Moody’s increases Chorus’ credit rating threshold

Chorus Limited
Level 10, 1 Willis Street
P O Box 632
Wellington
New Zealand

Email: company.secretary@chorus.co.nz





STOCK EXCHANGE ANNOUNCEMENT

17 January 2022


Moody’s increases Chorus’ credit rating threshold

Moody’s Investors Service has today announced that the downgrade threshold for
Chorus has been increased to a debt to EBITDA ratio of 5.25x at the current rating
level, compared with a ratio of 4.2x previously.

The report is attached.

The long-term rating remains at Baa2 stable.

Authorised by:
David Collins
Chief Financial Officer


ENDS



For further information:

Steve Pettigrew
Head of External Communications
Mobile: +64 (27) 258 6257
Email: steve.pettigrew@chorus.co.nz

Brett Jackson
Investor Relations Manager
Phone: +64 4 896 4039
Mobile: +64 (27) 488 7808
Email: brett.jackson@chorus.co.nz

---

CORPORATES
CREDIT OPINION
17 January 2022
Update
RATINGS
Chorus Limited
DomicileNew Zealand
Long Term RatingBaa2
TypeLT Issuer Rating - Fgn
Curr
OutlookStable
Please see the ratings section at the end of this report
for more information. The ratings and outlook shown
reflect information as of the publication date.
Contacts
Ian Chitterer+61.2.9270.1420
VP-Sr Credit Officer
ian.chitterer@moodys.com
Cameron Mar+61.2927.08186
Associate Analyst
cameron.mar@moodys.com
Patrick Winsbury+61.2.9270.8183
Associate Managing Director
patrick.winsbury@moodys.com
CLIENT SERVICES
Americas1-212-553-1653
Asia Pacific852-3551-3077
Japan81-3-5408-4100
EMEA44-20-7772-5454
Chorus Limited
Credit Opinion Update
Summary
Chorus Limited's (Baa2 stable) credit profile benefits from: (1) its entrenched position in
New Zealand's fixed-line access networks and crucial role in the roll-out of the ultra-fast
broadband (UFB) network; (2) funding provided by Crown Infrastructure Partners (CIP)
to Chorus to partially fund the UFB roll-out, which is a key policy for the New Zealand
government; and (3) its transition to a regulated utility model which will improve the
predictability of its financial profile.
Elevated capital spending through the UFB build-out process results in negative free cash
flow, however, as the UFB roll-out approaches estimated completion in December 2022,
capital spending will moderate, and we expect free cash flow (before dividends) to turn
positive by fiscal 2023.
Chorus also continues to face competition from local fibre companies and mobile operators
offering wireless broadband. We expect the ongoing impact of competition from wireless
broadband to be moderate due to the higher cost of mobile data paired with the rise of
streaming which supports higher demand for data. Fibre broadband also benefits from
performance advantages, including having lower latency as well as being less vulnerable to
congestion.
Exhibit 1
Financial leverage expected to remain below the new tolerance threshold of 5.25x over the next
12-18 months
3.0x
3.5x
4.0x
4.5x
5.0x
5.5x
FY16FY17FY18FY19FY21LTM
(Dec-21)
12-18 month
forecast
Adj. Debt/EBITDATolerance threshold for Baa2 rating
[1] All figures and ratios are calculated using Moody's estimates and standard adjustments; [2] Moody's forecasts are Moody's
opinion and do not represent the views of the issuer; [3] FY19 debt/EBITDA takes into accounts cash in deposit to prefund debt
maturity
Source: Moody’s Financial Metrics™, Moody's Investors Service estimates.

