Moody's downgrades Unity Media, rates notes B3

Moody's Investors Service said it downgraded Unity Media GmbH's corporate family rating to B3 from B2 and senior notes to Caa2 from Caa1 and assigned a provisional B3 rating to the €1.35 billion senior secured floating-rate notes to be issued by Unity Media's operating subsidiaries, iesy Hessen GmbH & Co. KG and ish NRW GmbH. The outlook is stable.

The agency said the downgrade reflects the increased business risk associated with the implementation of the new business model of Arena Sport Rechte und Marketing GmbH to distribute football content over cable and satellite platforms, an increase in total debt to EBIDTA to finance Arena to about 7x on a pro-forma 2005 EBITDA basis, anticipated further increase in leverage relative to cash flow due to the start-up costs of Arena in 2006 and the continued integration of Tele Columbus AG & Co. KG

At the same time, Moody's said it believes that announced offers to retail subscribers on both cable and satellite platforms are relatively attractive. The strategy of comparatively low pricing should position the company well to promote the digital TV penetration in Germany. Moody's noted that Unity Media holds the football rights for the limited period of three years.

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