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Rating Action:

Moody's assigns B1 ratings to Liberty Puerto Rico's proposed notes and term loan; stable outlook

09 Oct 2019

New York, October 09, 2019 -- Moody's Investors Service (Moody's) today assigned a B1 corporate family rating (CFR) and B1-PD probability of default rating (PDR) to Leo Cable LP, a holding company of the Liberty Puerto Rico (LPR) group, considering its intended acquisition of AT&T, Inc.'s (Baa2 stable) operations in Puerto Rico and the US Virgin Islands, and subsequent combination with its existing business in Puerto Rico.

Simultaneously, Moody's assigned a B1 rating to the new USD1.2 billion senior secured term loan B (TLB) due 2026 raised by LCPR Loan Financing LLC and a B1 rating to the proposed USD1.0 billion senior secured notes due 2027 issued by LCPR Senior Secured Financing DAC. The outlook is stable.

The current B3 CFR, B3-PD PDR and B2/Caa2 senior secured bank credit facility ratings of Liberty Cablevision of Puerto Rico LLC (LCPR) remain unchanged. LPR intends to use part of the TLB proceeds to fully repay the existing bank credit facility at LCPR, which will then no longer have rated debt.

The ratings assigned assume that the acquisition and debt issuance will be successfully completed, the final transaction documents will not be materially different from draft legal documentation reviewed by Moody's to date and that all agreements are legally valid, binding and enforceable.

ASSIGNMENTS

Issuer: Leo Cable LP

-Corporate Family Rating, Assigned B1

-Probability of Default, Assigned B1-PD

Issuer: LCPR Loan Financing LLC

-USD1.2 billion Gtd Senior Secured Term Loan B due 2026, Assigned B1 (LGD3)

Issuer: LCPR Senior Secured Financing DAC

-USD1.0 billion Senior Secured Regular Bond/Debenture due 2027, Assigned B1 (LGD3)

OUTLOOK ACTIONS

Issuer: Leo Cable LP

Outlook, Assigned Stable

Issuer: LCPR Loan Financing LLC

Outlook, Assigned Stable

Issuer: LCPR Senior Secured Financing DAC

Outlook, Assigned Stable

RATINGS RATIONALE

Liberty Latin America Ltd. (LLA) announced on October 9 that it reached an agreement to acquire AT&T's operations in Puerto Rico and the US Virgin Islands (together AT&T PR) for a consideration of USD1,950 million. The transaction is still subject to regulatory approvals and will close in Q2 2020. LLA will combine AT&T PR with LCPR, its existing cable business in Puerto Rico. Leo Cable LP will be the future holding company of the combined group and report consolidated accounts of the group once the acquisition has closed. The acquisition and related fees will be partially financed by USD2.2 billion of new senior secured debt: USD922.5 million of debt proceeds will be used to repay existing debt at LCPR and the remaining USD1,277.5 million to fund a portion of the acquisition of AT&T PR. The remainder of the acquisition price and related transaction fees, that is about USD750 million, will be funded from LLA's liquidity.

Leo Cable's B1 CFR considers the combination of AT&T PR's and LPR's existing operations in Puerto Rico and reflects the combined group's increased scale and leading wireless and fixed market positions in Puerto Rico, its offering of a full suite of services, the quality of its networks and mobile spectrum holdings, as well as its positive free cash flow generation. The B1 CFR also reflects the group's concentration on two small markets, Puerto Rico and US Virgin Islands, which have weak economies, adverse demographic trends and exposure to adverse weather events; the integration risks related to the business combination (namely, rebranding and integration of two different networks); a highly competitive telecom market in Puerto Rico; and the lack of track record of the combined entity.

Pro forma for the contemplated acquisition and debt issuance, and considering some synergies that the group will be able to derive, Moody's expects that the combined group will have an EBITDA margin in the low to mid 40s in percentage terms and leverage (adjusted debt/EBITDA, including Moody's adjustments) around 4.3-4.4x within the next couple of years.

Leo Cable's B1-PD PDR rating is at the same level as the B1 CFR, reflecting the group's expected recovery rate of 50% typically assumed by Moody's for a capital structure that consists of a mix of bank and bond debt.

The proposed USD1.2 billion TLB and USD1.0 billion notes are issued by trust-owned special-purpose entities, LCPR Loan Financing LLC and LCPR Senior Secured Financing DAC, that were created for the primary purpose of issuing the notes and will be consolidated by Leo Cable. Debt proceeds will be on-lent to entities within LPR through proceeds loans: USD922.5 million of TLB proceeds will be immediately on-lent to LCPR for the repayment of its existing debt. The remaining USD277.5 million TLB proceeds and the USD1.0 billion notes proceeds will be initially put into escrow and, when the acquisition is consummated, on-lent to LLA Holdco LLC, the entity that will hold the AT&T PR operations, to fund a portion of the acquisition price. The combined group's financial debt will essentially comprise the proceeds loans and the B1 ratings on the proposed senior secured TLB and senior secured notes considers the proceeds loan structure with all proceeds loans benefiting from the same guarantors and sharing the same collateral within the LPR group. After the acquisition is consummated, collateral will include share pledges as well as substantially all assets of guaranteeing entities.

The combined entity will have adequate liquidity, generating positive free cash flow and having access to a new USD125 million senior secured revolving credit facility (RCF) at the level of LCPR, which will share the same guarantors and collateral as the TLB and notes. The TLB and RCF will contain two maintenance financial covenants, under which we expect the company to maintain comfortable headroom. There will be no material debt maturities before 2026.

The stable outlook reflects Moody's expectation that, in spite of some integration risks and initial integration costs, the combined group will have credit metrics in line with the B1 rating within the next 12-18 months and maintain adequate liquidity.

Moody's could upgrade LPR's ratings if its leverage declines below 3.75x and its ratio of (EBITDA-capex)/interest expense (including Moody's adjustments) increases above 2.5x on a sustainable basis. An upgrade would also require the maintenance of positive free cash flow and at least an adequate liquidity profile.

Moody's could downgrade LPR's ratings if its leverage increases above 4.75x or its ratio of (EBITDA-capex)/interest expense falls below 1.5x for a prolonged period. A downgrade would also occur if liquidity weakens or if the company's revenue base declines, resulting from a decline in Puerto Rico's population or from additional economic or competitive pressures.

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.

Leo Cable is a holding company of the Liberty Puerto Rico group, indirectly owned by Liberty Latin America Ltd. Leo Cable will consolidate the combined operations of LCPR and AT&T in Puerto Rico and the US Virgin Islands, once the acquisition has closed. The combined operations will offer a full suite of wireless and fixed services and have the leading market position in wireless, fixed broadband and pay TV in Puerto Rico, as well as in wireless in the US Virgin Islands. On a pro forma basis, for 2018, the combined group has revenue of about USD1.2 billion.

REGULATORY DISCLOSURES

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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
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Marianna Waltz, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 0 800 891 2518
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Releasing Office:
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No Related Data.
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