MOODY'S INVESTORS SERVICE
CORPORATES
Credit Strengths
»Entrenched position in New Zealand's fixed-line access networks and crucial role in roll-out of ultra-fast broadband networks
»CIP securities are supportive of Chorus' leveraged capital structure
»Transition to regulated utility model will improve revenue predictability
Credit Challenges
»Capital expenditure program which is expected to complete by the end of calendar 2022 results in negative free cash flow
»Competition from local fibre companies and mobile operators
Rating Outlook
The stable outlook reflects Moody's view that Chorus' credit profile will remain appropriately positioned at Baa2.
Factors that Could Lead to an Upgrade
The rating could be upgraded if there is a sustained improvement in Chorus' financial profile and change in financial policy such that
debt/EBITDA is expected to be sustained at below 4.25x.
Factors that Could Lead to a Downgrade
The rating could be downgraded if there is a deterioration in Chorus' financial profile with debt/EBITDA increasing above 5.25x.
Key indicators
Exhibit 2
Key Indicators
Chorus Limited
NZ$ MillionsJun-16Jun-17Jun-18Jun-19Jun-20Jun-21
12-18 month forecast
Revenue1,0081,040990970959947920 - 940
FFO Margin %45.1%47.0%51.7%48.6%50.7%56.7%50% - 52%
(EBITDA - CAPEX) / Interest Expense0.2x0.2x-0.9x-1.1x0.0x0.2x0.5x - 2.0x
FCF / Debt-7.7%-7.5%-13.2%-12.8%-11.1%-7.2%-8% - -3%
Debt / EBITDA3.3x3.2x3.5x4.4x4.0x4.2x4.5x - 4.6x
[1] All figures and ratios are calculated using Moody’s estimates and standard adjustments. [2] Moody's Forecasts (f) or Projections (p) are Moody's opinion and do not represent the views
of the issuer. [3] FY19 debt/EBITDA takes into accounts cash in deposit to prefund debt maturity. Periods are Financial Year-End unless indicated. LTM = Last Twelve Months.
Source: Moody’s Financial Metrics™; Moody's Investors Service estimates.
Profile
Chorus Limited ("Chorus") is a New Zealand Stock Exchange-listed telecommunications utility group. It owns copper and fibre optic
fixed-line telecommunications networks in New Zealand, together with exchanges, roadside cabinets, and associated infrastructure. It
is a wholesaler of access to these networks.
Chorus is building a fibre-to-the-premises network in New Zealand, with the largest portion of the build, UFB1 being completed in
December 2019 and for UFB2, the target date is December 2022. It was appointed by the government's Crown Infrastructure Partners
to deliver the majority of its UFB commitment.
This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on
www.moodys.com for the most updated credit rating action information and rating history.
2 17 January 2022Chorus Limited: Credit Opinion Update

MOODY'S INVESTORS SERVICE
CORPORATES
Exhibit 3
Revenue by segment
$0
$200
$400
$600
$800
$1,000
$1,200
FY 16FY 17FY 18FY 19FY 20FY 21
NZD Million
CopperFibreOther
Source: Company reports
ESG considerations
CHORUS LIMITED's ESG Credit Impact Score is Neutral-to-Low CIS-2
Exhibit 4
ESG Credit Impact Score
Source: Moody's Investors Service
Chorus Limited's ESG Credit Impact Score is Neutral-to-Low (CIS-2). ESG attributes have low credit impact on Chorus' current rating
as the company has historically maintained a conservative financial policy. Its management also has a good track record of managing
the environmental and social risks and responding to issues appropriately.
Exhibit 5
ESG Issuer Profile Scores
Source: Moody's Investors Service
Environmental
The company's environmental risk exposure is low due to the environmental benefits of fiber broadband, which uses materially
less electricity than copper and mobile technology, and enables New Zealanders to work more flexibly, reducing carbon emissions
associated with commuting.
3 17 January 2022Chorus Limited: Credit Opinion Update

