Fitch Downgrades the Debt Ratings of Greece's WIND Hellas

Fitch Ratings has downgraded Greek mobile operator, WIND Hellas' Long-term Issuer Default Rating (IDR) to 'B-' (B minus) from 'B' on concerns about its leverage and future cashflow generation. The short-term rating is affirmed at 'B'. The outlook is Stable.

Fitch has downgraded WIND Hellas as the agency expects an increase in net cash-pay leverage to 6.7x EBITDA by YE09 and a deterioration in liquidity due to ongoing investments in its fixed-line business, Tellas. Leverage is expected to peak in mid-2009 due to working capital seasonality, timing of cash interest payments, and the fact that the company does not expect Tellas to break even at the EBITDA level until H209.

Failure to generate positive EBITDA on a quarterly basis for Tellas in H209, as well as an underperformance in operating cashflow, coupled with a lack of parental support could place further negative pressure on the rating.

Fitch sees little prospect for deleveraging on a group basis before the fixed-line Tellas business posts positive EBITDA and cashflow. Tellas is not expected to be cashflow positive on a standalone basis until 2012, although Fitch notes that the consolidated group could be cashflow positive as early as 2010. Consequently, the funding and capital expenditure requirements for the development of Tellas's LLU business are expected to delay the further deleveraging of the combined group until 2010-11. The €1.2bn senior secured floating rate notes fall due for repayment in October 2012, and therefore refinancing risk is likely to be significantly higher than previously anticipated and certainly now in excess of a level commensurate with the previous 'B' rating category.

The 'B-' rating also reflects the slowdown in the Greek mobile market, unabating competitive pressure on the prepaid segment driving ARPUs lower, and the effects of the anticipated reduction in termination rates from 10.4 Euro cents in July 2008 to 4.95 cents by January 2011, which are unlikely to be compensated by usage growth in the current market environment. However, Fitch currently expects the rate of cash burn to halve in 2009 from 2008 due to lower capex requirements and some cost synergies as well as cash tax synergies arising from the Tellas merger. The agency also takes comfort from the fact that Weather Investments, the parent company, sees Wind Hellas as a strategic asset and remains committed to its Greek operations in the long-term. Therefore, Fitch has factored in parental support from Weather Investments in the event of further liquidity pressure.

The instrument ratings on the Hellas Telecommunications (Luxembourg) V senior revolving credit facility and Hellas Telecommunications (Luxembourg) V senior secured floating rate notes due 2012 have been simultaneously downgraded to 'B'/'RR3' from 'B+' (B plus) /'RR3'. The rating of the Hellas Telecommunications (Luxembourg) III senior notes due 2013 is downgraded to 'CCC+' / 'RR5' from 'B+' (B plus) / 'RR3', and the rating on Hellas Telecommunications (Luxembourg) II subordinated floating-rate notes due 2015 is also downgraded to 'CCC' / 'RR6' from 'CCC+' / 'RR6'.

In Fitch's bespoke recovery analysis for WIND Hellas, a distressed enterprise value (EV) of €1.7bn is assumed. This implies an EBITDA discount of 30% applied to EBITDA and an EV/EBITDA multiple of 5.5x, which results in strong anticipated recoveries for the Senior Secured Revolving Credit Facility and Senior Secured Notes, but less than 30% recoveries for the Senior Notes, resulting in a downgrade of the recovery rating to 'RR5' from 'RR3'.

Posted to the site on 27th November 2008