Frankfurt am Main, September 08, 2022 — Moody’s Investors Service (“Moody’s”) has today placed on review for upgrade Technicolor S.A.’s (“Technicolor”, “the company” or “the group”) Caa2 corporate family rating (CFR), Caa2-PD probability of default rating (PDR) and Caa3 senior secured instrument ratings. Concurrently, Moody’s placed on review for upgrade the Caa1 senior secured instrument rating of Technicolor USA, Inc. and the Caa1 guaranteed senior secured instrument ratings of Tech 6. The outlook on all ratings of Technicolor, Technicolor USA, Inc. and Tech 6 has been changed to ratings under review from positive.
A full list of affected ratings can be found at the end of this press release.
RATINGS RATIONALE / FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Today’s placement of all ratings of Technicolor S.A., Technicolor USA, Inc. and Tech 6 on review for upgrade follows the company’s announcement on 6 September [1] that its shareholders approved the exceptional distribution of 65% of the capital of Technicolor Creative Studios SA (TCS) in the form of dividend in kind. The spin-off of TCS and its listing on Euronext Paris, expected to occur on 27 September, complete the corporate restructuring and hence allow for the refinancing of Technicolor’s 1.2 billion debt (at nominal amount and excluding lease liabilities) outstanding as of 30 June 2022. The company will refinance its debt with 623 million equivalent senior secured term loan due 2026 raised by TCS as well as instruments raised by Technicolor itself – 250 million senior secured first lien term loan and 125 million senior secured second lien term loan due 2026 (new term loans), and 300 million mandatory convertible notes (MCN).
Following the spin-off of TCS, Technicolor’s business scale will reduce by around 20% in revenue and around 40% in EBITDA (company-adjusted). At the same time, Technicolor will reduce its debt load to 375 million new term loans from 1.2 billion as of 30 June 2022. The MCN are automatically convertible into Technicolor’s shares upon approval of the spin-off by the shareholders. As a result, Moody’s expects Technicolor’s leverage to reduce to around 6.5x Moody’s-adjusted debt/EBITDA as of end-June 2022 pro forma for the transactions from around 8.0x as of 31 December 2021.
The review of Technicolor’s ratings will focus on (i) the successful listing of TCS’ shares and (ii) subsequent repayment and refinancing of Technicolor’s capital structure. Upon debt repayment, Moody’s will withdraw the instruments ratings of Technicolor, Technicolor USA, Inc. and Tech 6.
Prior to the initiation of the review process, Moody’s had stated that Technicolor’s ratings could be upgraded if the company’s (1) profitability and free cash flow recovered further on a sustained basis; (2) Moody’s-adjusted debt/EBITDA decreased on a sustained basis; and (3) liquidity was adequate with sufficient covenant headroom at all times.
Conversely, the agency had indicated that the ratings of Technicolor could be downgraded if the company’s (1) liquidity deteriorated, including because of its inability to meet the maintenance financial covenant; (2) operating performance weakened; and (3) Moody’s-adjusted leverage did not decrease from current levels (around 16x as of 30 June 2021).
LIST OF AFFECTED RATINGS
On Review for Upgrade:
..Issuer: Technicolor S.A.
….Probability of Default Rating, Placed on Review for Upgrade, currently Caa2-PD
….LT Corporate Family Rating, Placed on Review for Upgrade, currently Caa2
….Senior Secured Bank Credit Facility, Placed on Review for Upgrade, currently Caa3
..Issuer: Tech 6
….BACKED Senior Secured Regular Bond/Debenture, Placed on Review for Upgrade, currently Caa1
..Issuer: Technicolor USA, Inc.
….Senior Secured Bank Credit Facility, Placed on Review for Upgrade, currently Caa1
Outlook Actions:
..Issuer: Technicolor S.A.
….Outlook, Changed To Ratings Under Review From Positive
..Issuer: Tech 6
….Outlook, Changed To Ratings Under Review From Positive
..Issuer: Technicolor USA, Inc.
….Outlook, Changed To Ratings Under Review From Positive
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Business and Consumer Services published in November 2021 and available at https://ratings.moodys.com/api/rmc-documents/356424. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.
COMPANY PROFILE
Technicolor S.A. (Technicolor), headquartered in Paris, France, is a leading provider of solutions and services for the media and entertainment industries, deploying and monetising next-generation video and audio technologies and experiences. In first half of 2022, Technicolor, including TCS, its visual effects business that is being spun-off, generated revenue of 1.6 billion and company-adjusted EBITDA 134 million (around 8% margin). Upon completion of TCS’ IPO at the end of September, Technicolor will be renamed into Vantiva S.A. (Vantiva) and will remain listed on Euronext Paris. Vantiva’s business will focus on customer premise equipment (via Connected Home unit) and DVD and supply chain services (via Vantiva Supply Chain Services).
REGULATORY DISCLOSURES
For further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the issuer/deal page for the respective issuer on https://ratings.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on https://ratings.moodys.com.
REFERENCES/CITATIONS
[1] Technicolor’s press release dd. 6 September 2022
Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.
Please see the issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.
Elvira Nurgalieva
Analyst
Corporate Finance Group
Moody’s Deutschland GmbH
An der Welle 5
Frankfurt am Main, 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Anke Rindermann
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody’s Deutschland GmbH
An der Welle 5
Frankfurt am Main, 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
