Vivendi Debt Ratings Affirmed with a Negative Outlook

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Standard Poor's Ratings Services has affirmed the debt ratings of the French conglomerate Vivendi but confirmed the negative outlook.

The affirmation reflects S&P's view that Vivendi's supervisory board and management are committed to preserving the current rating. In addition, they think the group will aim to maintain a financial risk profile commensurate with the rating and balancing any potential negative trend in its business risk profile.

The rating agency continues to think that Vivendi's previously announced strategic review may somewhat weaken its business risk profile in the future, in particular because the group could reduce business or geographic diversity. At this stage, however, they assume that Vivendi's business risk profile will remain "satisfactory," and that any large asset disposals would likely be accompanied by significant debt reduction and a material strengthening of the group's financial risk profile.

Still, the negative outlook points to the risk that any future weakening of the business risk profile might be more pronounced than they can reasonably anticipate today, or not sufficiently balanced by a stronger balance sheet to preserve the current rating.

S&P also warned that it cannot rule out that ongoing price pressures at mobile subsidiary SFR would translate into a sharper EBITDA drop than anticipated for 2013, which could lead to a lower rating.

They have revised downward their assessment of the SFR's credit quality, given intense price pressures in the domestic mobile market after the disruptive entry of a fourth competitor early 2012. After a likely high single digit EBITDA drop in 2012 at group level, S&P now sees a further low single digit EBITDA decline at SFR in 2013 compared with previous expectation of a stabilization. Thereafter, they think that management's aggressive cost cutting objectives should help stabilize SFR's EBITDA margin in the mid-20% area, compared with about 30% in 2011.

The negative outlook for the Group reflects the possibility of a one-notch downgrade within the next two years if Vivendi's business risk profile were to weaken to below the current satisfactory category, or, while remaining satisfactory, it was not sufficiently balanced by a stronger financial risk profile to sustain the current rating. Alternatively, absent any business reshuffling, a prolonged and steep EBITDA drop at SFR level could put some additional pressure on the business risk profile, adversely affect credit metrics to a larger extent than we currently anticipate, and trigger a downgrade.

S&P finished by noting that it could revise the outlook to stable if they were increasingly convinced that performances of Vivendi's telecom division will stabilize; that the group's business risk profile will remain satisfactory; and that its credit metrics will remain within adequate parameters for the rating, or, if required by a lower business risk profile, strengthen to a sufficient extent.

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Tags: vivendi  sfr  France 

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