VMO2 - comment

VMO2’s bonds have sold off sharply this month as market confidence deteriorates and losses among high-profile investors fuel further pressure. Not all of this reflects deteriorating credit quality. We see scope for the market to be overpricing the risk, particularly given VMO2’s stable operating performance and the time it has to address leverage before its January 2029 maturities.

Moody’s has now placed the B1 CFR under review for downgrade, citing weak debt prices, uncertainty around market consolidation, and leverage of 5.7x. EBITDA will decline this year, but performance remains broadly in line with our expectations and Moody’s still expects positive FCF. The transformation plan and path to deleveraging remain important catalysts, but VMO2 does not face an immediate refinancing need.

The sell-off has created a more interesting entry point. We see potential value if the company can stabilise performance and demonstrate credible deleveraging, while the current market pessimism offers scope for a recovery in bond prices.