US credit rating agency Standard & Poors (S&P) has issued UK television and radio transmission company Arqiva a position of ’CreditWatch negative’ due to increased regulatory uncertainty.

The key issue is the UK’s examination of the future for ‘over-the-air’ television and radio broadcasting. The UK’s Department of Culture, Media, and Sports (DCMS) released a green paper on June 23rd, which outlines a period of consultation on two key scenarios for the future of digital terrestrial television (DTT) in the UK. The scenarios include shutting it down in 2034 or extending it to 2044.

“A potential 2034 shutdown represents a downside scenario to our rating. Furthermore, Arqiva continues to face structural headwinds as the accelerating shift toward internet protocol television (IPTV) threatens its long-term earnings and cash flow profile, although we acknowledge that high-speed fixed broadband uptake is not uniform across sociodemographic and socioeconomic groups, or across locations,” said S&P.

“We have therefore placed our ratings on Arqiva Broadcast Finance PLC on CreditWatch negative to reflect the current increased regulatory uncertainty and market substitution challenges around Arqiva’s long-term business model. That said, we expect contracts and regulated revenue and credit ratios over the short term will remain broadly aligned with our current ‘B+’ long-term issuer credit rating and ‘B’ issue rating on its recently issued £500 million junior debt notes,” added S&P.

But there’s also a caution that Arqiva’s credit rating could worsen. S&P continued: “The negative CreditWatch reflects that we could lower the rating on Arqiva Broadcast Finance PLC by one notch if DCMS decides on the option to shut down DTT in 2034. This would weaken Arqiva’s long-term earnings and cash flow profile, which we could reflect in a lower business risk profile assessment of the senior financing group. We could also lower the rating if the company continues to face structural headwinds in its core DTT business, leading to weaker-than-expected credit metrics.”

The group’s operations are split between media and broadcast (around 75 per cent of revenue) and smart utilities networks (around 25 per cent of revenue) segments. The group is owned by a consortium of shareholders, of which Digital 9 Infrastructure (via D9 Wireless OpCo 2) is the largest with a holding of about 48 per cent. Polus Capital Management has a holding of about 41 per cent.

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Categories: Blogs, Broadcast, Business, Inside Satellite

Tags: Arqiva, DTT, IPTV