MOODY'S CREDIT rating agency has upgraded its corporate family rating on Digicel, the Caribbean mobile firm controlled by businessman Denis O'Brien, citing a faster than expected deleveraging of the business.
The agency has also changed its outlook on Digicel's debt ratings to positive from stable given expectations of "further cash flow growth from the existing subscriber base and diminishing capital requirements as the new markets mature".
The upgrade follows a 33 per cent reduction to $47.74 million (€30.35 million) in the company's pretax loss in the year to March; a 496 per cent rise in operating profit to $240.11 million; and a 38 per cent rise in sales to $1.56 billion. Net debt was $2.88 billion at year-end.
Moody's said the deleveraging was driven largely by the success of its new market launches and reduced start-up expenses in its operations in Haiti and Trinidad and Tobago.
The positive outlook on Digicel's debt ratings reflected its growing penetration of markets outside its long-standing operation in Jamaica, it said.
"The rating and the positive outlook are further supported by Digicel's leading position as the largest wireless telecommunications carrier in the Caribbean as well as its successful track record at gaining significant market share and producing solid operating results relatively quickly after new markets are launched," it added.
Leverage dropped to six times earnings before interest, tax, depreciation and amortisation (ebitda) in March, from 10 times ebitda in early 2007.
Gerald Granovsky of Moody's said the "strong trajectory of operating cash-flow growth" may enable the firm to reduce leverage to four times ebitda towards the end of the current fiscal year as it reaches a "critical mass" of subscribers.
However, Moody's still expects Digicel to consume cash to support service expansion as competition increases in Jamaica and Haiti.
"In addition, the company's term loan facility faces scheduled amortisation payments of $320 million per year, starting in the second half of calendar year 2009," Moody's said.
"The rating is also tempered by the slowing global economy and Digicel's increasing exposure to higher-risk markets, such as Haiti, for its cash-flow growth."
Moody's upgraded its rating on Digicel's $1.4 billion senior unsecured notes to Caa1 from Caa2. It raised the rating on its $450 million senior unsecured notes to B2 from B3. It does not rate a separate $1.2 billion facility.
