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LONDON (Alliance News) - Moody's Investors Service on Thursday assigned a Ba1 rating to Vodafone Group PLC's new hybrid securities, below Vodafone's senior unsecured rating of Baa2, because the notes are "deeply subordinated".
Moreover, the ratings agency said FTSE 100-listed Vodafone now has a negative outlook as a result of the Liberty Global PLC's assets acquisition, which is likely to deteriorate its leverage metrics once completed.
Vodafone's Moody's-adjusted leverage is likely to fall to 3.8 to 3.6 times earnings in the two years following the deal, high for its category.
Moody's assigned a Ba1 rating to the telecom company's USD2 billion subordinated fixed rate reset 10 year capital securities, which are due in 2079. These securities are to be used to part-fund Vodafone's acquisition of Liberty's assets in Germany, as well as in central and eastern Europe.
"The Ba1 rating we have assigned to the hybrid securities is two notches below Vodafone's senior unsecured rating of Baa2, primarily because the instrument is deeply subordinated to other debt in the company's capital structure," said Moody's Vice President Laura Perez, who is senior credit officer and lead analyst for Vodafone.
The securities are long dated, maturing in 60 years, and only senior to Vodafone's common equity. Vodafone also has the option to defer the coupons on a cumulative basis.
Moody's said that, in its view, "the notes have equity-like features that allow them to receive basket 'C' treatment" such as "50% equity and 50% debt for financial leverage purposes".
The telecom firm's Baa2 senior unsecured rating is due to its large side and geographic diversity but it is weakly rated and has "a negative outlook and with no headroom for underperformance".
Moody's said it believes Vodafone's management can take steps to accelerate deleveraging, including asset disposals.
Shares in Vodafone were up 0.7% at 144.72 pence on Thursday afternoon.
