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I AGREE
25 Apr 2017
New York, April 25, 2017 -- Moody's Investors Service, ("Moody's") has
affirmed the B2 corporate family rating (CFR) and B2-PD probability
of default rating (PDR) of Digicel Group Limited ("Digicel", "DGL"
or the "company") following the issuance of bank credit facilities by
its subsidiary Digicel International Finance Limited ("DIFL").
Moody's has assigned a Ba2 (LGD-1) rating, to DIFL's
new $635 million term loan B, $100 million revolving
credit facility and $300 million term loan A. The proceeds
will be used to repay an $837 million credit facility at DIFL as
well as for general corporate purposes. Moody's has also
affirmed the B1 (LGD-3) rating on the unsecured notes of Digicel
Limited ("DL") and the Caa1 (LGD-5) rating on the unsecured
notes of DGL. The outlook remains stable.
Assignments:
..Issuer: Digicel International Finance Limited
....Senior Secured Bank Credit Facility,
Assigned Ba2 (LGD 1)
Affirmations:
..Issuer: Digicel Group Limited
.... Probability of Default Rating,
Affirmed B2-PD
.... Corporate Family Rating, Affirmed
B2
....Senior Unsecured Regular Bond/Debenture,
Affirmed Caa1 (LGD 5)
..Issuer: Digicel Limited
....Senior Unsecured Regular Bond/Debenture,
Affirmed B1 (LGD 3)
Outlook Actions:
..Issuer: Digicel Group Limited
....Outlook, Remains Stable
..Issuer: Digicel Limited
....Outlook, Remains Stable
RATINGS RATIONALE
Digicel's B2 CFR reflects its product and geographic diversification,
good margins, and leading market position. Digicel remains
the largest wireless telecommunications carrier in the Caribbean holding
the number one market position in 19 of its 25 Caribbean markets.
Over the last several years, Digicel has expanded its service offering,
mainly through M&A, to diversify revenues across business solutions,
cable TV and broadband and media distribution since growth opportunities
in these areas are now larger than in mobile. Digicel is undertaking
a business transformation project that aims to reduce operating expenses
by centralizing common support functions. The company expects to
achieve significant headcount related expense savings and a working capital
benefit from this project, which it has named "Project Swan."
In addition, Digicel has entered into a five year agreement with
ZTE for network equipment that it expects to result in more predictable
capital spending.
Digicel's rating is constrained by its high leverage of approximately
6.5x (Moody's adjusted, 12/31/16) and aggressive financial
policy, which includes frequent debt funded acquisitions and opportunistic
dividend payments. Additionally, Digicel's ratings
are negatively impacted by its negative free cash flow, despite
high margins, due to high capital intensity and interest costs.
Despite modest underlying growth in constant currencies, Digicel's
reported revenue and EBITDA have posted year-over-year declines
for the past seven quarters. Dollar strength has moderated in 2017
but currency translation risk may continue to negatively affect Digicel
in the near term, especially in the company's three largest
geographies: Jamaica, Haiti and Papua New Guinea.
Moody's views Digicel as having adequate liquidity and expects the
company to have approximately $200 million in cash and full access
to the new $100 million revolving credit facility issued by DIFL
at the close of this refinancing transaction. Digicel generated
negative free cash flow in both fiscal 2016 (ended 3/31/16) and fiscal
2017 (ended 3/31/17) due to elevated capex, but Moody's expects
the company to reduce its cash burn in fiscal 2018 (ended 3/31/18) and
approach breakeven. The company is in the final stages of network
expansions/upgrades, fiber-to-the-home and
cable expansions, upgrading acquired cable businesses, and
4G rollouts in the Caribbean and Pacific geographies. Moody's
projects Digicel will continue to spend heavily on capex in FY18 but to
a lesser degree due to the completion of capital initiatives and Digicel
should transition to positive free cash flow in the FY18-FY19 period.
Digicel maintains a $150 million unrated senior secured credit
facility at its Digicel Pacific Ltd. subsidiary due in August of
2017. Moody's believes a portion of the proceeds raised from
the new credit facilities may be used to repay the upcoming maturity in
addition to cash on hand. The credit agreement governing the new
bank facilities has two maintenance-based financial covenants (applicable
only to the TLA) and Moody's expects Digicel to have adequate cushion
under these covenants over the next 12 to 18 months. Digicel's
maturity profile offers a short runway for an improvement in leverage
and cash flow before maturities ramp sharply in 2020, when $2.25
billion of debt matures ($250m at DL in Feb. '20 and $2.0b
at DGL in Sep. '20). Beyond 2020 Digicel faces $1
billion or more in annual maturities through 2023. Moody's will
assess the company's progress towards reducing these maturity towers during
2017 and 2018.
The ratings of Digicel's individual creditor classes reflect Moody's
assessment of the average probability of default across the group and
individual loss-given-default assessments of the debt classes.
Moody's rates DIFL's senior secured credit facilities Ba2
(LGD-1) due to their senior position relative to the company's
primary assets. Moody's rates senior unsecured notes issued
by DL as B1 (LGD-3) due to their intermediate position in the capital
structure and the loss absorption provided by the Caa1 (LGD-5)
rated unsecured notes at DGL.
The stable outlook reflects Moody's view that Digicel will grow
revenues and EBITDA such that Moody's adjusted debt to EBITDA will
return below 6x and will be sustained under that level within the rating
horizon.
Moody's could upgrade Digicel's rating if the company showed continued
restraint with respect to dividends and if leverage were on track to fall
below 4x debt to EBITDA (Moody's adjusted). A rating upgrade would
also require Digicel to generate free cash flow in excess of 5%
of total debt (Moody's adjusted) on a sustained basis while maintaining
very good liquidity. The ratings could be downgraded if leverage
is sustained above 6x debt to EBITDA (Moody's adjusted). Further,
Digicel's ratings could be downgraded if the company does not make material
progress addressing its large maturity towers by at least mid 2018 or
if the company uses a material amount of cash for shareholder returns.
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
methodology.
Incorporated in Hamilton, Bermuda, Digicel is the largest
provider of wireless telecommunication services in the Caribbean.
The company operates in 31 markets in the Caribbean and South Pacific
regions. In addition, the company provides a comprehensive
range of business solutions, cable TV and broadband and other related
products and services. The company also operates a wireless network
in Panama through its 45% ownership interest in affiliate,
Digicel Holdings (Central America) Limited. Moody's expects revenue
of approximately $2.5 billion over the succeeding twelve
months.
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 credit rating action on the support provider and in relation to
each particular credit 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 credit rating action,
and whose ratings may change as a result of this credit 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.
Mark Stodden
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
John Diaz
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.
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