*Magyar Telecom: S&P taglia rating a 'CC', pone rating a Watch Negative
Magyar Telecom Rating Lowered To 'CC' After Coupon Payment Delay; On CreditWatch Negative On Risk Of Default
Publication date: 19-Jun-2013 06:22:42 EST
- Magyar Telecom announced on June 17, 2013, its intention to use the available 30-day grace period for the payment of its June 15 coupon on its senior secured notes, maturing in 2016.
- We anticipate a high risk that Magyar Telecom will not make this coupon payment within five business days following its due date, which would be equivalent to a default under our criteria.
- We are lowering our long-term corporate credit rating on Magyar Telecom as well as our issue rating on the company's senior secured notes to 'CC' from 'CCC'. At the same time, we are placing all the ratings on CreditWatch with negative implications.
- We aim to resolve the CreditWatch next week.
FRANKFURT (Standard & Poor's) June 19, 2013--Standard & Poor's Ratings Services said today it had lowered to 'CC' from 'CCC' its long-term corporate credit rating on Netherlands-based holding company Magyar Telecom B.V. We also lowered our issue rating on Magyar Telecom's €350 million senior secured notes due 2016 to 'CC' from 'CCC'.At the same time, we placed both the long-term corporate credit rating on the company and the issue rating on its debt on CreditWatch with negative implications.The CreditWatch placement reflects our view that there is a high risk that Magyar Telecom will not make the coupon payment on its €350 million senior secured notes, maturing in 2016, within five business days following the coupon's due date on June 15, 2013. According to our criteria, we apply a uniform five-business-day standard with respect to grace periods, irrespective of the company's 30-day grace period under the notes' documentation. Accordingly, we would consider a coupon payment made more than five business days after the due date, but prior to the expiration of Magyar Telecom's 30-day grace period, as a default under our criteria.Magyar Telecom is the holding company of Invitel Távközlesi ZRt (Invitel), which is the second-largest fixed-line telecommunications, cable-TV, and broadband Internet services provider in Hungary. On June 17, 2013, the company announced that it believes it is in all stakeholders' interests to reach an agreement regarding its overall capital structure and the treatment of the June coupon payment. The company will review its decision to make the interest payment prior to the end of the 30-day grace period.In our base-case scenario, we forecast significant negative free operating cash flow (FOCF) of at least €10 million in 2013, absent material working capital outflows and assuming capital expenditures of at least €25 million (down from €43 million in 2012). This will likely largely deplete the group's available cash balances, which stood at €14 million at year-end 2012. In our view, Magyar Telecom's revenues and EBITDA generation will remain constrained by strong macroeconomic and competitive pressures as well as high special tax payments. As a result, we believe that the group's capital structure has become unsustainable, heightening the risk of a distressed exchange offer, which we would also view as a default under our criteria.We aim to resolve the CreditWatch next week, following the expiry of the five-business-day period from the senior secured notes' coupon due date.We will lower the corporate credit and issue ratings to 'D' if Magyar Telecom does not make the coupon payment within the five-business-day grace period, ending on June 21, 2013.We could affirm the rating at 'CC' if the company makes the required coupon payment by June 21, 2013. Nevertheless, the ratings would remain constrained by the announced review of the group's capital structure and associated high risk of a distressed exchange offer, which we would view as a default under our criteria. Although not anticipated at this stage, meaningful liquidity support from Magyar Telecom's owner, Mid Europa Partners, could have a positive impact on the rating.