 3.0x within the two years after the acquisition's closing (in other words, by first quarter FY2022).
We take into account Vodafone's reduced dividend policy and intention to reduce leverage toward the lower end of its net debt to EBITDA target of 2.5x-3.0x; however, we think significant reduction in leverage over the medium term is subject to execution risk, and we do not factor any uncontracted disposals into our base case.
We are placing the 'BBB+' issuer credit rating on Vodafone and the 'BBB+' issue ratings on its senior unsecured debt on Credi****ch with negative implications.
The Credi****ch placement reflects our expectation of a one-notch downgrade upon the European Commission's approval of the acquisition.
LONDON (S&P Global Ratings) July 16, 2019--S&P Global Ratings today took the rating actions listed above. The Credi****ch placement reflects our view that the European Commission is likely to approve Vodafone's acquisition of Liberty Global's operations in Germany, The Czech Republic, Hungary, and Romania for €18.4 billion within the next three months.
Vodafone has completed the financing of the acquisition, and we assess the majority of it as debt-like, with the exception of about €6 billion long-dated and subordinated hybrid securities, which we assess as eligible for 50% equity content upon closing of the acquisition. As a result, we currently expect S&P Global Ratings-adjusted debt to EBITDA to peak at 3.4x-3.5x in FY2020. We treat the mandatory convertible notes as debt because we see a risk that Vodafone will attempt to offset the dilutive effect of the bonds converting into shares by repurchasing shares in the market. Vodafone has publicly stated its intention to fund potential buybacks with subordinated hybrid securities. However, since publishing "Vodafone's Mandatory Convertible Bond Issuance Assigned No Equity Content, Reducing Its Ratings Headroom" on March 18, 2019, we have decided to no longer include any potential hybrids in our current base case and will need to assess whether these hybrids meet our criteria to achieve intermediate equity content at issuance. This could reduce adjusted debt to EBITDA by a further 0.1x in our base case by FY2022. (continued next post)
http://telecoms.com/498556/sp-prepares-to-downgrade-vodafone-after-spending-spree/