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Rating Action:

Moody's affirms Digicel Group Limited's B2 CFR following senior note add-on; stable outlook maintained

11 Dec 2013

Approximately $5.1 billion of rated debt affected

New York, December 11, 2013 -- Moody's Investors Service has affirmed Digicel Group Limited ("Digicel," "DGL" or the "company") B2 Corporate Family Rating (CFR), B2-PD Probability of Default Rating and the existing debt instrument ratings at DGL and Digicel Limited ("DL") following the company's recent announcement that it plans to issue up to $500 million of add-on notes to DGL's existing $1.5 billion 8.25% senior unsecured notes due 2020. The rating outlook remains stable.

The terms of the proposed add-on are expected to be identical to the existing notes. We expect Digicel to deploy the proceeds for general corporate purposes, including acquisitions and capital expenditures. We believe Digicel will use a portion of the proceeds to finance the investment in its newly created joint venture that will construct and lease-up 1,250 wireless towers in Myanmar (Burma) with Ooredoo Q.S.C. (A2 stable) as the anchor tenant. Ooredoo is a Qatar-based telecommunications carrier that was awarded one of two licenses in July 2013 to provide mobile communications services in Myanmar.

Ratings Affirmed:

..Issuer: Digicel Group Limited

Corporate Family Rating -- B2

Probability of Default Rating -- B2-PD

$2.0 Billion 8.25% Senior Unsecured Notes due September 2020 -- Caa1, LGD assessment revised to (LGD-5, 82%)

$775 Million 10.5% Senior Unsecured Notes due April 2018 -- Caa1, LGD assessment revised to (LGD-5, 82%)

..Digicel Limited

$800 Million 8.25% Senior Unsecured Notes due September 2017 -- B1, LGD assessment revised to (LGD-3, 34%)

$250 Million 7% Senior Unsecured Notes due February 2020 -- B1, LGD assessment revised to (LGD-3, 34%)

$1.3 Billion 6% Senior Unsecured Notes due April 2021 -- B1, LGD assessment revised to (LGD-3, 34%)

RATINGS RATIONALE

Digicel's B2 CFR is supported by its leading position as the largest wireless telecommunications carrier in the Caribbean, as well as its successful track record at gaining significant market share and producing solid operating results relatively quickly after new markets are launched. The company's growing penetration in markets outside of its long-standing Jamaica base has resulted in quick deleveraging from roughly the 10.0x level following recapitalization of the balance sheet in early 2007, to 4.8x total debt to EBITDA (Moody's adjusted) as of September 30, 2013. Pro forma for the planned add-on notes, we expect leverage to increase to about 5.2x, before declining to around 4.5x by FY15 (ending March 31).

However, Digicel's history of debt funded acquisitions and sizable dividend payments, plus the likelihood that in the future DGL could acquire the portion of DHCAL that it does not currently own weigh down the rating. While the company continues to have strong geographic diversification, this is mitigated by its exposure to Jamaica (about 14% of total revenue), which is struggling to revive its economy and experiencing competitive telecom pricing following the implementation of a new regulatory and tax scheme designed to increase government receipts. Further, slowing subscriber growth, lower pricing plans and adverse foreign currency movements relative to the US dollar in Digicel's three largest geographies (Jamaica, Haiti and Papua New Guinea) accounting for over 45% of revenue have resulted in flat year-over-year revenue growth for the six months ended September 2013.

Digicel's good liquidity supports the rating. We expect that the company will end FY14 with cash balances of roughly $650 million compared to approximately $1 billion as of September 2013. Cash flow from operations on a Moody's adjusted basis for the LTM period ended September 2013 was about $593 million, relatively flat compared to the $586 million generated in FY13. Though Digicel generated positive free cash flow of $139 million in the LTM period, we expect free cash flow over the next 12 months to be negative due to a sizable $650 million special dividend payment (payable within the next 6 months) and rising capex requirements to support greenfield network expansions in Haiti and Papua New Guinea, 4G rollouts in the Caribbean and Pacific geographies and new tower builds in Myanmar. Digicel also maintains a $848 million unrated senior secured credit facility (matures 2017) at its Digicel International Finance Ltd. ("DIFL") subsidiary, however there are no further draws available under this facility.

Rating Outlook

The stable rating outlook reflects Moody's opinion that DGL is unlikely to drive debt to EBITDA leverage to under 4x (Moody's adjusted) over the rating horizon given the incremental debt incurred as a result of this capital raise together with the upsized $1.3 billion notes issued earlier this year (March), combined with evidence of slowing subscriber growth in Digicel's core markets and flat operating cash flow growth. The outlook also reflects Moody's view that over the next two years, the company could use debt to acquire more DHCAL equity from its principal shareholder, Denis O'Brien.

What Could Change the Rating - Up

Moody's could upgrade Digicel's rating if the company demonstrated a less aggressive dividend philosophy, financial policies targeted leverage lower than 4x debt to EBITDA (Moody's adjusted), and if the operations exhibited positive free cash flow generation in excess of 5% of total debt (Moody's adjusted) on a sustained basis while maintaining very good liquidity.

What Could Change the Rating - Down

The ratings could be downgraded if operational shortfalls or unexpected acquisitions/investments elevated Digicel's leverage above 6x debt to EBITDA (Moody's adjusted) within an 18 - 24 month horizon. The ratings will likely experience downward pressure if competition escalates in the company's core markets or if deterioration in the political, economic and regulatory environments in the Caribbean or South Pacific markets result in declining operating cash flows and weak liquidity.

Moody's subscribers can find additional information in the Digicel Credit Opinion published on www.moodys.com.

The principal methodology used in rating Digicel Group Limited was Global Telecommunications Industry published in December 2010. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Incorporated in Hamilton, Bermuda, with headquarters in Kingston, Jamaica, W.I., Digicel is the largest provider of wireless telecommunication services in the Caribbean. Revenue for the twelve months ended September 30, 2013 totaled $2.8 billion.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Gregory A. Fraser
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

John Diaz
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's affirms Digicel Group Limited's B2 CFR following senior note add-on; stable outlook maintained
No Related Data.
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