Fitch acts European telecommunications firms

Fitch Ratings said it took actions on the debt ratings of Virgin Media Inc., VMED O2 UK Ltd., Telenet Group Holding NV, UPC Holding BV and Talktalk Telecom Group plc.

“These affected ratings - senior secured ratings, vendor financing notes and senior unsecured ratings - have all been removed from under criteria observation (UCO),” Fitch said in a press release.

Fitch said the senior secured ratings of Virgin Media, VMED O2 UK, Telenet and UPC remain at BB+, but it revised their recovery ratings to RR2 from RR1. Their senior secured ratings still remain two notches higher than their issuer default ratings of BB-, in line with the final corporate recovery ratings and instrument ratings criteria.

Virgin Media's vendor financing notes - rated B+/RR5 - were placed on rating watch negative on Sept 8. The placement reflected the likely downgrade of this instrument rating to B/ RR6 due to lower recoveries at the group's vendor financing debt class, the agency said.

“The amount of senior secured debt ranking ahead of the vendor financing debt increased when a new financing was put in place during the creation of the joint venture of Virgin Media's UK operations and Telefonica UK's mobile business. However, according to our final criteria, these VF notes will remain at B+/RR5 and; therefore, the rating watch has been removed. Recoveries for the VF debt are weak given the large amount of prior-ranking senior secured debt but they are still rated one notch higher than senior unsecured debt due to their relative structural seniority,” Fitch said.

TalkTalk’s senior unsecured rating remains at BB-, Fitch said, but its recovery rating has been changed to RR4 from RR3, in line with the BB category rating grid in the final criteria.

“The senior unsecured ratings and RRs for Virgin Media, VMED O2 UK and UPC; however, remain unchanged at B/'RR6, with the senior unsecured remaining two notches below their respective IDRs. The ratings are lower than stated in the new criteria as these debt instruments are subordinated in their companies' multi-tier capital structures, and have a lower ranking of claim on enterprise value in a distressed scenario behind significant amounts of prior- ranking debt,” the agency said.

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