Fitch downgrades Tele Columbus on debt concerns

Source: Tele Columbus

Ratings agency Fitch has downgraded German cable operator Tele Columbus’s long-term issuer default rating to C from CCC, and has downgraded the operator’s senior secured debt from CC to CCC+ on concerns about the company’s ability to service its debt as it continues on a costly fibre build-out.

Fitch said that its downgrade follows a missed interest payment on €650 million of senior secured notes that was due on November 2. The company is now in a 30-day grace period to pay and is in discussion with creditors and shareholders to achieve a sustainable capital structure.

Fitch said it was concerned that the negotiations with debt holders could lead to a deterioration in terms for its creditors.

Tele Columbus, which markets services under the PŸUR brand, expects discussions to lead to a €300 million equity injection from its main shareholder, likely to be conditional on extending financial debt maturities to 2028.

The ratings agency said that conditions set for shareholder support could lead to pressure on creditors to accept less favourable terms, which could lead to the agency giving Tele Columbus a distressed debit exchange rating.

Fitch said it expects Tele Columbus’s free cashflow to “remain heavily negative as the company continues to make investments into fibre infrastructure upgrades well above its current EBITDA generation”.

It said that debt financing could be at higher interest rates, leadindg to more pressure on cashflows.

The rating agency also questioned whether robust growth in broadband subscribers would be enough to offset downward trends in TV revenue, particularly in view of the change in the law in Germany next year that will bring collective contracts with housing associations to an end.

Fitch noted that analogue TV revenues accounted for 37% of the operator’s total revenues last year, with a margin of over 80%. A substantial hit on this revenue source would have a negative impact on EBITDA, even if Tele Columbus can mitigate this by upselling subscribers from housing associations when it tries to establish direct billing arrangements with them.