Research Update: U.K.-Based TalkTalk Downgraded To 'B' On Operating Underperformance; Outlook Negative

U.K.-based TalkTalk Telecom Group Ltd. (TalkTalk) reported weaker revenue and EBITDA than we had expected in the first half of the fiscal year (FY) ending Feb. 28, 2022, and we expect that underlying improvement in the second half will be offset by significant copper exit costs. We now forecast that for FY2022, TalkTalk's S&P Global Ratings-adjusted leverage will be about 6.5x and the company will generate negative free operating cash flow (FOCF) of £20 million-£30 million (excluding payment-in-kind [PIK] toggle debt and interest, we forecast adjusted leverage slightly above 5x and positive FOCF of up to £10 million). We have therefore lowered our ratings on TalkTalk and its senior secured notes to 'B' from 'B+'. We also assigned our 'B'

...- U.K.-based TalkTalk Telecom Group Ltd. (TalkTalk) reported weaker revenue and EBITDA than we had expected in the first half of the fiscal year (FY) ending Feb. 28, 2022, and we expect that underlying improvement in the second half will be offset by significant copper exit costs. - We now forecast that for FY2022, TalkTalk's S&P Global Ratings-adjusted leverage will be about 6.5x and the company will generate negative free operating cash flow (FOCF) of ú20 million-ú30 million (excluding payment-in-kind [PIK] toggle debt and interest, we forecast adjusted leverage slightly above 5x and positive FOCF of up to ú10 million). - We have therefore lowered our ratings on TalkTalk and its senior secured notes to 'B' from 'B+'. - We also assigned our 'B' rating to Tosca IOM Ltd., TalkTalk's holding company. - The negative outlook reflects the potential for a further downgrade over the next 12 months if TalkTalk's operating performance does not recover in FY2023....

Research Update