The Hollywood Reporter

Vivendi Uni nears debt agreement: Group in talks with creditors as Moody's considers rate cut

By Charles Masters Jul 9, 2002

(PARIS) Vivendi Universal said Monday that it is in negotiations with its main creditor banks to address the short-term liquidity concerns disclosed following the company's July 3 board meeting. "The company expects to conclude an agreement very shortly," a statement said.

The statement came in response to an earlier warning Monday from Moody's Investors Service that the financial ratings agency was considering lowering its debt rating on the company _ a move that would increase the cost of servicing its huge debt burden, which tops some $19 billion for its media and communications activities.

"Time is of the essence," Moody's said Monday. "The longer it takes for Vivendi Universal to arrange additional committed funding, the more strained its financial condition is likely to become." Moody's already downgraded Vivendi Uni's senior unsecured rating last week to Ba1, one notch below investment grade, indicating its future is not "well-assured." Standard & Poor's reduced its rating last week to BBB-, one level above junk, and also indicated that it might cut the rating further.

Vivendi Uni disclosed last week that it must repay 1.8 billion ($1.78 billion) to lenders by the end of this month. Some analysts estimate that the company could face a cash shortfall of 2.7 billion ($2.66 billion) by the end of the year.

"I'm surprised that the $1.8 billion is due so soon," Morningstar analyst George Nichols said. "Vivendi's back is against the wall, and the banks know it. If they raise further funds it will be under onerous terms. Moody's downgrade makes borrowing money much more expensive. But if they don't avert the short-term crisis, the downgrade will be the least of their problems."

New Vivendi Uni chairman Jean-Rene Fourtou, who was appointed as successor to Jean-Marie Messier last week amid a whirl of rumors about the state of the group's finances, has acknowledged the urgency of tackling the debt crisis. But he said he's confident that solutions can be found.

"It looks like the French government, the French Establishment, is going to bail these guys out in the short term, alleviating any short-term crisis," said Michael Nathanson, an analyst with Sanford Bernstein.

But once the short-term issues are resolved, attention will turn to the long-term crisis, a problem analysts believe will be solved only with the disposal of some assets in the near future.

"The question remains: What do they do to get out of their overall crisis?" said Nathanson. "What assets will they sell? We think their telecom assets (like French telco Cegetel, in which Vivendi Uni owns a 44% controlling stake) and perhaps the rest of (Vivendi) Environment. The risk now is many people are carrying too high a value for these assets for a private sale. They may be sold for a lower price than people think they are worth."

U.K. telecom group Vodafone is reportedly considering an offer of about 4.7 billion ($4.61 billion) for Vivendi Uni's stake in Cegetel. This is considerably below what many analysts think the company is worth but could be the simplest way out of the company's debt crisis. Messier had been against the sale of the highly profitable Cegetel, but Vodafone is understood to be keen to sound Fourtou's position on the telecom unit.

Vivendi Uni declined comment.

Cegetel, which owns No. 2 French mobile phone operator SFR, is already 15%-owned by Vodafone. A further 26% is owned by British Telecom, and the remaining 15% by America's SBC Communications.

Beleaguered pay TV unit Canal Plus might also be put up for sale. News Corp.'s British Sky Broadcasting Group Plc., Lagardere SCA and Pathe SA have all said they may look at Canal Plus.

Vivendi Environment said Monday that it will sell a stake in Philadelphia Suburban Corp. currently worth $205.6 million. The proceeds from the sale will stay at the unit.