This is a correction of a rating action commentary published on 6 July 2020 to update the Additional Rating Details.

Fitch Ratings has assigned PLT VII Finance B.V. (Bite) a Long-Term Issuer Default Rating (IDR) of 'B(EXP)'. The Outlook is Stable. The senior secured notes issued by PLT VII Finance S.a r.l. and benefiting from guarantees from Bite's key operating subsidiaries have been assigned a 'B+(EXP)'/'RR3' rating. A full list of ratings is at the end of this commentary. Final ratings are contingent on the receipt of final documents in line with the information received for the expected ratings.

Bite is a mobile-centric operator in Latvia and Lithuania with growing broadband/pay-TV segments and substantial advertised-based free-to-air TV revenues across the Baltics. The company's funds from operations (FFO) gross leverage is high at above 6x at end-2020 and is likely to be maintained in the 5x-6x range with no expected debt prepayments. There is some deleveraging capacity driven by continuing single-digit EBITDA and FFO growth but this may be temporarily stalled by the impact of COVID-19. Pre-dividend free cash flow (FCF) generation is strong on the back of sustainably low capex, with the pre-dividend FCF margin close to double-digits.

KEY RATING DRIVERS

Sustainable Market Positions: Bite has been able to successfully defend its service revenue share in Lativa and Lithuania when the market was in both decline and growth phases, and we expect it to retain its strong market positions. Bite's mobile service revenue market share was stable at around 33% in Lithuania and 25% in Latvia in 2017-2019, by the company's estimates. Bite operates in three-player markets with the same set of mobile competitors in Latvia and Lithuania.

Rational Competition: The lack of any significant mobile virtual network operators (MVNOs) and clear brand positioning of each of the network operators helps sustain a degree of service differentiation, reducing direct price competition. Bite positions itself as an innovative operator with an emphasis on a higher- average revenue per user (ARPU) customer base, while Tele2 pursues a strategy of perceived price leadership and Telia-controlled operators focus on exploiting their status of an established incumbent with superior network quality.

Full Bundling Capabilities: The acquisition of cable-centric Baltcom in February 2020 made Bite fully bundled-enabled in Latvia, while in Lithuania the company can rely on regulated access to the incumbent's fixed network to complement its mobile and pay-TV propositions. Both markets have been spared aggressive fixed-mobile bundling competition so far, but we view an ability to offer bundled services as a strategic advantage that can help maintain Bite's competitive position.

A wide array of offered services also provides significant cross-selling opportunities, including between mobile and pay-TV customers.

COVID-19 Impact: We expect Bite to retain substantial deleveraging capacity that may allow it to keep leverage under control, even if there are temporary GDP pressures in its markets and low growth or modest revenue/EBITDA decline. Fitch projects the COVID-19 impact will be disruptive across the region, leading to (-6.9%) yoy GDP decline in Latvia in 2020 but followed by a 5.2% yoy GDP recovery in 2021.

Telecoms and digital revenues are likely to be reasonably resilient but not totally immune to the disposable income pressures that are likely to accompany a GDP contraction. The impact is likely to be much more negative in the media segment, with free-to-air (FTA) TV revenues being the most vulnerable - the decline in this sub-segment is likely to exceed the GDP dip. However, this segment accounted for only 20% of total service revenues, and its negative contribution is likely to be manageable.

Stagnant FTA TV: We believe Bite's advertising revenue from FTA TV channels will be supported by its leading market share (at around 60% of TV advertising revenue across the Baltics area in 2019, according to the company's estimates) and its focus on local language content, as there is only limited competition in local language content production. However, we believe traditional advertising is in structural decline globally, and we expect ad-based revenues to trail GDP growth over the medium term, and be more susceptible to the negative COVID-19-related impact.

Pay-TV Diversification: We view Bite's pay-TV segment as complimentary to the existing mobile/broadband franchise enabling cross-selling, bundling and churn reduction opportunities. The company's existing franchise and continuing expansion in the pay-TV segment also provides it with a degree of business diversification, allows it to better monetise its content library and spread new content acquisition costs between FTA and pay-TV platforms.

Sustainably Low Capex: We expect Bite to remain sustainably capex efficient, with capex/revenue ratio at around 10% on average in the medium term. The key contributors to capex efficiency are comfortable spectrum portfolio in Latvia and Lithuania, with overall spectrum per head of population over twice the EU average in both countries and benign geographic topology in its area of operations, with no extremely densely populated cities and no wide white spots.

Network JV Improves Efficiency: The company's network sharing joint venture (JV) with Tele2 covering Latvia and Lithuania should help further rationalise capex allocation and protect against an excessive capex spike from a 5G roll-out. Joint network management should mitigate network quality-based competition with Tele2, but also improve competitive standing compared with the fixed-line incumbent's networks as the JV is seeking to achieve superior network coverage and quality across both countries.

5G Cost Likely Manageable. Retrospectively low spectrum costs compared with the EU average, and a long extension period for 4G spectrum instalment payments suggest that the forthcoming 5G auctions for 700MHz spectrum in Lithuania and Latvia and 3.5 GHz in Lithuania may lead to only a moderate spike in capex. Bite already holds a significant 150MHz of spectrum in the 3.5 GHz band in Latvia, which if allowed to be used for 5G may also reduce additional investment requirements.

