The U.S.-based Moody’s downgraded its outlook on Digicel from stable to negative in a recently released report from the credit ratings agency.
In the same report, Moody’s affirmed Digicel’s previous probability of defaulting, as well as the ratings of its unsecured bonds and its secured bank credit facility.
Moody’s stated that the reason for downgrading its outlook on Digicel is because of the telecoms company’s high debt levels.
According to the report, Digicel has gross debt that is nearly seven times as much as its earnings before income tax, depreciation, and amortization (EBITDA). Digicel has several looming bond maturations, including a US$2 billion bond in 2020 and a US$1.3 billion bond in 2021.
“The negative outlook also considers that the company’s currently weak financial profile is constraining the group’s refinancing option,” Moody’s stated.
Moody’s said Digicel’s ratings could be downgraded if the company does not reduce its debt-to-EBITDA ratio below 600 percent within the next 12 months, or if the company does not refinance its large debt maturities with anticipation at least 12-18 months before maturity. A weakening in the company’s liquidity profile would also trigger a downgrade, Moody’s added.
On the other hand, Digicel’s ratings could be upgraded if the company showed continued restraint with respect to dividends and if leverage were on track to fall below 400 percent debt-to-EBITDA, the credit rating agency added.
In the immediate term, Digicel has no large debt obligations, only facing about US$11 million in bond maturities in 2019, according to the report.
Digicel is also bolstering its liquidity by selling and leasing back a number of cell towers it has throughout the region, Moody’s stated.
Digicel had a cash balance of around US$155 million as of March 31, as well as US$54 million available under its credit facility, Moody’s explained.
“We anticipate that free cash flow will improve and at least reach break-even in FY19, helped by a reduction in capital spending,” Moody’s stated.
Moody’s also stated that its bond rating affirmations for Digicel reflect the telecoms provider’s geographic diversification, strong margins, and leading market positions – Digicel holds the number one market position in wireless telecommunications in 22 of its 31 markets.
Additionally, Digicel has expanded its service offering to diversify revenues across business solutions, cable TV and broadband and media distribution where growth rates have been higher than in mobile, Moody’s noted.
However, Moody’s also stated that its outlook on the company is influenced by its large presence in emerging markets with a history of instability and exposure to adverse weather events – the company was heavily impacted by last year’s hurricane season – as well as its presence in jurisdictions with risk of currency depreciation against the U.S. dollar.