Moody's drops eircom outlook to negative

Moody's Investors Service said it assigned a Ba2 corporate family rating to eircom Group plc and withdrew the Ba2 corporate family rating at Valentia Telecommunications Unlimited. The rating outlook was revised to negative from stable.

The change in outlook reflects weaker-than-expected operating performance in the first nine months of the year, which has resulted in a gradual weakening of credit metrics: adjusted total debt to adjusted EBITDAR has increased to 5.8x at Dec. 31 from 5.2x on a last-12-month basis. The negative outlook also reflects Moody's concerns that future cost savings will not be sufficient to offset the higher ongoing pension and sales and marketing costs and that the deterioration in the company's credit metrics will be sustained.

Moreover, Moody's said the ratings reflect the company's highly debt leveraged capital structure and limited financial flexibility; on-going regulatory and competitive risks, including the expectation of increasing competitive pressures and tariff reductions; uncertainty regarding the company's longer-term plans for mobile telephony and eircom's dependence on the fixed-line telecommunication business.

The ratings are supported by eircom's dominant position in the Irish fixed-line telecommunications market, the strong operational cash flow provided by eircom's businesses, a favorable competitive fixed-line environment and management's success in reducing costs and improving cash flow, the agency said.

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