Research Update: U.K.-Based TalkTalk Downgraded To 'B+' On Leveraged Acquisition By Tosca IOM; Outlook Stable

We expect the proposed acquisition of U.K.-based TalkTalk Telecom Group PLC (TalkTalk) by Tosca IOM Ltd. (HoldCo) to be financed through payment-in-kind (PIK) toggle notes raised by HoldCo. As a result, we forecast that TalkTalk's pro forma S&P Global Ratings-adjusted leverage, including the HoldCo PIK, will increase to about 4.4x-4.8x in fiscal year (FY) ending Feb. 28, 2021. TalkTalk is also planning to raise £100 million of unsecured bonds to partly refinance senior operating company (OpCo) debt. We expect this will be leverage-neutral. We are therefore lowering our ratings on TalkTalk and its senior notes to 'B+' from 'BB-'. The stable outlook reflects our expectation that TalkTalk will grow its revenue and EBITDA in FY2022, largely as a result of

...- We expect the proposed acquisition of U.K.-based TalkTalk Telecom Group PLC (TalkTalk) by Tosca IOM Ltd. (HoldCo) to be financed through payment-in-kind (PIK) toggle notes raised by HoldCo. As a result, we forecast that TalkTalk's pro forma S&P Global Ratings-adjusted leverage, including the HoldCo PIK, will increase to about 4.4x-4.8x in fiscal year (FY) ending Feb. 28, 2021. - TalkTalk is also planning to raise ú100 million of unsecured bonds to partly refinance senior operating company (OpCo) debt. We expect this will be leverage-neutral. - We are therefore lowering our ratings on TalkTalk and its senior notes to 'B+' from '##-'. - The stable outlook reflects our expectation that TalkTalk will grow its revenue and EBITDA in FY2022, largely as a result of customer upgrades to faster fiber broadband and easing of pandemic headwinds. We expect TalkTalk's adjusted debt to EBITDA will fall to 4.2x-4.5x and its adjusted free operating cash flow (FOCF) to debt will remain above 5%....

Research Update