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June 25 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has placed Kabel Deutschland Vertrieb und Service GmbH's (KDG) 'BB'Long-term Issuer Default Rating (IDR) on Rating Watch Positive (RWP) following Vodafone GroupPlc's (A-/Rating Watch Negative) announcement that it will acquire the company forEUR10.7bn. The 'BB+' rating on KDG's senior secured debt has also been placed on RWP.
KDG's ratings may be upgraded by one or several notches if the deal with Vodafone goes through. Vodafone's rating is significantly higher than KDG's, and KDG may potentially benefit from shareholder support.
For more details on the impact on Vodafone from the acquisition, see 'Fitch Puts Vodafone on Rating Watch Negative on Offer for Kabel Deutschland' dated 24 June 2013 at www.fitchratings.com.
KDG is an established cable provider in Germany with growing broadband, telephony and premium/pay-TV franchise. Its operating profile is potentially consistent with a low investment grade rating. This is overlaid by its relatively high leverage, particularly on a lease-adjusted basis, and shareholder friendliness.
KEY RATING DRIVERS
Parent-Subsidiary Linkage
The linkage between KDG and its new parent will be analysed under Fitch's parent-subsidiary methodology. If the linkage is viewed as strong, KDG and Vodafone's ratings may potentially be equalised. A final decision will depend on the assessment of legal, operational and strategic ties between the two companies.
Future Funding Strategy Important
Fitch will likely take into account KDG's future funding strategy. Funding at the Vodafone group level and a commitment to call the outstanding bonds would likely be viewed as evidence of strong shareholder support. KDG's existing bonds become callable in June 2014.
RATING SENSITIVITIES
A completion of the acquisition by Vodafone is likely to lead to an upgrade. If the deal falls away, the RWP is likely to be removed and the ratings affirmed at their current levels.
On a standalone basis, KDG's operating profile is potentially consistent with a low investment grade rating. This is overlaid by its relatively high leverage, particularly on a lease-adjusted basis, and shareholder friendliness.
The sensitivities below are applicable to KDG's credit profile if the deal with Vodafone does not materialise:
A rise in leverage to above 3.8x net debt/EBITDA and FFO adjusted net leverage to above 4.75x on a sustained basis would put negative pressure on ratings. Improvements in pre-dividend FCF generation on the back of stable operating performance may be rating positive.
A tighter leverage target of below 3x net debt/EBITDA and/or significant reduction in lease-adjusted debt would put positive pressure on the ratings.
