Hong Kong, March 21, 2012 -- Moody's Investors Services says that Pacnet's performance
for FY 2011 was in line with our expectations and has no immediate impact
on its B1 corporate family and senior unsecured bond ratings.
The ratings outlook remains negative.
Pacnet reported USD134.5 million in revenues for the fourth quarter
of 2011 and which was consistent with the previous quarter, as new
revenues were offset by continued price declines. The reported
operating loss for the fourth quarter was USD23 million, which was
just marginally lower than the loss of USD24 million in the previous quarter.
For FY2011, Pacnet recorded USD528.6 million in revenues,
up 4.4% from a year ago, driven primarily by increases
in the data service and whole sale voice segments. Adjusted EBITDA,
excluding non-cash Employee Stock Option Plan (ESOP) costs,
was USD82 million for FY2011, an increase 2.2% from
the prior year.
"While the company has generated adjusted EBITDA above our expected
USD80 million, our concerns regarding the sustainability of its
operating performance over the near-to-intermediate term
remains," says Annalisa Di Chiara, a Moody's Vice
President and Senior Analyst.
"We believe Pacnet faces significant competitive pressures in 2012
and the company's ability to grow revenues at a fast enough pace
to continue to offset the impact of price erosion is still uncertain.
Furthermore, adjusted leverage of around 4.0x is considered
aggressive, given the vulnerability of operating profit and competitive
pressures," says Di Chiara.
Moody's ongoing view of Pacnet's credit will continue to focus
on the sustainability of EBITDA growth, an assessment of its competitive
positioning, and any changes to its overall growth strategy.
The rating could come under additional pressure if operating income does
not show meaningful quarterly growth, such that EBITDA is likely
to remain below the USD90 million-USD100 million level.
This development could be due to larger-than-expected price
declines, an elevated cost structure, or an inability to generate
volume growth given the ongoing competitive pressures. Furthermore,
if a weaker performance leads to tighter liquidity or non-compliance
with any of its bank covenants, the ratings would be lowered.
The outlook could return to stable, if operating performance shows
sustained improvements on a quarterly basis, such that gross adjusted
debt/EBITDA stays below 3.5x and Pacnet maintains a reasonable
amount of cushion, under its bank loan covenants, to ensure
adequate back-up liquidity.
Pacnet, incorporated in Bermuda in 2006, wholly owns and operates
the EAC-C2C network, Asia's largest privately-owned
submarine cable infrastructure of 36,800km, as well as the
EAC Pacific network which spans 9,620km from Japan to the US.
The cables land at 21 cable landing stations across Asia and the US.
Pacnet provides data connectivity solutions to major telecommunications
carriers, large multinational enterprises and small- and
medium-sized enterprises in Asia Pacific with a need for multinational
IP-based solutions and connectivity.
Annalisa Di Chiara
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Gary Lau
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Moody's comments on Pacnet's full-year results for 2011