Fitch Affirms SES at 'BBB'/'F2'; Outlook Stable

NEW YORK--()--Fitch Ratings has today affirmed Luxembourg-based satellite operator SES SA's (SES) long-term Issuer Default Rating (IDR) at 'BBB' and short-term IDR at 'F2'. The Rating Outlook for the long-term IDR is Stable. The rating of senior unsecured debt issued by SES and SES Global Americas Holding GP is also affirmed at 'BBB'.

SES has geographically diverse revenue streams which are highly visible and non-cyclical. These revenues, which are typically contracted under long-term (10-15 year) agreements, are supported by solid underlying demand drivers which include the increasing capacity requirements associated with a growing number of high-definition TV services, and increasing demand for direct-to-home satellite services in emerging markets.

"SES's recurring revenue growth has taken a temporary dip in 2011 due to satellite launch delays but growth should pickup from 2012 as additional capacity becomes commercially available," says Damien Chew, Senior Director in Fitch's European Telecoms, Media and Technology team. "Management's implementation of a streamlined organisational structure should also boost EBITDA starting in 2012."

SES is committed to maintaining its unadjusted net debt/EBITDA below 3.3 times (x) even as the company continues to invest for growth. Fitch considers a ceiling of 3.3x to be consistent with a 'BBB' rating for a business with SES's profile, giving the group an appropriate level of headroom under the 3.5x net debt/EBITDA covenant contained in its U.S. private placement to support a Stable Outlook. Net debt/EBITDA was 3.05x at the end of the second quarter of 20ll (2Q 2011) after the EUR317 million payment of its 2010 dividend.

SES is currently investing EUR3.5 billion (cumulative in 2010-2014) to increase the capacity of its satellite fleet by 23% between the end of 2010 and the end of 2014. The agency expects SES's cash flow from operations (CFO) to remain stable over the medium term, underpinned by the high (>80%) EBITDA margin generated in the infrastructure segment, which accounted for 82% of group revenue (before eliminations) in the first half of 2011 (1H 2011). Future CFO should be sufficient to cover the 2011 peak in the group's investment plan, smaller bolt-on acquisitions and continued increases in dividends.

SES's position as one of the leading players in the fixed satellite service sector is protected by high barriers to entry. Access to the orbital slots needed to operate a geosynchronous satellite are limited and the most desirable orbital slots rarely change hands. Economies of scale are also significant from spreading operational and capital spend over a larger fleet and in providing a hedge against the risk of satellite failure.

SES's rating is constrained at the 'BBB' level by its current leverage policy. While there is potential for upward migration if this policy is tightened, Fitch has no expectation at present that this will occur.

Significant changes in SES's risk profile are unlikely in the three- to five-year rating horizon given the stability and long-term nature of the satellite industry. Potential industry challenges over the longer term are primarily technological, with substitutes being found for satellite capacity (such as fibre networks) or more efficient transponder use than predicted, which could reduce demand. While widespread satellite failure across the fleet could have negative implications for the company's financial profile and rating, this is mitigated by SES's large fleet and significant unutilised transponder capacity (80.7% utilisation rate as at 30 June 2011).

The group's liquidity profile is good. With its EUR1.2 billion RCF maturing in 2015 and EUR217 million of cash at the end of June 2011, SES should be able to cover its debt repayments due in 2011, 2012 and 2013.

Additional information is available at www.fitchratings.com.

The ratings above were unsolicited and have been provided by Fitch as a service to investors.

Applicable criteria, 'Corporate Rating Methodology', dated 12 August, 2011, is available at www.fitchratings.com.

Applicable Criteria and Related Research:

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229

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Contacts

Media Relations
Peter Fitzpatrick, London, +44 20 3530 1103
peter.fitzpatrick@fitchratings.com
or
Primary Analyst
Damien Chew, CFA, +44 20 3530 1424
Senior Director
Fitch Ratings Limited
30 North Colonnade
London E14 5GN
or
Secondary Analyst
Michael Dunning, +44 20 3530 1178
Managing Director
or
Committee Chairperson
Stuart Reid, +44 20 3530 1085
Senior Director

Contacts

Media Relations
Peter Fitzpatrick, London, +44 20 3530 1103
peter.fitzpatrick@fitchratings.com
or
Primary Analyst
Damien Chew, CFA, +44 20 3530 1424
Senior Director
Fitch Ratings Limited
30 North Colonnade
London E14 5GN
or
Secondary Analyst
Michael Dunning, +44 20 3530 1178
Managing Director
or
Committee Chairperson
Stuart Reid, +44 20 3530 1085
Senior Director