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Rating Action:

Moody's changes CWC's outlook to negative; affirms Ba3 CFR

15 May 2020

New York, May 15, 2020 -- Moody's Investors Service ("Moody's") has today affirmed the corporate family rating (CFR) of Cable & Wireless Communications Limited ("CWC" or "the group") at Ba3. At the same time, Moody's also affirmed the ratings on the group's senior secured debt at Ba3 and the ratings on the group's senior unsecured debt at B2. All outlooks were changed to negative from stable.

The following rating actions were taken:

Affirmations:

Issuer: Cable & Wireless Communications Limited

..Corporate Family Rating, Affirmed Ba3

Issuer: CORAL-US CO-BORROWER LLC

....Gtd Senior Secured Term Loan B5, Affirmed Ba3

Issuer: Sable International Finance Limited

....Senior Secured Revolving Credit Facility, Affirmed Ba3

....Gtd Senior Secured Regular Bond/Debenture, Affirmed Ba3

Issuer: C&W Senior Finance Limited

....Gtd Senior Unsecured Regular Bond/Debenture, Affirmed B2

Outlook Actions:

..Issuer: Cable & Wireless Communications Limited

....Outlook, Changed to Negative from Stable

..Issuer: CORAL-US CO-BORROWER LLC

....Outlook, Changed to Negative from Stable

..Issuer: Sable International Finance Limited

....Outlook, Changed to Negative from Stable

Issuer: C&W Senior Finance Limited

....Outlook, Changed to Negative from Stable

RATINGS RATIONALE

The change of CWC's outlook to negative reflects its exposure to the breadth and severity of the credit shock caused by the spread of the coronavirus outbreak. The rapid and widening spread of the coronavirus outbreak, a deteriorating global economic outlook and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. Although the telecom industry is not directly exposed to the impact of the coronavirus outbreak in the way other sectors are, with telecommunications considered essential services during lockdowns, it will not be immune to GDP contraction. Moody's expects CWC's credit metrics to be impacted by a weaker operating environment, with sharp GDP contractions in most of its markets, which are dependent on travel and tourism. We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.

CWC operates in Panama and the Caribbean and most of its markets have large exposures to travel and tourism. The coronavirus outbreak has resulted in a sharp drop in tourist arrivals, with borders closed and lockdowns in place around the globe. We project that tourist arrivals in CWC's markets will at best gradually restart in Q3 2020 and are unlikely to return to pre-coronavirus levels before 2022. Moody's currently projects large GDP contractions, of 5-10% in the Caribbean countries that are most dependent on tourism, and smaller GDP contractions in Panama and Trinidad and Tobago, with downside risk still high for all markets.

CWC's operating results and financial profile will be affected by the downturn in its markets, which will result in reduced revenue and EBITDA and greater working capital outflow from an increase in receivable days. Among the company's business segments, B2B and mobile (primarily prepaid) will be most affected, while fixed and subsea will be more resilient and temporarily benefit from the greater need for connectivity and increased traffic during the lockdown period. Moody's currently projects CWC's leverage (Moody's-adjusted debt/EBITDA) to peak at 5.5x-6.0x in 2020 and then gradually return to pre-coronavirus levels in 2021-22, although downside risk remains elevated.

The affirmation of CWC's Ba3 CFR considers its solid liquidity and our expectation that, after a weak 2020, CWC will return to more solid free cash flow generation in 2021-22. CWC has levers that it can pull to preserve cash: Liberty Latin America Ltd (LLA), CWC's parent company, already announced a USD150 million reduction in operating costs and capital expenditures, most of which we expect to take place at CWC. CWC's liquidity is supported by a large cash balance of USD687 million as of 31 March 2020 and availability of USD313 million under its USD625 million committed revolving credit facilities. CWC does not face any large debt maturity before 2026. The group has one financial covenant in its term loan agreement, under which it has a large leeway.

CWC's Ba3 CFR continues to reflect its effective business model, strong profitability and leading market positions throughout the Caribbean and Panama. At the same time, the rating also takes into consideration the company's large exposure to emerging economies, increased competitive pressures in some of its largest markets and its high leverage.

The B2 ratings of the USD500 million senior unsecured notes due 2026 and USD1,220 million senior unsecured notes due 2027 continue to reflect their positioning in the waterfall behind the USD1,510 million senior secured term loan due 2028 and the USD550 million senior secured notes due 2027, both rated Ba3, in line with the CFR.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

A rating upgrade could be considered if more conservative financial policies lead to deleveraging to under 3.0x (Moody's-adjusted debt/EBITDA) on a consolidated basis, while maintaining adjusted EBITDA margin at least around 40% and generating strong positive free cash flow, all on a sustained basis.

CWC's ratings could be downgraded if the effects from the coronavirus outbreak on its operating results are greater than we currently expect, or recovery of its financial profile takes longer. A material weakening of its liquidity position could also trigger a downgrade. Quantitatively, a downgrade could take place if (1) the company's leverage does not recover towards 4.0x (on a consolidated basis) by 2022; (2) its adjusted EBITDA margin declines toward 35% on a sustained basis; (3) it makes a large cash distribution to its parent company.

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.

CWC is an integrated telecommunications provider offering mobile, broadband, video, fixed-line, business, IT and wholesale services in Panama, Jamaica, the Bahamas, Trinidad and Tobago, Barbados and other markets in the Caribbean. In 2019, the company generated revenue of $2.4 billion. CWC is a subsidiary of LLA, which was split off from Liberty Global plc on December 29, 2017, and is listed on the NASDAQ.

REGULATORY DISCLOSURES

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.

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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

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

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

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MD - Corporate Finance
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Releasing Office:
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No Related Data.
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