S&P rates Magyar Telecom notes

Standard & Poor's said it assigned its B+ long-term corporate credit rating to Hungary-based Magyar Telecom BV, the 99.97% owner of Hungary-based fixed-line telecoms operator Invitel Távközlési Szolgáltató Rt. (Invitel). The outlook is stable.

At the same time, S&P assigned its B- long-term senior subordinated debt rating to the proposed €140 million senior subordinated notes to be issued by Magyar Telecom.

S&P said the ratings on Magyar Telecom are constrained by the low-to-moderate growth prospects for Invitel's core voice business, which is subject to a price-cap regime applying to certain tariff packages and to increasing competition from the largest fixed-line operator in Hungary, Magyar Távközlési Rt. (BBB+/positive/--), three mobile operators (in terms of fixed-to-mobile substitution), and other independent telecoms service providers.

The ratings are supported, however, by Invitel's improving cash flow generation due to a substantial turnaround in operating efficiency following a change of ownership in 2003. The ratings are further supported by the company's solid market position as the incumbent operator in nine concession areas, the agency said.

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