Reuters logo
Fitch Assigns First-Time 'B-' IDR to Trilogy; Outlook Stable
April 19, 2017 / 2:16 PM / 7 months ago

Fitch Assigns First-Time 'B-' IDR to Trilogy; Outlook Stable

(The following statement was released by the rating agency) CHICAGO, April 19 (Fitch) Fitch Ratings has assigned a first-time Issuer Default Rating (IDR) of 'B-' to Trilogy International Partners, LLC (Trilogy) and a 'B/RR3' to the company's proposed $345 million senior secured notes due 2022. The Rating Outlook is Stable. Proceeds from the proposed offering along with cash on hand will be used to fund the redemption of the $450 million senior secured notes. The proposed notes will be guaranteed on a senior secured basis by certain of Trilogy's existing and future direct wholly-owned domestic subsidiaries. The notes will be secured by first-priority security interests in all of the equity interests of Trilogy in the guarantors and Trilogy's equity interests in the co-issuer along with a pledge of any intercompany indebtedness owed to Trilogy or any guarantor by 2degrees or its subsidiaries or any indebtedness owed to the company by any minority shareholder in 2degrees. The Recovery Rating considers the structural subordination to the local operating subsidiaries debt and a going concern approach to determine cash flow multiples and post-default cash flow for each opco to determine the estimated residual value available for the senior secured holdco notes. Fitch also uses a recovery cap, based on an analysis weighted by the economic value realized from Trilogy's existing markets of operation in Bolivia and New Zealand per Fitch's 'Country Specific Treatment of Recovery Ratings' criteria. The criteria limits the upward notching of issue ratings from Issuer Default Ratings (IDRs) to reflect recovery expectations for entities based on the impact of country-specific factors. The criterion provides a cap of 'RR4' on Bolivia and 'RR2' on New Zealand based on country groupings leading to a combined weighted cap of 'RR3', thus constraining the Recovery Ratings for the senior secured notes to 'RR3'. KEY RATING DRIVERS Alignvest Equity Transaction Improves Liquidity Trilogy's 'B-' IDR reflects the Alignvest Acquisition Corp. (Alignvest) transaction and subsequent $199 million cash infusion that has resolved the immediate liquidity concerns. Consequently, Trilogy is expected to refinance the higher coupon holdco notes through the proposed issuance and pay down debt, thus materially decreasing interest costs. With relatively stable operating fundamentals, Fitch believes Trilogy should be able to increase cash flows over the rating horizon. Cash flow growth will be driven by increasing data usage, postpaid subscribers and bundled plans particularly due to New Zealand that should contribute an increasingly larger proportion of consolidated EBITDA over time. In Bolivia, NuevaTel must continue to sustain the recent operating performance improvement in the second half of 2016 due to expanded LTE coverage that has stabilized the subscriber base, reduced churn and increased data ARPU. These strengths are balanced against the opco reliance on upstreaming sufficient funding to meet holdco cash requirements, its smaller scale and market position as a third operator relative to larger competitors in Bolivia and New Zealand, and the country risk operating in Bolivia. Opco Reliance on Debt Service Trilogy is dependent upon distributions including dividends, inter-company loan repayment, inter-company loan interest and management fees from its two operating companies in Bolivia and New Zealand to service its notes at the holdco level. NuevaTel (Bolivian operator) has historically been a cash contributor for Trilogy and has paid dividends of about $244 million since 2008. 2degrees (New Zealand) has not and is not expected, at least in the short term, to pay dividends, although a shareholder loan of $31 million provides an expected path to upstream cash during the next two years. There is a cash leakage on upstreaming dividends on account of taxes and minority interests at the operating company level for both subsidiaries. Stable Operations in Both Markets Trilogy's operations reside in markets that have relatively favorable fundamentals, but Bolivia has more limited economic, demographic and industry characteristics. Both 2degrees in New Zealand and NuevaTel in Bolivia operate in a stable three-player industry with each operating subsidiary possessing roughly 23% market share by connections in each market with substantial exposure to the prepaid segment in both. The company has ample spectrum rights in both markets and expectations for growth from increasing data consumption patterns, bundling opportunities from cross-selling broadband solutions, and traction in higher margin post-paid plans that leverages the past LTE investments. Fitch expects 2degrees should gain material postpaid share given its challenger position and low market share in the mid-teens. Further LTE investment is planned in both markets that will keep capital intensity in the upper teen range as a percent of service revenues during the next two years. Transaction Reduces Leverage Trilogy had core telecom leverage of 4.3x at the end of 2016 that is adjusted for handset-related financial services (FS) operations and minority dividend distributions. Pro forma for the Alignvest transaction and expected debt reduction, Fitch estimates core telecom leverage of mid-3x. For 2017, Fitch anticipates leverage could moderate further depending on the extent of additional debt at the opco level and any potential M&A activity. Trilogy has indicated that with an improved capital structure, the company will have the opportunity to pursue various strategic acquisitions with expected leverage trending in the mid 3x range over the longer-term. KEY ASSUMPTIONS Fitch's key assumptions within our rating case for the issuer in 2017 and beyond include: --Revenue growth momentum to continue into 2017 leveraging recent network investments in New Zealand to drive consolidated growth in the upper-single digit range. Consolidated revenue growth moderates during the long term, to the mid-single digit range supported by growing post-paid subscriber base and growth in data consumption; --EBITDA margins to increase by at least 100 basis points over the forecast as a result of higher ARPUs from increasing share of post-paid in overall subscriber base, growth in data