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21 Dec 2018
New York, December 21, 2018 -- Moody's Investors Service (Moody's) affirmed Axtel, S.A.B.
de C.V.'s (Axtel) Ba3 corporate family rating and senior
unsecured rating. Simultaneously, Moody's changed the ratings
outlook to stable from negative.
..Issuer: Axtel, S.A.B.
....Outlook, Changed To Stable from
..Issuer: Axtel, S.A.B.
.... Corporate Family Rating, Affirmed
.... Senior Unsecured Regular Bond/Debenture,
The change in Axtel's ratings outlook to stable from negative reflects
the reduction in leverage derived from debt repayment with proceeds from
asset sales. On December 21, 2018, Axtel announced
the repayment of about MXN4.3 billion in syndicated loan with net
proceeds from the sale of a portion of its residential fiber-to-the-home
(FTTH) business to Grupo Televisa, S.A.B. (Televisa,
Baa1 stable), including 4,432 kilometers of fiber optic network,
for a consideration of MXN4.7 billion (around $230 million).
The asset sale was long awaited since February 2018, when Axtel
announced that it was considering selling its mass-market segment,
which focuses on fiber-optic service mainly for high-end
residential customers of Mexico's biggest metropolitan areas.
The implied enterprise value to EBITDA multiple of 7.5x,
considering an EBITDA of MXN630 million related to the assets sold,
is in line with Moody's preliminary estimates. Still, proceeds
are somewhat below Moody's original MXN5.2-MXN5.6
billion ($280-$300 million) expectation, since
Axtel sold only the business in the cities of Monterrey, San Luis
Potosí, Aguascalientes, Ciudad de México,
Ciudad Juárez and the Zapopan municipality in the state of Jalisco.
Nevertheless, the transaction was material enough to improve Axtel's
credit profile and support the outlook change. Moody's estimates
that Axtel's gross debt/EBITDA ratio, including the agency´s
standard adjustments, will be 3.8x at the end 2019,
from 4.7x at the end of 2017. Furthermore, the asset
sale is also in line with Axtel's strategy to focus on its core
enterprise and government segments, where it benefits from greater
scale as well as stronger market position and high operating margins.
Axtel's Ba3 corporate family rating continues to be supported by its stable
and solid margins, its strong customer base in the enterprise segment,
and long-term organic growth opportunities amid rising demand for
increased data speed and capacity and related value-added services.
The rating also reflects the company's strong corporate governance under
Alfa, S.A.B. de C.V.'s financial
policies and oversight. On the other hand, the rating incorporates
the Axtel's comparatively small size and limited market shares in Mexico's
highly competitive and fragmented telecom industry.
In 2016, Axtel merged with Alestra, obtaining significant
synergies. Nevertheless, unfavourable economic conditions
in Mexico delayed the recovery of Axtel's credit profile toward original
post-merger expectations for the following years. In 2016-17,
free cash flow remained negative because the company lost certain government-related
revenues due to federal budget constraints; it also suffered from
pressures in its capital expenditures given the depreciation of the Mexican
peso, which negatively affected its dollar-denominated capex.
Free cash flow has turned slightly positive recently therefore the latest
debt reduction is key for Axtel to be able to reduce Moody's-adjusted
debt/EBITDA, which the rating agency believes will decline towards
3.5x during 2019. Further supporting Axtel's deleverage
is Moody's expectation that its EBITDA margin will remain stable at around
40%, which is a solid level for the Ba rating category.
Axtel's liquidity is good. As of September 30, 2018,
cash on hand of MXN652 million covered 1.3 times the company's
short term debt. After the recent debt repayment, Axtel will
have virtually no short term debt, significantly reducing its refinancing
risk. Moody's understands that the next large debt maturity,
of about MXN1.57 billion, is in 2022. Moroever,
since 2017, Axtel has taken important measures to lower its refinancing
risk and improve its capital structure. In June 2017, the
company closed a sale and lease back transaction with American Tower Corporation
(Baa3 stable) for 142 telecommunication towers for approximately $56
million. In August 2018, Axtel also refinanced $172
million in US-dollar denominated loan into Mexican pesos,
and extended maturities to a 10-year tenure. It is also
positive that Axtel's public leverage target is 2.5 times
net debt to EBITDA, which the company expects to achieve in 2020;
in addition, Axtel's committed revolving credit facility is fully
available and matures in 2021. Axtel has also been able to reduce
its US-dollar foreign exchange exposure. Considering today's
prepayment, around 60% of Axtel's outstanding debt is US-dollar
The stable outlook on Axtel's ratings reflects Moody's expectation that
in 2019 the company's leverage will continue to decline, supported
by stable operating performance and further asset sales.
Axtel's ratings could be downgraded if weaker than anticipated market
conditions result in adjusted debt/EBITDA remaining above 3.5x,
and adjusted EBITDA margin falling below 35%. Negative pressure
will also arise, if revenue growth is flat or declines or if retained
cash flow relative to debt falls below 10%. A deterioration
of the company's liquidity could also lead to a downgrade.
The rating could be upgraded if Axtel is able to bring adjusted EBITDA
margin above 40% while keeping leverage around 2.5 times
and maintaining retained cash flow generation above 20% of total
Based in Monterrey, Mexico, Axtel is an integrated telecommunications
company providing bundled and information technology services to Mexico's
enterprise, government, residential and small business sectors.
The company is fully consolidated by Alfa, S.A.B.
de C.V. (Baa3 stable), which holds 52.8%
of the subsidiary. For the last twelve months ended in September
30, 2018, Axtel revenues totaled MXN 15.7 billion.
The principal methodology used in these ratings was Telecommunications
Service Providers published in January 2017. Please see the Rating
Methodologies page on www.moodys.com for a copy of this
For ratings issued on a program, series or category/class of debt,
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the lead rating analyst and to the Moody's legal entity that has issued
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Asst Vice President - Analyst
Corporate Finance Group
Moody's de Mexico S.A. de C.V
Ave. Paseo de las Palmas
No. 405 - 502
Col. Lomas de Chapultepec
Mexico, DF 11000
JOURNALISTS: 1 888 779 5833
Client Service: 1 212 553 1653
Marianna Waltz, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 800 891 2518
Client Service: 1 212 553 1653
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
No Related Data.
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