Ratings agency Moody’s has stated that Eir’s sale of a minority stake in its fibre network will weaken the company’s business model and “increase the group’s complexity, at a time when leverage remains high”.
The agency also downgraded its ratings on certain senior secured debt instruments within the group, but affirmed Eir’s key corporate family rating, which rates its ability to honour all of its financial obligations.
Eir has announced that it plans to sell a 49 per cent stake in its fibre network, which will cover 1.9 million homes, to InfraVia, a French infrastructure fund.
The transaction will see the creation of a new company, Fibre Networks Ireland, called FibreCo internally, which will passively sell capacity to Open Eir which will then sell on to telco operators.
Eir has stated it will raise cash through the sale of the stake to InfraVia, and through the issuance of new debt through the FibreCo vehicle.
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In a research note, Moody’s has indicated that FibreCo will raise €765 million in debt, which it says Eir will use to pay down its own debt. Overall consolidated group leverage will remain the same.
The agency says the use of proceeds from the sale of the 49 per cent stake in FibreCo has not yet been confirmed, but predicts “the most likely use of proceeds will be a shareholder distribution, in line with recent transactions such as the disposal of towers completed in 2020”.
Within months of selling its mobile phone masts in 2020 for €300 million, Eir declared a €450 million dividend to its shareholders, the billionaire Xavier Niel, his telco Iliad and the hedge funds Davidson Kempner and Anchorage.
Moody’s marked down the senior debt as it says the “structural separation of Eir’s network with the creation of FibreCo, alongside the sale of a 49.9 per cent stake to InfraVia will dilute its ownership in key infrastructure assets, which benefit from a more predictable cash flow generation capacity than the telecom service operations”. It adds that the transaction adds analytical complexity, as Eir will fully “consolidate an asset (the fibre network) that it does not fully own”.
It affirmed the corporate family rating based on the group’s leadership in the fixed line market, and improving network quality. It also noted, however, the group’s “appetite for material shareholder distributions”.
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Eir has said that it will sell the stake in FibreCo to InfraVia at a “double digit” earnings valuation. Both Moody’s and Fitch believe that FibreCo will have earnings of up to €150 million a year. Based on the proposed debt issuances, this suggests InfraVia will pay at least €350 million for its stake.
InfraVia recently closed a €5 billion fund, stating that €1.5 billion had already been committed to three deals, one of which is the FibreCo transaction.