Strong FCF Generation. We project Bite to sustain high pre-dividend FCF generation in the high single-digit percentage of reported revenue supported by above 30% EBITDA margin on service revenues, low taxes typical for the Baltics area, which we project to remain below 3% of service revenues on average, and moderate capex, at around 10% of revenue on average.

Inflated Leverage. We expect Bite's leverage to remain high, estimated at 6.1x on a FFO gross basis in 2020, with a reduction to 5.6x-5.2x in 2021-2023 and low-to-mid single digit EBITDA and FFO growth (all metrics pro-forma for the Baltcom acquisition in February 2020). We assume that most of the company's pre-dividend FCF will be paid as dividends as there are few significant restrictions on shareholder distributions. Only the minimum amounts necessary for operations will be retained on the company's balance sheet.

Deleveraging may be stalled by bolt-on acquisitions in the company's current geographic franchise. Any significant acquisitions will be treated as event risk, but we would expect dividends to be curtailed to allow for deleveraging to below 5x reported gross debt/EBITDA (on an IFRS16 basis) within a reasonable timeframe, in line with the company's internal financial policy.

We do not analytically reverse the sale of customer equipment receivables, as equipment sales are viewed as a non-core segment that would not have any impact on service revenue from the existing subscriber base, while the company has significant flexibility to mitigate any negative impact on its working capital, in our view.

DERIVATION SUMMARY

Bite has significantly smaller absolute scale than most equally rated mobile and telecoms peers but is larger than Melita Bidco Limited (B/Stable) that operates in a small but highly consolidated domestic market of Malta. Bite benefits from operating in less congested three-player mobile markets with no significant MVNO presence, similar to Wind Hellas in Greece (its B/Negative reflects weak FCF generation).

Bite is highly cash flow generative, with its pre-dividend FCF margin in the high single-digit territory, which is potentially consistent with a higher rating category, but it is more leveraged than most of its higher-rated peers, such as Telenet Group Holdings N.V. (BB-/Stable) or eircom Holdings (Ireland) Limited (B+/Stable). It is less leveraged than Tele Columbus AG (B-/Stable) but the latter benefits from higher margins and more stable and longer-term customer relationships typical for the cable industry.

KEY ASSUMPTIONS

Low single-digit mobile service revenue growth in 2021-2023;

FTA TV advertising revenue growth trailing expected GDP growth across the Baltics region, with 2020 contraction in the mid-teen percentage territory yoy;

EBITDA margin modestly improving to around 33% of service revenues (from the existing operating franchise) in 2022-2023 ;

Taxes at below 3% of service revenue on average;

Capex at around 10% of revenue on average in 2021-2023;

Around EUR 10 million of cash on the balance sheet to cover operating needs, with all extra cash up-streamed as dividends.

KEY RECOVERY RATING ASSUMPTIONS

The recovery analysis assumes that Bite would be considered a going concern in bankruptcy and that the company would be reorganised rather than liquidated.

We have assumed a 10% administrative claim.

Post-restructuring going concern EBITDA is estimated at EUR 92 million, which is approximately 20% lower than our 2020 EBITDA forecast, pro-forma for the acquisition of Baltcom.

An enterprise value multiple of 5.0x is used to calculate a post-reorganisation valuation.

Fitch calculates the recovery prospects for the senior secured instruments at 59%, assuming the super senior secured revolving credit facility (RCF) of EUR50 million is fully drawn, which implies a one-notch uplift of the ratings relative to the company's IDR to arrive at 'B+' with a Recovery Rating of 'RR3' for the company's EUR620 million of senior secured debt.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to positive rating action/upgrade:

FFO gross leverage sustainably below 5x

Continued strong pre-dividend FCF generation with competitive positions in Latvia and Lithuania maintained

Factors that could, individually or collectively, lead to negative rating action/downgrade:

FFO gross leverage above 6x on a sustained basis

A significant reduction in pre-dividend FCF generation driven by competitive or regulatory challenges

BEST/WORST CASE RATING SCENARIO

International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.

LIQUIDITY AND DEBT STRUCTURE

We view Bite's liquidity as satisfactory. It is primarily in the form of its EUR50 million RCF. This is likely to be sufficient to address operating needs and cover small bolt-on acquisitions but a larger acquisition may require more advanced liquidity management that would take into account lower shareholder distributions. Refinancing risk is limited over the next few years as all debt instruments including both floating and fixed rate senior secured notes mature in 2025.

ESG Commentary

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of 3. ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or to the way in which they are being managed by the entity. For more information on our ESG Relevance Scores, visit www.fitchratings.com/esg.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG CONSIDERATIONS

The highest level of ESG credit relevance, if present, is a score of 3. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity(ies), either due to their nature or to the way in which they are being managed by the entity(ies). For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.

RATING ACTIONS

ENTITY/DEBT	RATING	RECOVERY

PLT VII Finance S.a r.l.

senior secured

LT	B+(EXP) 	Expected Rating	RR3	
PLT VII Finance B.V.	LT IDR	B(EXP) 	Expected Rating

VIEW ADDITIONAL RATING DETAILS

Additional information is available on www.fitchratings.com

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