MONTERREY, Mexico--(BUSINESS WIRE)--Fitch Ratings has affirmed the following ratings for Alestra, S. de R.L. de C.V. (Alestra):
--Local currency Issuer Default Rating (IDR) at 'BB-';
--Foreign
currency IDR at 'BB-';
--Senior notes due 2014 at 'BB-'.
The Rating Outlook is Stable.
Alestra's ratings reflect stable operating performance, moderate leverage, manageable debt maturity profile, lower business risk due to a de-emphasis of the international and residential markets and stable cash flow generation. The ratings incorporate its position as a niche service provider to enterprise customers, its small scale, advanced network infrastructure, moderate regulatory risk and sound financial profile. Conversely, the ratings are tempered by the currency mismatch between debt and cash flows and a strong competitive environment. Lower business risk has resulted as a consequence of management's strategy to grow data, Internet and local services (DILS). Additionally, the company's focus on corporate customers provides stability for cash flow as the competitive environment is less intense than the residential market.
Ending of AGN Agreement Manageable
Fitch believes the ending of the AT&T Global Network (AGN) agreement with AT&T will have a negative effect on operating results but should be manageable for Alestra's credit quality. Considering the net effect on EBITDA by the loss of revenue related to the AGN agreement and the future revenue associated with the lease of infrastructure to AT&T, pro forma total debt to EBITDA for the 12 months ended Sept. 30, 2011 is expected to increase to 2.1 times (x) from 1.8x. Fitch expects that revenue and EBITDA loss related to this agreement will be partially compensated by the leasing to AT&T of the infrastructure needed to provide these services and by growth in value added services over the next few years. The AGN agreement has accounted for approximately 20% of revenues and EBITDA of Alestra.
Strategy Focusing On IT Solutions
Value added services should continue growing in the next few years
primarily driven by information technology solutions, which is expected
to become increasingly important to EBITDA generation for value added
services. Alestra is expected to focus on data centers and cloud
services by offering mobility to its customers. Mobility can be provided
either by reaching an agreement with a mobile operator or by
participating in future spectrum auctions. Fitch expects EBITDA margins
to moderately increase during the next few years as the mix of higher
margin value added services continues to grow as a proportion of
consolidated revenues. Fitch estimates that for full year 2011,
approximately 80% of revenues and 87% of EBITDA will be generated by
value added services.
In Fitch's opinion, Alestra's business
strategy to grow revenues from its corporate customers by offering value
added services helps to maintain low business risk and contributes to
stable operating performance. Corporate customers account for
approximately 95% of gross profit. Fitch expects that over the next few
years, the growth in revenues and gross profits from these customers
should be sustained by the introduction of convergent services, such as
IP telephony, security, hosting, managed services and virtual private
networks (VPNs). The company also looks to underpin its consumer service
offering with differentiated services.
The ratings incorporate Fitch's expectations that total debt to EBITDA will be below 2.5x in the long term. A sustained leverage metric above 2.5x over time would negatively affect credit quality and could result in a downgrade. For the 12 months ended Sept. 30, 2011 total debt to EBITDA and EBITDA to interest expense were 1.8x and 4.6x, respectively. Considering the effect of the ending of the AGN agreement and the devaluation of the MXN during the last quarter of 2011, Fitch estimates that on a pro forma basis the total debt to EBITDA ratio should be close to 2.2x. The ratings also factor historical generation of positive free cash flow (FCF) which totaled MXN642 million for this period. Increases in capex over the next few years can limit the company's FCF generation.
Alestra is exposed to currency mismatch between debt and cash flow and has refinancing needs by 2014. Pro forma for the ending of the AGN agreement, approximately 16% of revenues and 15% of EBITDA are denominated in USD, which is lower than when the AGN agreement was in place. As of Sept. 30, 2011, total debt amounted to US$216 million, composed of a US$10 million bank facility, US$6 million vendor financing and US$200 million senior notes due 2014. Fitch expects that at least part of the 2014 maturity will be refinanced in advance but failure to do so is likely to pressure the ratings.
Additional information is available 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Rating Global Telecoms
Companies', Sept. 16, 2010;
--'Corporate Rating Methodology', Aug.
12, 2011.
Applicable Criteria and Related Research:
Rating Global Telecoms
Companies - Sector Credit Factors
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=550205
Corporate
Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229
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