MOODY'S INVESTORS SERVICE
CORPORATES
Social
In terms of social risks, data privacy, information security and cyber security are key risks in the sector. Telecommunications providers
exchange large amounts of data, and a breach could have legal, regulatory or reputation ramifications. We view Chorus as having a
lower risk than retail service providers due to lower levels of private data.
Governance
Chorus has neutral exposure to governance risk. It has a conservative financial policy and an explicit target to maintain a Baa2 rating.
ESG Issuer Profile Scores and Credit Impact Scores for the rated entity/transaction are available on Moodys.com. In order to view the
latest scores, please click here to go to the landing page for the entity/transaction on MDC and view the ESG Scores section.
Detailed Credit Considerations
Entrenched position in New Zealand's fixed-line access networks and a crucial role in the roll-out of the ultra-fast
broadband network
Chorus' rating reflects its entrenched position in New Zealand's fixed-line copper and fibre markets; and its strategic importance in the
UFB initiative having won mandates for around 75% of the total UFB footprint.
In January 2017, Chorus reached an agreement with CIP to expand the UFB rollout, labeled as UFB2, to a further 9% of the population.
In September 2017, UFB2+ was announced, adding a further 2% of the population. This will be completed by December 2022. We see
the ongoing increases to Chorus' mandate as indicative of the strong and symbiotic relationship between Chorus and the New Zealand
Government.
CIP securities supportive of Chorus' leveraged capital structure
The government, via CIP issued CIP securities, contributed NZD924 million to Chorus to finance the roll-out of the UFB1, split on a
50% debt : 50% equity basis, with the debt portion further split into senior and subordinated tranches. The structure of this funding is
such that there is no interest payable at any time on the debt and no dividend payments before 2025 on the equity.
UFB2 and UFB2+ is expected to be equity funded for the first 75% of the NZD411 million commitment, and thereafter debt funding
will be used. The UFB2 and UFB2+ equity securities will only attract a dividend from June 2030, at which time the debt starts to fall
due. The proportion of equity that attracts a dividend and debt that becomes due, steps up every three years until June 2036 when the
full equity outstanding will be paying a dividend and the debt has been fully repaid.
We view this pre-committed long-term funding as evidence of the intended support by the New Zealand Government for the rollout,
which in turn is supportive of Chorus' credit profile.
Transition to a regulated utility model will improve revenue predictability and stability
The new regulatory regime came into force on 1 January 2022, setting a three-year price-quality path for Chorus. The final decision on
the price-quality path was announced on 16th December and contained no major surprises relative to the most recent draft decision.
The initial Regulatory Asset Base (RAB) was set at NZD5.425 billion, which includes a Financial Loss Asset (FLA) to recognise losses that
Chorus incurred during the rollout of its UFB network. The aggregate Maximum Allowable Revenue (MAR) for the 3 years is NZD2.27
billion split up into NZD690.2 million in 2022, NZD747.4 million in 2023, and NZD789.5 million in 2024 .
Over time, we expect that Chorus will display a utility-like revenue profile, with the majority of the company's revenue subject to
regulation. We consider the new regulatory framework to be supportive of Chorus' credit profile because its revenue predictability and
stability will improve, allowing Chorus to operate with higher financial leverage at its current Baa2 rating. We have therefore increased
Chorus's leverage tolerance threshold to 5.25x
Capital expenditure to decline as UFB rollout approaches completion
The UFB roll-out had required significant capital spending from Chorus, resulting in continued negative free cash flow over the past
decade.
4 17 January 2022Chorus Limited: Credit Opinion Update

MOODY'S INVESTORS SERVICE
CORPORATES
The UFB roll-out is now approaching completion, with capital spending having peaked in fiscal 2019, and it will continue to reduce
significantly over the period to fiscal 2024. This is credit positive as free cash flow (before dividends) is expected to turn positive by
fiscal 2023.
Competition from local fibre companies and mobile operators
Chorus continues to face competition from local fibre companies and mobile operators offering wireless broadband. In the first half of
fiscal 2021 the retailers were aggressively promoting fixed wireless broadband, resulting in a loss of 6,000 broadband services, but the
second half showed a significant improvement with a net increase of 11,000 broadband services.
Liquidity Analysis
We regard Chorus' liquidity profile as adequate. Primary liquidity sources over the next 12 months include: (1) cash holding of NZD53
million and undrawn bank facilities of NZD210 million as of 30 June 2021; (2) expected operating cash flow of NZD460-480 million;
(3) Crown funding of NZD146 million for fiscal 2022.
The above sources of liquidity are expected to be sufficient for expected uses. Expected liquidity uses over the next 12 months include:
(1) capital spending of around NZD570 million; and (2) dividends of around NZD75 million. Chorus' next debt maturities will occur in
fiscal 2024.
Chorus' net debt/EBITDA financial covenant level included in its committed syndicated bank facilities is 4.75x. We expect Chorus to
remain comfortably in compliance with its financial covenant. At 30 June 2021, Chorus' reported net debt/ EBITDA was 4.24x based on
the bank covenant methodology.
Rating methodology and scorecard factors

The following table shows Chorus Limited's scorecard-indicated outcome using Communications Infrastructure Industry, with data as
of June 30, 2021, and on a forward-looking basis. The rating outcome is two notches above the scorecard-indicated rating.
Exhibit 6
Rating Factors
Chorus Limited
Communications Infrastructure Industry Scorecard [1][2]
Factor 1 : Scale (10%)MeasureScoreMeasureScore
a) Revenue (USD Billion)$0.7B$0.6B
Factor 2 : Business Profile (25%)
a) Business ModelAAAA
b) Competitive Environment and Business ConditionsAAAA
Factor 3 : Profitability & Efficiency (20%)
a) FFO Margin56.7%Baa50% - 52%Baa
Factor 4 : Leverage & Coverage (30%)
a) (EBITDA - CAPEX) / Interest Expense0.2xCa0.5x - 2xB
b) FCF / Debt-7.2%Ca-8% - -3%Ca
c) Debt / EBITDA4.2xBa4.5x - 4.6xBa
Factor 5 : Financial Policy (15%)
a) Financial PolicyAAAA
Rating:
a) Scorecard-Indicated OutcomeBa1Ba1
b) Actual Rating AssignedBaa2
Current
FY 06/30/2021
Moody's 12-18 Month Forward View
As of 12/8/2021 [3]
[1] All ratios are based on 'Adjusted' financial data and incorporate Moody's Global Standard Adjustments for Non-Financial Corporations.
[2] As of FY 6/30/2021
[3] This represents Moody's forward view; not the view of the issuer; and unless noted in the text, does not incorporate significant acquisitions and divestitures.
Source: Moody's Financial Metrics™
5 17 January 2022Chorus Limited: Credit Opinion Update

