Mexico's Iusacell Scrapes Bottom Of Junk Grade Category
Friday November 8, 6:29 pm ET
By Amy Guthrie, Of DOW JONES NEWSWIRES
MEXICO CITY -(Dow Jones)- Mexican wireless communications
operator Grupo Iusacell SA keeps falling farther out of favor with
credit analysts.
The carrier suffered two credit downgrades this week, one of which
puts the company a single notch above default status.
Standard & Poor's moved Iusacell to triple-C-plus from single-B-
plus Tuesday, citing concerns about the company's refinancing
abilities in a sector under pressure. The agency also noted the
company's recent market share losses and dwindling revenue.
Then Iusacell announced Wednesday that it is analyzing
possibilities for restructuring its $840 million debt load. To Fitch
Ratings agency, that signaled the likelihood that Iusacell will
default on its bonds.
Fitch dropped Iusacell down to its lowest rating in the high-yield
category, single-C, on Thursday.
"Depending on the terms and conditions of the restructuring,
there's a real good chance we would view it as a default," said
Daniel Kastholm, head of Latin American corporate ratings at Fitch
Ratings Inc.
"It would result in a net loss of value for investors," he added.
The restructuring also marks the distance that Verizon
Communications and Vodafone PLC , which hold 39.4% and
34.5% stakes in the company, respectively, have taken from
Iusacell.
Iusacell has $350 million of notes at the holding company level
that are due in 2006, with bi-annual interest payments of $24.9
million that kick in next year. If the company can reduce the size of
the 14.25% coupon on its bonds, then it will be more agile when
2004 rolls around.
In 2004, Iusacell has $150 million in bonds at the operating
company level coming due in July, plus a $90 million payment on
a $267 million syndicated bank loan.
Both bonds have already depreciated significantly in secondary
market trading, with the notes due in 2004 having dropped to
$0.50 on the dollar from $0.60 on the dollar in September. The
2006 notes are trading around $0.30 on the dollar.
While equity investors have largely written the company off,
Kastholm still sees value in Iusacell.
"Is it a viable business? Yes. Is it a company that can support the
level of debt it has? No," he said.
Iusacell generated 1.35 billion pesos ($1=MXN10.3250) in
earnings before interest, taxes, depreciation and amortization, or
EBITDA, in the first nine months of the year. That figure is down
38% from the MXN2.16 billion the company generated in the same
period of 2001.
The company had 2.18 million subscribers at the end of the third
quarter, making it Mexico's third-largest carrier. Telefonica Moviles
SA's client base rose to more than 2.2 million at the end of
September due to its acquisition of local carrier Pegaso, putting it
into the country's No. 2 spot.
Analysts are concerned that the entry of Telefonica - which plans
to spend $ 2.5 billion in Mexico over three years - will chip away at
Iusacell's market share.
Prices could also come down as America Movil SA , which has
close to 80% of the market, faces off with its new, deep-pocketed
competitor.
Company Website iusacell.com.mx
- By Amy Guthrie, Dow Jones Newswires; (5255) 5080-3453;
amy.guthrie@dowjones.com |
