S&P cuts KDG outlook to negative

Standard & Poor's said it revised its outlook on Kabel Deutschland GmbH (KDG) to negative from stable and affirmed its B+ corporate credit rating following the company's announcement that it has negotiated a new €1.35 billion senior secured bank facility.

The newly negotiated facility includes financial covenants that will allow KDG to increase capital expenditure substantially to implement its revised strategy of rolling out high-speed Internet and telephony services across most of its franchises. The revision of the outlook to negative reflects the higher execution risk and expected adverse financial impact of KDG's revised expansionary strategy that will implemented over the next three years, the agency said.

KDG has set up a strategy of rolling out high-speed Internet and telephony services across its franchises in Germany, which will increase the company's total capital expenditure budget to about €500 million over the next three years. The company is also strongly promoting enhanced digital TV services. S&P said that although it shares the company's belief that the development of a competitive triple-play offer makes business sense, it remains mindful of the new plan's higher execution risk and its negative impact on the company's EBITDA and free cash flow over at least the next two years.

Adjusted for operating leases and pay-in-kind instruments, the company's ratio of gross debt to EBITDA, pro forma for the refinancing, is about 7.2x.

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