Moody's: France Telecom on review for upgrade

Moody's Investors Service said it has placed both the Baa3 long-term and Prime-3 short-term debt ratings of France Telecom SA and the Baa3 long-term debt ratings of its subsidiary Orange plc - majority owned by France Telecom's 100% owned subsidiary Orange SA, on review for possible upgrade.

Included in the review for upgrade are the Baa3 long-term senior unsecured debt rating of France Telecom's €15 billion syndicated bank facility along with its convertible bonds, Euro medium-term notes, Eurobonds and bank loan rating.

Moody's said the review follows continued reductions in France Telecom's very high debt burden, in part from an improvement in operational cash generation, as well as stronger free cash flow, with capex levels running at historically low levels.

Moody's said it will use the review period to try to ascertain the level of potential operational cash flow development from France Telecom's cost and revenue initiatives, while factoring possible competitor and regulatory actions.

The key consideration in any potential upgrade is the ability of France Telecom to generate sustainable free cash flow of €4 billion or more, while resisting debt financed acquisitions or other potentially significant cash flow negative activity, allowing for further progression in the reduction in financial risk.

Furthermore the continuing commitment by France Telecom's management to drive debt down, while factoring that the company may resume dividend payments, but at moderate levels, which will not detract from the company's intention to generate €15 billion of debt reduction from operational cash flow during a three-year period starting at the beginning of 2003, will be an essential factor in considering an upgrade.

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