consumption and bundling of products and services; --Refinancing of New Zealand syndicated loan facility assumed during 2017; --Dividend of C$0.02 per share with roughly half of dividends assumed to be in stock and dividend payments funded by cash at TIP Inc.; --Capex intensity as a percent of service revenues in the upper teen range during the next two years, declining thereafter; --Annual operating cash costs of approximately $40 million required for Trilogy at the holdco level. RATING SENSITIVITIES Future developments that may, individually or collectively, lead to a positive rating action include: --A material improvement in Trilogy's operating profile due to increased EBITDA generation from both the New Zealand and Bolivian operating subsidiaries; --Sustain recent improvements in liquidity with demonstrated ability to upstream distributions from both New Zealand and Bolivian operating subsidiaries; --Trilogy generating positive sustained free cash flows on a consolidated basis. Negative: Future developments that may, individually or collectively, lead to negative rating include: --Insufficient liquidity (defined as maintaining cash for at least one year of interest payments at Trilogy) due to an inability or material limitations with upstreaming cash from its operating subsidiaries. This could include any unforeseen impediment (regulatory or of other nature) in upstreaming cash up to parent level; --Deterioration in operating profile of one or both operating subsidiaries, including increase in subscriber churn, ARPU pressure, loss of market share and decline in operating margins; --Lack of ability to generate positive consolidated free cash flows on a sustained basis; --A material change in the Bolivian country risk including regulatory, political, economic or foreign currency that adversely affects operating cash flows; --Management's adoption of an aggressive financial strategy or M&A activity that materially affects holdco debt servicing costs and consolidated leverage. LIQUIDITY Trilogy has resolved the liquidity concerns that were raised by the company's auditors in late 2016 indicating that operating cash flow may not be sufficient to make scheduled interest payments and raised substantial doubt about the company's ability to continue as a going concern. Fitch expects proceeds from this proposed transaction along with approximately $105 million in cash from Alignvest will be used to reduce annual interest costs by approximately $30 million. Consequently, Fitch estimates annual cash requirements at Trilogy at roughly $40 million. Additional cash from the Alignvest transaction will pay transaction fees and interest costs related to the senior secured notes (13.375% and proposed). Fitch views liquidity as adequate and anticipates cash levels at Trilogy International Partners, LLC of roughly $40 million for end of 2017 which represents roughly one year of cash requirements at the holding company level. Consolidated cash levels for Trilogy are expected to be approximately $70 million. Through 2018, Fitch expects dividend contributions and management fees from Bolivia combined with the New Zealand intercompany loan repayment of $31 million to replenish holdco liquidity. Following the notes refinancing, both 2degrees and NuevaTel operations have local facilities agreements that are either coming due or have amortization payments, respectively. In New Zealand, 2degrees has a $200 million NZD (US$138 million based on exchange rates as of Dec. 31, 2016) senior facilities agreement that matures in June 2018 consisting of $185 million NZD facility and $15 million NZD working capital facility. As of Dec. 31, 2016, the $185 million NZD facility was fully drawn and $7.4 million NZD was drawn on the working capital facility. The main covenants includes a senior leverage ratio of not greater than 3 times(x)(1.6x as of Dec. 31, 2016) and a leverage ratio of 2x immediately following a permitted dividend distribution. Fitch expects 2degrees will extend and amend the facilities in the coming months to provide increased flexibility. In Bolivia, NuevaTel has a $25 million Bolivian Syndicated Loan that matures in December 2021. The facility amortizes by 10% the first two years and increases to 26.7% the remaining three years. NuevaTel has sufficient cushion within its financial covenants and is subject to a profits test for dividend distributions. Fitch anticipates NuevaTel could amend its loan facility in the future to provide greater flexibility and eliminate amortization requirements. 2degrees and NuevaTel also have spectrum related payments over the rating horizon. 2degrees has approximately U.S. $8 million per year through 2019 related to a long-term payable to the government of New Zealand for the acquisition of it 700 MHz license. In September 2016, Trilogy's request to defer the December 2016 annual payment until March 2017 due to the above liquidity concerns was approved. NuevaTel's 30 MHz license in the 1900 MHz band expires in November 2019. Fitch believes a reasonable proxy for this future obligation was the $23 million NuevaTel paid in 2014 for 30 MHz of AWS spectrum. Contact: Primary Analyst William Densmore Senior Director +1-312-368-3125 Fitch Ratings, Inc. 70 W. Madison Street Chicago, IL 60602 Secondary Analyst Salonie Sehgal Associate Director +1-312-368-3137 Committee Chairperson David Peterson Senior Director +1-312-368-3177 Summary of Financial Statement Adjustments - Financial statement adjustments that depart materially from those contained in the published financial statements of the relevant rated entity or obligor are disclosed below: --Adjustments for factoring and outstanding handset receivables related to FS operations that Fitch brought back on balance sheet (assessed using a debt-to-equity ratio of 1x). This resulted in a reduction of the level of debt used in calculating our leverage metrics by approximately $15 million. --In calculating our leverage metrics, a reduction in EBITDA due to $7 million dividend to minorities. Media Relations: Alyssa Castelli, New York, Tel: +1 (212) 908 0540, Email: alyssa.castelli@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Country-Specific Treatment of Recovery Ratings (pub. 18 Oct 2016) here Criteria for Rating Non-Financial Corporates (pub. 10 Mar 2017) here Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers (pub. 21 Nov 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below