Eircom rating revised to stable by S&P’s

Standard & Poor's has revised its outlook on telecoms group Eircom to stable from negative.

The ratings agency has also affirmed its ‘B’ long-term corporate credit rating on the group, as well as the ‘B’ issue rating and ‘3’ recovery rating on Eircom’s senior secured debt.

Standard & Poor’s said Eircom had made significant capital investments in its infrastructure, after years of underinvestments. The group has initiated a number of projects over the past 12 months including the roll-out of its fibre-broadband. IPTV and 4G services. The ratings agency said it expected an improvement in Eircom’s Ebitda margin and cash generation, following the investments.

“The stable outlook reflects our view that Eircom’s revenues and cash balances will be at their lowest in June 2014 and that margins will improve over the next two years. Thereafter, we anticipate that the company will return to positive cash generation leading to an increase in cash from a low of €200 million,” the agency said.

“The stable outlook also incorporates our expectation that the company will remain highly leveraged over the next two years with a relatively slow deleveraging profile,” it added.

The agency said it was unlikely to raise Eircom’s rating in the medium term. However, it said it could consider an upgrade if adjusted leverage falls below 5x on a sustainable basis, combined with free operating cash flow-to-debt in the mid-single digits.

“In addition, an upgrade would likely require stability in the company’s overall market share (fixed-line and mobile) and an improvement of the mobile division’s Ebitda margin, from mid-single digits to closer to 15 per cent,” it said.

Rival agency Moody’s also recently revised Eircom’s corporate rating from Caa1 to B3, which still carries a high-risk investment tag. It pointed to an improved operating outlook for the telecoms company and a likely debt restructuring as reasons behind the upgrade.