Digicel credit rating upgraded on improved finances after restructuring

The credit rating of mobile phone network Digicel has been upgraded by Moody’s on the back of improvement in its finances, including a return to generating $14 million (€12.5 million) of free cash in its latest financial year, after a massive debt restructuring that was completed in January.
Moody’s raised its rating on Digicel by one level last week to B3, though the new grade remains six levels deep in what is referred to as “junk” status – and 15 rungs below its top-notch Aaa rating.
“The upgrade reflects the company’s improved liquidity and capital structure following the company’s debt restructuring process,” Moody’s said.
The ratings agency added that it expects the group will keep capital expenditure in check and post solid operating profit margins on the back of its strong competitive position in markets across the Caribbean and Central America.
Digicel founder Denis O’Brien lost control of the company in January as a group of bond investors, led by PGIM, Contrarian Capital Management, and GoldenTree Asset Management, swapped $1.7 billion of debt for a 90 per cent stake in the group.
It marked the group’s third restructuring in five years and resulted in its gross debt falling to an estimated $3.1 billion. Total borrowings had peaked at more than $7 billion in early 2019.
Mr O’Brien may ultimately end up with as much as 20 per cent of the company should warrants attached as an incentive to the restructuring end up being triggered. That will happen if the group reaches a certain equity value with sustained earnings growth.
The Irish Times reported earlier this month that Digicel’s underlying earnings before interest, tax, depreciation and amortisation (Ebitda) rose 7 per cent to $766 million in its financial year to March, following several years of almost uninterrupted earnings decline.
Service revenues for the period increased by 5 per cent on an underlying basis to $1.8 billion. Reported earnings and revenues both rose 3 per cent. The trend has continued into this year, with bondholders briefed on the results being advised that Ebitda should grow by between 3 and 6 per cent in the current quarter, sources said at the time.
Moody’s says its ongoing low rating on Digicel partly reflects its “presence in emerging markets with a history of instability and exposure to adverse weather events, and its exposure to the risk of currency depreciation against the US dollar”.
Haiti, which accounts for around 18 per cent of group revenues, has been the subject of significant social unrest and political and economic volatility in recent times. “Longer term, the company’s exposure to low-rated countries could also put pressure on Digicel’s rating,” Moody’s warned.
“The restructuring process significantly changed Digicel’s interest expenses and liquidity profile, providing the company with financial flexibility. Nonetheless, rating progression would require visibility and execution over the company’s operating plan,” it added.