S&P: Financial policy to steer TDC, eircom, Wind

Standard & Poor's said that the medium-term rating prospects for three Western European telecom operators that were subject to large leveraged buyouts over the past two years will depend on the level of shareholder aggression and their ability to generate cash and cut debt.

The three companies, which had a combined total of €25 billion debt outstanding at June 30, have differing prospects, the report said.

The companies are:

• TDC A/S (BB-/stable/B), which was acquired by a consortium of five private equity companies in February 2006;

• eircom, which was acquired by BCM Ireland Holdings Ltd. (BCMIH, (B+/stable), a company funded by Babcock & Brown Capital Ltd. and eircom ESOP Trustee Ltd. in July 2006; and

• Wind Telecomunicazioni SpA (B+/stable), which was acquired by Weather Investments, a holding company majority owned by Egyptian entrepreneur Naguib Sawiris, in July 2005.

"The key credit difference between the three is the financial policy of their owners, whether they act with an industrial or financial logic and this will be a critical factor in the development of their capital structure over the medium term," said Standard & Poor's credit analyst Matthias Raab.

"We consider TDC to have the strongest credit profile because its owners are not overly aggressive and they have good prospects to deleverage though asset disposals and free cash flow generation."

Wind also has good free cash flow generation but significantly fewer asset disposal opportunities, the report stated, adding that eirom currently has the weakest free cash flow of the three peers, although S&P considers this will improve.

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