Fitch affirms Vodafone on acquisition

Fitch Ratings said it affirmed Vodafone Group plc's long-term issuer default rating and senior unsecured rating at BBB+.

The outlook is stable.

Fitch said the affirmation takes into account the strong strategic logic of Vodafone’s announced acquisition of cable businesses in Germany, Romania, Hungary and the Czech Republic, particularly as it relates to Unitymedia GmbH in Germany, Europe's largest telecommunications market and the largest of Vodafone’s core European markets.

The structure of the acquisition values the acquired assets at an enterprise value of €18.4 billion and includes a cash payment of €10.9 billion. It will take Vodafone’s funds from operations (FFO) net leverage above its downgrade threshold of 3.5 times; the agency’s initial assessment suggests the metric will peak at 3.8 times in year one of the transaction but is likely to come down to 3.5 times by year three.

As such, Fitch said t the ratings will have no headroom, and any business underperformance between now and transaction close is likely to lead to a revision of the outlook to negative.

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