Moody’s Downgrades BSkyB

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The credit rating company Moody’s has published its latest report on British pay-TV giant BSkyB, and it’s not looking positive as they downgrade their credit rating in anticipation of the merger between BSkyB, Sky Deutschland and Sky Italia.

The merger which is planned to be settled in the 12th of November will see BSkyB take 100% of Sky Italia stock and 87.4% of Sky Deutschland stock following an offering to the public. The move will give Sky the opportunity to create a cross Europe pay TV giant, capable of negotiating hard on deals and sharing infrastructure and management across the business. It’s a move which seems positive on the face of it, but has been met with opposition from banks and investors who have labeled the move as desperate.

Sky has been facing increased competition in the UK from the likes of Virgin Media, YouView (who were recently awarded a decision to force Sky to put their sports channels on the platform) and BT, who have been bidding Sky up on Premier League rights. Sky’s results haven’t been too bad though, with the company posting strong results due to an uptick in customers for their digital only services like Now TV and Sky Digital.

This clearly hasn’t been enough for Moody’s though, as they’ve downgraded BSkyB from Baa1 to Baa2 with a stable outlook, which is the second lowest investment grade it can offer. Moody’s released a statement saying “Moody’s decision to downgrade BSkyB’s ratings to Baa2 is mainly driven by the increased financial risk stemming from the significant incremental debt incurred to fund the acquisitions. BSkyB has issued GBP1.3 billion of new equity and has monetized certain assets to help fund the deal. But with a total purchase price expected to be around GBP7 billion, the company’s funded debt will more than double to over GBP7 billion compared to only GBP2.7 billion of reported gross debt at the end of fiscal year ending (FYE) 30 June 2014.”

Moody’s also added “The consolidation of SkyD and Sky Italia will benefit BSkyB by improving its scale and geographical diversification. However, SkyD and Sky Italia have lower margins than the core BSkyB operations and offer rather limited synergies driven by the fact that the companies operate as independent systems in distinct geographic markets, making it less likely that meaningful infrastructure savings can be achieved. In Moody’s view, BSkyB could be challenged to continually drive pay-TV penetration in Germany, despite increasingly positive trends in that country. In Italy, pay-TV competition remains intense, while ongoing macroeconomic weakness is putting pressure on Sky Italia’s performance.”


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