TEXT-S&P rts Com Hem parent company ‘B’; otlk stbl
— On Sept. 29, 2011, private equity firm BC Partners acquired Swedish
cable operator Com Hem AB through a leveraged buyout.— We are assigning a ‘B’ long-term corporate credit rating to Norcell
Sweden Holding 2 AB (Com Hem), a holding company within the Com Hem group.— We are also assigning a recovery rating of ‘3’ to the proposed SEK5.82
billion term loans to be issued by Norcell Sweden Holding 3 AB.— The stable outlook reflects our belief that Com Hem will rapidly
refinance its bridge loans, and generate positive and growing free cash flows,
but will remain highly leveraged.Standard & Poor’s Ratings Services said today that it had assigned its ‘B’ long-term
corporate credit rating to Norcell Sweden Holding 2 AB (Com Hem), a holding company within the
Com Hem group. The outlook is stable.At the same time, we assigned a ‘B’ issue rating and a recovery rating of ‘3’
to the proposed Swedish krona (SEK) 5.82 billion term loans, borrowed from
another group holding company Norcell Sweden Holding 3 AB and operating entity
Com Hem AB.The rating on the proposed term loans is subject to our satisfactory review of
the final documentation. In the event of any changes to the amount, terms, or
conditions of the instruments, we could review and change the issue rating.The corporate credit rating is constrained by Com Hem’s high financial
leverage and our expectation of only modest deleveraging potential and
moderately positive free operating cash flow (FOCF) generation. Furthermore,
Com Hem faces intense competition from various technology platforms,
translating into meaningful churn rates among customers subscribing to more
than basic TV access. In mainly multidwelling areas, Com Hem competes with
large incumbent TeliaSonera AB (A-/Stable/A-2) and other players using several
alternative technologies, mainly digital subscriber line and fiber.The corporate credit rating benefits from the group’s solid established
position within its 1.8 million connected household footprint, providing a
stable utility-like basic analog TV subscriber base, solid positions in
digital TV, fixed broadband, and telephony markets within the footprint, and
likely growth opportunities through increasing the penetration of digital TV
and associated services (such as video on demand). Additional supports include
the healthy Swedish economy, and Com Hem’s superior network offering internet
speeds of 100-200 megabits per second.The rating also benefits from the group’s proposed long-term capital
structures with limited debt amortization until 2017, and anticipated adequate
liquidity position.The stable outlook reflects our belief that Com Hem will remain highly
leveraged for the next two years, while generating positive and growing FOCF.The ratings could come under pressure if Com Hem does not rapidly refinance
its bridge loans, if deleveraging did not materialize according to our
expectations or if liquidity came under pressure. Specifically, we could lower
the ratings if adjusted debt to EBITDA ratio remains materially above 8x in
2012 (currently 8.3x) or if FFO to adjusted debt falls below 5% (currently
6.3%).Near-term rating upside is unlikely in our view, as we do not expect adjusted
gross debt to EBITDA to fall below 6x in the near future.RELATED CRITERIA AND RESEARCHAll articles listed below are available on RatingsDirect on the Global Credit
Portal.— 2008 Corporate Criteria: Analytical Methodology, April 15, 2008— Criteria Methodology: Business Risk/Financial Risk Matrix Expanded,
May 27, 2009— Standard & Poor’s Revises Its Approach To Rating Speculative-Grade
Credits, May 13, 2008— 2008 Corporate Criteria: Ratios And Adjustments, April 15, 2008— LBO Equity Hybrids: Too Good To Be True, Aug. 10, 2007
