Standard & Poor's also affirmed its BBB long-term ratings on the company.
"VU's credit measures could be impaired in the near term by the continuous decline in the group's share price and the related impact on certain share-price-linked put options," said Guy Deslondes, a director in Standard & Poor's Milan office.
On the basis of VU's current share price of about EUR30, and taking into account other nonshare related put options (such as the acquisition of telecoms infrastructure operator Telecom Developpement), Standard & Poor's estimates that the group would have to repay about EUR1.2 billion in aggregate through January 2003 if all put options were exercised -- a situation that would challenge management's debt-reduction plan.
The group's adjusted net debt, as calculated by Standard & Poor's, was approximately EUR20 billion at end-April 2002, including the debt related to the pending acquisition of the film and TV businesses of USA Networks Inc. but excluding debt at environmental-services subsidiary Vivendi Environnement S.A.
VU has made asset sales of about EUR4.5 billion since the beginning of 2001, most notably 55 million treasury shares and its professional-press business.
VU's intention to improve credit measures substantially in 2002 -- including a net debt-to-EBITDA ratio of below 3 times -- still appears achievable, thanks to improving cash flow generation across most of the group's business segments (taking into account the solid cash flow generation of USA Networks). At the current rating level, Standard & Poor's also expects further improvement in credit measures in 2003. "Nevertheless, VU's credit profile could weaken rapidly as a result of the exercise of certain put options or of the group's failure to increase operating margins in 2002," Deslondes says.
In addition, VU's financial liquidity is becoming increasingly exposed to its overall credit quality and long-term rating level (notably after Moody's recent downgrade of its long-term rating on the company to Baa3, with a stable outlook). In particular, the group would be forced to repay up to EUR900 million of long-term financial obligations if any of its credit ratings were lowered to BBB- (or the equivalent) with a negative outlook, and another EUR4.5 billion if any of the ratings were cut to below investment grade.
In the near term, the group would have to refinance about EUR1.5 billion worth of outstanding commercial paper. At end-April 2002, VU had sufficient credit lines in place to back up its outstanding commercial paper, and, more recently, the group syndicated a EUR3 billion credit line. Consequently, although declining, VU's near-term liquidity remains appropriate for the current ratings.
From Standard & Poor's RatingsDirect