New York, March 06, 2019 -- Moody's Investors Service (Moody's) today assigned a B1 (LGD1)
rating to the proposed USD550 million senior secured notes due 2024 to
be issued by Digicel International Finance Limited (DIFL) and Digicel
Holdings (Bermuda) Limited. The Caa1 corporate family rating (CFR)
of Digicel Group Limited (Digicel), as well as the ratings on all
existing debt instruments within the group, remain unchanged.
The outlook on all ratings is stable.
The rating of the proposed notes assumes that the final transaction documents
will not be materially different from draft legal documentation reviewed
by Moody's to date and that these agreements are legally valid,
binding and enforceable.
RATINGS RATIONALE
The transaction consists of new USD550 million senior secured notes due
2024 to be issued by DIFL and Digicel Holdings (Bermuda) Limited,
which proceeds will be used (1) to repay the drawings under DIFL's
USD100 million revolving credit facility (RCF) (fully drawn currently);
(2) to repay all of the existing USD300 million term loan A at DIFL;
(3) to pay transaction-related fees and expenses; and (4)
for general corporate purposes. On February 26, Digicel entered
into an amendment to the existing DIFL credit agreement to increase the
maximum total debt to adjusted EBITDA maintenance covenant ratio from
4.5x to 5.0x. This amendment, which is conditioned
on the repayment of at least 50% of the term loan A and of all
of the drawings under the RCF by April 30, 2019, would become
effective concurrently with the closing of the proposed senior secured
notes transaction.
If USD550 million are issued, the transaction would slightly increase
total debt, by around USD150 million, increasing the ratio
of total debt to adjusted EBITDA, as per DIFL's credit agreement
definition, to 4.59x from 4.42x (as of December 2018)
pro forma for the considered transaction. At the same time,
the transaction would eliminate debt amortizations related to the term
loan A (assuming it is fully repaid) and provide DIFL with around USD140
million additional cash, which could be distributed to DIFL's
parent companies and alleviate somewhat the group's liquidity pressures.
The covenant waiver would also become effective.
The new notes will have terms substantially similar to those of the existing
DIFL secured credit facility, which comprises a USD300 million term
loan A, an outstanding USD1,044 million term loan B and a
USD100 million RCF. In particular, the new notes will be
guaranteed by each of DIFL's subsidiaries that is a guarantor or
obligor under the DIFL secured credit facility and will be secured by
a first-priority lien on the same collateral as that of the existing
DIFL secured credit facility.
The B1 rating on the new notes is aligned with the ratings of the existing
DIFL debt instruments and three notches above the Caa1 CFR of Digicel,
reflecting the notes positioning in the waterfall ahead of the debt instruments
at Digicel Limited, Digicel Group One Limited, Digicel Group
Two Limited and Digicel Group Limited.
Digicel's Caa1 CFR continues to reflect its high leverage and untenable
capital structure, with the company facing large debt maturities
in the coming years, and its weak liquidity profile. While
Digicel benefits from product and geographic diversification, leading
market positions and high operating margins, it is present in emerging
markets with a history of instability and exposure to adverse weather
events and currency depreciation. In addition, the group's
operating performance continues to be affected by revenue and earnings
declines and negative free cash flow.
Digicel's liquidity has been weakening for several quarters, with
negative free cash flow resulting in a decline in the company's cash balance
(USD96 million at December 2018) and the full drawing of its revolving
credit facility, while the increase in leverage resulted in tight
leeway under its financial covenants. If Digicel cannot issue at
least USD250 million, the covenant waiver will not become effective
and covenant leeway will continue to be very tight. At December
2018, DIFL's total debt to adjusted EBITDA ratio was 4.42x
against a limit of 4.5x.
The stable outlook reflects Moody's expectations that Digicel will gradually
return to positive free cash flow, resulting in some improvement
to its financial and liquidity profile.
Digicel's ratings could be downgraded if the company's liquidity continues
to weaken, it does not refinance its debt maturities well ahead
of time, its free cash flow remains negative, or if its debt
to EBITDA (Moody's adjusted) ratio does not improve, increasing
the likelihood of some form of debt restructuring.
Digicel's ratings could be upgraded if the company's liquidity improves
and its leverage declines, driven by a clear improvement in its
operating performance, a return to positive free cash flow generation
and the completion of asset sales.
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. Digicel generated revenue
of USD2.3 billion in the 12 months to December 2018.
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.
Marie Fischer-Sabatie
Senior Vice President
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
Mexico
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
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
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