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Liberty Global plc -- Moody's affirms Liberty Global's Ba3 CFR; stable outlook

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Rating Action: Moody's affirms Liberty Global's Ba3 CFR; stable outlookGlobal Credit Research - 17 Mar 2021London, 17 March 2021 -- Moody's Investors Service ("Moody's") has today affirmed Liberty Global plc's (Liberty Global or the company) Ba3 corporate family rating (CFR) and Ba3-PD probability of default rating (PDR). The outlook on the ratings remains stable.The rating action follows the completion by Liberty Global in November 2020 of the acquisition of Sunrise Communications Group AG (Sunrise) for USD7.4 billion through the settlement of the all cash public tender offer to acquire all of the outstanding shares of Sunrise. As of December 31, 2020, Liberty Global held 98.9% of the share capital of Sunrise and has initiated a statutory squeeze-out procedure pursuant to which the company will acquire the remaining Sunrise shares that it does not yet own. This squeeze-out procedure is expected to be completed during the first half of 2021. Additionally, in May 2020, Liberty Global and Telefonica S.A. (Baa3 stable) announced that they entered into an agreement to form a 50:50 joint venture (VMED O2 UK Limited, Ba3 stable) combining the UK's operations of Virgin Media Inc. (Ba3 stable) with O2 Holdings Limited. Virgin Media Inc.'s operations in Ireland will thus not be a part of the joint venture. UPC Holding B.V. (B1 stable), 100% owned by Liberty Global, will significantly increase its scale following the integration of Sunrise while Virgin Media UK's operations will be deconsolidated from Liberty Global following the closing of the VMED O2 UK joint venture. The joint-venture is subject to regulatory approvals in the UK with closing expected by the middle of 2021.RATINGS RATIONALELiberty Global's Ba3 CFR reflects (1) the company's strong position in the markets where it operates supported by resilient market shares despite intense competition, (2) the improved business profile of the company's Swiss and UK's operations following the acquisition of Sunrise and the expected setting up of the joint-venture with O2 UK, respectively, which will provide these entities a larger scale and ability to deliver fixed-mobile convergence through their fixed and mobile infrastructures, (3) the good quality of the cable networks operated by its subsidiaries which are in the process of being upgraded to DOCSIS 3.1 technology to offer broadband speeds of up to 1 gigabit per second (Gbps), and (4) its good liquidity supported by a large cash and cash equivalents balance at the holding company level with availability under the different revolving credit facilities at its subsidiaries and the large amount of cash to be up-streamed from VodafoneZiggo Group N.V. (B1 stable), the 50:50 joint-venture between Liberty Global and Vodafone Group Plc (Baa2 negative) in the Netherlands and from VMED O2 UK.However the rating is constrained by (1) the reduced scale of the consolidated group pro forma for the setting up of the VMED O2 joint-venture which will lead to the deconsolidation of Virgin Media UK's operations from the company leading to a higher revenue concentration around two geographies, namely UPC mainly in Switzerland and Telenet Group Holding NV (Ba3 stable) in Belgium, (2) the high adjusted leverage of the company which Moody's forecasts at 5.9x at the end of 2021 (pro forma for the deconsolidation of Virgin Media UK and the recapitalization of Virgin Media's Irish operations) with limited organic de-leveraging going forward although this has been so far mitigated by the company's large cash and cash equivalents balance at Liberty Global which mainly results from a significant disposal in 2019, and (3) the significant competitive pressure in the markets where the company operates including in Switzerland where UPC Switzerland has experienced a prolonged decline in revenue and EBITDA.Pro forma for the deconsolidation of the Virgin Media UK's operations and the full year contribution of Sunrise, Moody's forecasts Liberty Global's revenue in 2021 to decrease to approximately USD8.0 billion from USD12.0 billion reported in 2020 with Belgian and Swiss operations accounting for approximately 40% each of pro forma group adjusted EBITDA (as reported by the company) in 2021. The reduced scale of the business is partly mitigated by the large and recurring dividend payments to be received from VodafoneZiggo and VMED O2 UK.While Liberty Global's adjusted gross leverage is elevated and projected by Moody's at 5.9x at the end of 2021 (pro forma for the deconsolidation of Virgin Media UK's operations, the recapitalization of Virgin Media Ireland following the closing of the VMED O2 UK joint-venture and the full year contribution of Sunrise), it does not take into consideration the company's large cash and cash equivalents balance. As of 31 December 2020, Liberty Global's cash and cash equivalents, including separately managed accounts classified under current investments, amounted to USD2.9 billion. Moody's notes however that the cash balance may increase further by the end of 2021 to approximately USD5.0 billion. Liberty Global is expected to receive an estimated USD1.9 billion in total, including approximately USD1.1 billion from the recapitalization of Virgin Media's retained and 100.0% owned Ireland business. Taking into consideration the projected increase in cash and cash equivalents by the end of 2021, Moody's projects net leverage to be significantly lower at 4.2x compared to 5.9x on a gross basis. Nevertheless, the use of this large cash and cash equivalents balance remains uncertain and represents an event risk. Moody's considers the cash balance could be used to partly fund M&A transactions or towards shareholder remuneration. The rating agency however considers unlikely that the cash will be used to directly de-leverage its consolidated subsidiaries which currently operate within their respective net leverage target ranges.Moody's thus regards Liberty Global's liquidity as good. In addition to the cash and cash equivalents balance which is likely to increase to close to USD5.0 billion by the end of 2021, there is available borrowing capacity under the various credit facilities within Liberty Global which totaled approximately USD2.9 billion for the company's continuing operations as of year-end 2020. Pro forma for the deconsolidation of Virgin Media UK, available credit facilities will decrease to EUR736 million at UPC Sunrise and EUR555 million at Telenet or EUR1,291 million in aggregate. Liberty Global and its subsidiaries have limited near-term maturities compared with the size of the group. As of 31 December 2020, Liberty Global's average tenor of third-party debt was around seven years.RATING OUTLOOKThe stable outlook is based, among other things, on Moody's expectation that Liberty Global's consolidated subsidiaries, namely Telenet and UPC, will experience a stable operating performance while the company will continue receiving large remunerations from VodadoneZiggo and VMED O2 UK following the closing of the joint-venture. The outlook also reflects Moody's expectation that the company will take a conservative approach in terms of the use of its large cash balance supporting de-leveraging of the consolidated group.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSUpward rating pressure could develop if Liberty Global's (1) operating performance improves significantly, (2) Moody's-adjusted gross debt/EBITDA falls below 4.0x on a sustained basis (excluding any unusual currency translation effect on reported results), and (3) adopts a more conservative shareholder remuneration policy. Downward rating pressure could develop if (1) Liberty Global uses a significant portion of its large cash balance for shareholder remuneration or M&A transactions which do not support de-leveraging of the consolidated group leaving Moody's adjusted gross leverage above 5.0x on a sustained basis; (2) the company experiences a marked deterioration in its operating performance; or (3) its free cash flow (after capital spending and dividends) deteriorates on a sustained basis while the company maintains its historical level of shareholder remuneration.PRINCIPAL METHODOLOGYThe principal methodology used in these ratings was Telecommunications Service Providers published in January 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1055812. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.COMPANY PROFILELiberty Global plc is a large international cable communications company, with operations in six European countries (namely the UK, Ireland, Belgium, Switzerland, Poland, and Slovakia excluding the Netherlands where the company operates through a joint-venture). Liberty Global operates the largest cable network in each of its countries of operation, except in Poland, where it operates the second largest cable network.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. 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Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. 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