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Fitch Affirms TDC Debt Ratings with Stable Outlook

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Fitch Ratings has affirmed Denmark based TDCS's Long term Issuer Default Rating (IDR) and senior unsecured ratings at 'BBB' with a Stable Outlook and Short term IDR at 'F3'.

TDC's ratings are supported by the resilience of its dominant market position in all domestic segments, despite continued adverse competitive dynamics which Fitch does not expect will ease in the medium term, especially as Denmark is one of the highest penetrated telecom markets in Europe. The ratings also reflect management's track record in streamlining the business, with improving EBITDA margins across all segments and Fitch's view that the systematic approach to managing the cost base, inherited from its LBO past should support margins in the context of falling non-cable domestic revenues.

TDC's ratings are further supported by management's confirmation of a prudent financial policy of net debt/EBITDA of 2.1x on average over the financial year and public commitment to maintain a mid-'BBB' rating. However, this is offset to a large degree by the high level of dividends to be returned to shareholder from 2012 (80-85% of equity free cash flow). On balance, Fitch believes that the generous shareholder policy can be accommodated within the current rating category given the overall stable operating performance. Nonetheless, this constitutes an important limiting factor for any upwards rating migration.

Negative rating pressure could arise should the company experience weakening performance in its domestic segments. In particular, any noticeable market share loss in the fixed segment (including lower performance from YouSee as a result of the regulator's broadband cable wholesale decision), with cash flow underperformance pushing net debt/EBITDA and FFO net leverage outside 2.5x and 3.5x, respectively, for a protracted period of time could lead to negative rating action.

Fitch considers TDC's liquidity as strong with DKK910m of cash on the balance sheet at end-September 2011 supplemented by EUR700m of undrawn credit facilities (EUR200m maturing in 2014, EUR500m in 2016) covering EUR457m of bonds due for repayment in 2012. After that, the issuer has no debt scheduled for repayment until February 2015.

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Tags: tdc  Denmark