Fitch Places TDC Debt Ratings on Positive Outlook

Fitch Ratings has revised TDC's Outlook to Positive from Stable due to the company's improving operational metrics and continued deleveraging.

"While the deleveraging to-date is a positive development, it is mainly the improvement in EBITDA trends in TDC's core Nordic businesses which supports the Positive Outlook," said Michelle De Angelis, Senior Director in Fitch's Leveraged Finance team. "A continuation of the improvements in EBITDA margins, which offsets the effect of downward revenue pressures and provides greater visibility for the company's medium-term EBITDA and cash flow generation potential, will be key in determining further positive rating momentum in 2009."

TDC's successful deleveraging has been achieved through a combination of internally generated cash flows and disposal proceeds, including the proceeds from the sale of its Polkomtel stake (received in December 2008), leading to a decreased pro forma Fitch-adjusted net debt/EBITDA of 3.7x at Q308.

Following step-by-step disposals of the majority of its non-core assets, TDC's portfolio now consists of the Nordic fixed line, mobile and business segments, the Danish cable business, Sunrise in Switzerland and a majority stake in HTCC in Hungary.

Since Q208, the year-on-year EBITDA performance at the Nordic businesses has returned to positive growth despite continuing downward pressure on the revenue line. Margins have improved as a result of a combination of efficiency measures, including headcount reductions, although the cost of any redundancy measures is accounted for below the EBITDA line. Excluding HTCC, which is ring-fenced with its own non-recourse debt, TDC's trailing twelve months (LTM) EBITDA was stable at DKK11.92bn at Q308 and DKK11.85bn YE07, while LTM revenues declined to DKK36.1bn at Q308 from DKK37.2bn at YE07. If sustained, the EBITDA margin improvements should support EBITDA levels in the short-term, although in the medium-term, EBITDA cannot grow indefinitely whilst revenues continue to decline, so any evidence of a stabilisation of revenue trends in certain core businesses would also support the medium-term outlook for EBITDA growth and cash flow generation.

At the same time, the agency has affirmed TDC's Long-term Issuer Default Rating (IDR) at 'BB-' (BB minus) and Short-term IDR at 'B'.

Posted to the site on 20th January 2009