BSkyB recently received acceptances to take a majority stake in Sky Deutschland, leaving it with 87.5% of the German pay TV platform. With full control of Sky Italia in Italy, BSkyB will then form a consolidated Sky Europe operation.
Moody’s said it was downgrading BSkyB because of the significant amount of extra debt the UK-listed company is assuming to execute the deal and the associated risk.
“BSkyB has issued £1.3 billion (€1.7 billion) of new equity and has monetised certain assets to help fund the deal,” Moody’s noted. “But with a total purchase price expected to be around ￡7 billion, the company’s funded debt will more than double to over ￡7 billion compared to only 2.7 billion of reported gross debt at the end of fiscal year ending (FYE) 30 June 2014.”
The credit analysts said than BSkyBwill benefit from greater scale and geographical diversification when Sky Europe is formed, but added that Sky Deutschland and Sky Italia have lower margins than BSkyB and operate in distinct markets, limiting possible infrastructure savings.
“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,” it noted, adding that “immediately following the transaction BSkyB’s financial metrics will be weak.”