MOODY'S INVESTORS SERVICE
CORPORATES

Ratings
Exhibit 7
CategoryMoody's Rating
CHORUS LIMITED
OutlookStable
Issuer RatingBaa2
Source: Moody's Investors Service
Appendix
Exhibit 8
Peer Comparison
Chorus Limited
(in US millions)
FYE
Jun-19
FYE
Jun-20
FYE
Jun-21
FYE
Dec-19
FYE
Dec-20
LTM
Jun-21
FYE
Jun-19
FYE
Jun-20
FYE
Jun-21
Revenue$651$611$658$836$815$825$885$824$889
EBITDA$433$437$472$373$371$398$378$368$447
Total Debt$1,900$1,781$1,998$1,144$1,225$1,205$1,810$1,898$2,172
Cash & Cash Equivalents$183$37$75$65$42$19$18$12
FFO Margin %48.6%50.7%56.7%38.5%40.5%44.1%23.2%26.0%28.1%
(EBITDA - CapEx) / Interest Expense-1.1x0.0x0.2x8.9x7.6x15.1x1.1x0.7x1.0x
FCF / Debt-12.8%-11.1%-7.2%0.9%-0.8%2.0%-11.9%-11.6%-10.2%
RCF / Debt14.9%14.8%15.8%18.7%18.5%22.4%5.2%5.8%6.2%
DEBT / EBITDA4.4x4.0x4.2x3.0x3.1x3.0x4.8x5.1x4.8x
Chorus Limited CETIN a.s.VECTOR Limited
Baa2 StableBaa2 Stable(P)Baa1 Stable
All figures & ratios calculated using Moody’s estimates & standard adjustments. FYE = Financial Year-End. LTM = Last Twelve Months. RUR* = Ratings under Review, where UPG = for
upgrade and DNG = for downgrade.
Source: Moody’s Financial Metrics™
Exhibit 9
Moody's-Adjusted Debt Breakdown
Chorus Limited
(in NZ$ Millions)
FYE
Jun-16
FYE
Jun-17
FYE
Jun-18
FYE
Jun-19
FYE
Jun-20
FYE
Jun-21
As Reported Debt
1,6761,7682,0502,4862,5932,637
Operating Leases
35350000
Non-Standard Adjustments299357269344174223
Moody's-Adjusted Debt
2,0102,1602,3192,8302,7672,860
All figures are calculated using Moody’s estimates and standard adjustments.
Source: Moody’s Financial Metrics™
Exhibit 10
Moody's-Adjusted EBITDA Breakdown
Chorus Limited
(in NZ$ Millions)
FYE
Jun-16
FYE
Jun-17
FYE
Jun-18
FYE
Jun-19
FYE
Jun-20
FYE
Jun-21
As Reported EBITDA
601662660646687679
Operating Leases
770000
Moody's-Adjusted EBITDA
608669660646687679
All figures are calculated using Moody’s estimates and standard adjustments.
Source: Moody’s Financial Metrics™
6 17 January 2022Chorus Limited: Credit Opinion Update

MOODY'S INVESTORS SERVICE
CORPORATES
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7 17 January 2022Chorus Limited: Credit Opinion Update

MOODY'S INVESTORS SERVICE
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Contacts
Ian Chitterer+61.2.9270.1420
VP-Sr Credit Officer
ian.chitterer@moodys.com
Patrick Winsbury+61.2.9270.8183
Associate Managing
Director
patrick.winsbury@moodys.com
CLIENT SERVICES
Americas1-212-553-1653
Asia Pacific852-3551-3077
Japan81-3-5408-4100
EMEA44-20-7772-5454
8 17 January 2022Chorus Limited: Credit Opinion Update