Matterhorn Telecom Holding SA -- Moody's affirms Salt's B2 CFR; stable outlook

Rating Action: Moody's affirms Salt's B2 CFR; stable outlookGlobal Credit Research - 14 Feb 2022London, 14 February 2022 -- Moody's Investors Service ("Moody's") has today affirmed Matterhorn Telecom Holding SA's (Salt or the company) B2 corporate family rating (CFR) and B2-PD probability of default rating (PDR). Concurrently, Moody's has affirmed the B2 instrument ratings on the EUR500 million senior secured term loan B due 2026 (EUR400 million outstanding following prepayment), on the CHF60 million senior secured revolving credit facility due 2024, on the EUR675 million guaranteed senior secured notes due 2026 (including EUR100 million add-on issued in 2020), and on the EUR250 million guaranteed senior secured notes due 2024 all issued by Matterhorn Telecom SA, a direct subsidiary of Salt. The outlook on both entities remain stable.RATINGS RATIONALE"The affirmation of Salt's ratings reflects (1) the company's positive momentum in mobile services reflected through a track record of postpaid mobile net adds for business-to-consumer (B2C) and business-to-business (B2B) subscribers, (2) the good growth prospects for Salt's fixed broadband offering from a still relatively low level, (3) the strong underlying cash flow generation before shareholder remuneration, and (4) the company's adequate liquidity position supported by its cash balance and full availability under the revolving credit facility", says Sebastien Cieniewski, Moody's lead analyst for Salt.However, these strengths are mitigated by (1) Salt's high Moody's adjusted gross leverage at 5.9x as of the last twelve months (LTM) period to 30 September 2021 (as adjusted by Moody's mainly for indefeasible rights of use (IRUs) liabilities) with limited de-leveraging prospects over the next two years, (2) the high level of shareholder remuneration with Moody's assumption that all excess cash flow generated will be distributed to NJJ Capital (NJJ), and (3) the mature nature of the Swiss telecom market with an increasing level of competition, including from second and third brands.Salt experienced strong revenue and adjusted EBITDA growth (as reported by the company post IFRS15 and IFRS16) of 4.8% and 5.2%, respectively, in the first nine months of 2021 compared to the same period last year. Revenue growth was supported by B2C and B2B postpaid mobile net adds of 52,500 in Q1-Q3 2021 (Q3 2021 was the tenth consecutive quarters of postpaid mobile net adds), a recovery of roaming revenues driven by the easing of traffic restrictions and lockdown measures, and a strong momentum in in Salt's ultra-fast broadband business which surpassed the 150,000 subscriber mark in Q3 2021. Moody's projects modest revenue growth at around 2% in 2022 and 2023 supported mainly by the strong growth potential of Salt's fibre product with a modest positive contribution from mobile services as growth in postpaid mobile subscribers will be mostly offset by a reduction in prepaid mobile customers and lower voice mobile termination rates.After having peaked at 6.2x in 2020 due to a modest decrease in EBITDA in the midst of the coronavirus pandemic and a higher Moody's adjusted gross debt driven by higher IRUs reflecting growth of the ultra-fast broadband offering, Salt's leverage improved to 5.9x at the end of September 2021 supported by the strong EBITDA growth during the period. Moody's notes that Salt's leverage reflects the long 20-year master lease agreement (MLA) for the use of mobile towers the company sold to Cellnex S.A. in 2019 as well as the long IRU commitments for access to Swisscom AG's (A2 stable) and utility companies' fibre infrastructure. The rating agency does not expect any meaningful de-leveraging over the next two years as the projected moderate growth in EBITDA will be mitigated by increasing IRUs liabilities. Salt has a financial policy of maintaining net leverage (as reported by the company excluding lease and IRU liabilities) at between 3.5x and 4.0x -- the company was at the lower end of this range as of the end of Q3 2021.LIQUIDITYMoody's considers that Salt benefits from an adequate liquidity position supported by a cash balance of CHF346 million and full availability under the CHF60 million revolving credit facility as of 30 September 2021. The rating agency assumes that capex needs will increase over time reflecting the investment in its fibre offering and that all excess cash flow will be used for shareholder remuneration. In the first nine months of 2021, Salt paid CHF185 million to its shareholders in the form of share premium repayment and the company announced that it will distribute CHF90 million of dividends in Q4 2021. The large payments in 2021 are supported by the underlying cash flow generation as well as the proceeds from the sale in March 2021 of the remaining investment of 10% in Swiss Infra Services S.A. to Cellnex S.A. for a consideration of CHF146 million.STRUCTURAL CONSIDERATIONSSalt's B2-PD PDR reflects our assumption of a 50% family recovery rate typically used in structures including a mix of bank debt and bonds. The senior secured term loan and revolving credit facility and senior secured notes rank pari passu and share the same guarantee and security package, the latter comprising share pledges, bank accounts and intercompany receivables. The B2 instrument rating on these facilities, at the same level as the CFR, thus reflects the absence of any liabilities ranking ahead or behind.RATIONALE FOR STABLE OUTLOOKThe stable outlook reflects Moody's expectation that the company will continue to experience positive underlying operating performance as postpaid mobile net adds and growth in ultra-fast broadband will support a moderate revenue and EBITDA growth.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSUpward pressure on the B2 CFR could develop if (1) the company's operating performance significantly improves, including through sustained revenue growth supported by subscriber net adds and improving ARPU, such that its adjusted debt/EBITDA decreases to below 5.0x on a sustained basis, (2) the company adopts a more conservative financial strategy resulting in a significant positive free cash flow (FCF) generation after all shareholder remunerations, and (3) the company maintains a good liquidity position.Downward pressure could be exerted on the rating if the company's operating performance deteriorates, with a sustained decline leading to pressure on margins, or it increases shareholder distributions such that its adjusted debt/EBITDA is maintained at above 6.0x or the company's liquidity position weakens.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 PROFILESalt is the third-largest mobile network operator in Switzerland, with a subscriber market share of around 15% as of 2020 and about 1.8 million mobile customers as of September 2021. In the last twelve months (LTM) period to 30 September 2021, the company reported total revenue and company-adjusted EBITDA of CHF1,028 million and CHF520 million, respectively (including IFRS15 and IFRS16).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. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. 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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.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. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Sebastien Cieniewski VP - Senior Credit Officer Corporate Finance Group Moody's Investors Service Ltd. One Canada Square Canary Wharf London E14 5FA United Kingdom JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Mario Santangelo Associate Managing Director Corporate Finance Group JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Releasing Office: Moody's Investors Service Ltd. 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