New York, October 26, 2020 -- Moody's Investors Service, ("Moody's") today
assigned a B1 corporate family rating (CFR) to Total Play Telecomunicaciones,
S.A. de C.V. (Total Play). At the same
time, Moody's assigned a B2 rating to Total Play's proposed $500
million senior unsecured notes due 2027. The outlook for the ratings
is stable. This is the first time Moody's assigns a rating to Total
Proceeds from the bond issuance will be used to repay existing debt,
fund the company's expansion plan and general corporate purposes.
The notes will rank pari passu with all other unsecured and unsubordinated
debt obligations of Total Play. The B2 rating incorporates the
guarantee of Total Box, S.A. de C.V.,
the operating company responsible of 88% of Total Play's
EBITDA and 78% of the revenues. The rating of the 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.
Total Play's B1 CFR reflects the company's high quality network,
being the only 100% FTTH infrastructure in Mexico, its organic
track record of growth with CAGR of 25% in revenues from 2015 to
June 2020, one of the highest ARPUs in the Mexican market,
and a low churn rate at 1.2%. The B1 rating also
considers Total Play's adequate credit metrics, including
Moody's adjusted gross debt/EBITDA at 3.9x and a 33.7%
EBITDA margin in the last 12 months ended June 2020, from 9.5x
and 21.2%, respectively, in December 2016.
Proforma for the issuance of the notes, Moody´s adjusted leverage
will peak at 4.7x at year end 2020 and then gradually decrease
to 3.2x by 2023 on the back of a 86% growth in EBITDA.
Conversely, the rating considers Total Play's small size when
compared to Mexican peers; with 8.1% market share in
broadband and 5% in Pay TV, Total Play is behind larger operators
including America Movil S.A.B. de C.V.
(A3 negative) and Grupo Televisa S.A.B. (Baa1 negative).
The rating also considers the company's geographic concentration
in the Mexican market, which has been hard hit by the COVID pandemic,
with Moody's latest forecast for real GDP contracting 10%
in 2020 followed by 3.7% growth in 2021. As such,
government and private spending will likely remain subdued in 2020.
While there may be some positive effects on broadband markets related
to the increase in data consumption and consumers moving to higher-price
services with greater speed during the period of social distancing,
the company will face a tougher operating environment. The rating
also incorporates Moody's expectation of negative free cash flow
(FCF) through 2023, following Total Play's expansion plan
in the Mexican market. The company will invest about $3
billion through 2027 to drive RGU growth to 14 million and increase its
broadband market share to 19% in 2027, from 5.7 million
and 8.1%, respectively as of September 2020.
Total Play's expansion plan entails execution risks, partly
mitigated by the company´s track record of growth and experienced
At the same time, the B2 rating on the senior unsecured notes incorporates
the effective subordination to Total Play's secured debt.
Accordingly, 60% of Total Play's debt is secured by
about 35% of the company's total revenues, with a trust
formally assigned to manage the debt service with different financial
institutions as well as the MXN2,500 million local notes issued
in February 2020. Proforma for the issuance of the proposed notes,
Total Play's capital structure will comprise 60% of secured
debt, from 91% previously. The senior unsecured notes
will represent about 88% of total unsecured debt and 35%
of total debt and will benefit from the residual cash flows in the waterfall
after the repayment of the secured debt.
With the issuance of the new notes and the planned repayment of existing
debt, Total Play's liquidity profile will be adequate.
Still, the company's FCF has remained negative in recent years,
with very tight liquidity as per the company´s cash to short term
debt ratio at only 5% on average, for the last five years.
Post-transaction, the company's debt maturity profile
will be more comfortable as approximately 64% of its debt will
mature in 2027 or later. The company does not have a formal dividends
policy, but does not expect any dividend distribution in the medium
The stable outlook reflects Moody's expectation that Total Play
will be able to execute its growth plan, while improving its EBITDA
margin to the high-30s in percentage terms and improving liquidity.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Total Play's rating could be upgraded if the company reduces leverage
below 3x on a sustained basis and improves its interest coverage (Moody's-adjusted
EBITDA - capital spending/interest) to above 2.0x.
A positive rating action would be conditional on the successful execution
of its growth plan and maintenance of adequate or better liquidity.
Total Play's ratings could be downgraded if the company is unable
to improve its profitability with adjusted EBITDA margin falling below
35%. Any deterioration in its liquidity profile or leverage
maintained above 4.5x could also trigger a downgrade.
The principal methodology used in these ratings was Telecommunications
Service Providers published in January 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1055812.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Headquartered in Mexico, Total Play offers fixed telephony,
Pay TV and broadband internet services to residential customers,
and managed IT services for business customers, as well as government
entities, over its fully-owned fiber optic network that covers
more than 88,000 kilometers with 10.1 million homes passed
and 1.9 million subscribers as of June 2020. Total Play
started operations in 2008 as Grupo Iusacell, the second largest
mobile company in Mexico, and became standalone through the sale
of its mobile business to AT&T (Baa2 stable) in 2015, remaining
part of Grupo Salinas. Total Play is currently controlled by the
Salinas Pliego family and for the last twelve months ended September 30
2020, the company generated revenue of MXN18,151 million (about
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
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Asst Vice President - Analyst
Corporate Finance Group
Moody's de Mexico S.A. de C.V
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Marianna Waltz, CFA
MD - Corporate Finance
Corporate Finance Group
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Moody's Investors Service, Inc.
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