Fitch Ratings has affirmed
Fitch has also affirmed LCPR's Long-Term Issuer Default Rating (IDR) at 'BB-'. The Rating Outlook has been revised to Negative from Stable.
The Negative Outlook reflects Fitch's expectation that net leverage could remain elevated given high competition in
Key Rating Drivers
Elevated Leverage: LCPRH's EBITDA weakened in 2022 due to cost pressures, integration expensesand lower ARPU. Some of this was due to the effects of Hurricane Fiona passing through
Fitch estimates a modest decline in net leverage to 5.3x in 2023 from about 5.5x projected in 2022 and 4.9x in 2021. Absent a more robust EBITDA recovery and debt reduction, leverage will likely remain elevated and above 5x.
Mixed Operating Environment Trends: LCPRH benefits from a
Strong Market Position: LCPRH is a large telecom operator with strong market shares in wireless at number two, broadband at number one and Pay-TV at number one in
LLA Linkages:
A deterioration of the financial profile of one of the credit pools, or the group more broadly, could place more financial burdens on LCPRH, given LLA's acquisitive nature and its willingness to move cash around for M&A. LCPR's cash declined to
Secured Instrument Recovery Prospects: The instrument ratings reflect Fitch's approach to Recovery Ratings under its Corporate Recovery Ratings and Instrument Ratings Criteria. Secured debt ratings of 'BB+' incorporate collateral support included in the transaction structure. The instruments qualify as 'Category 2 First-Lien' with an'RR2' and a two-notch uplift from LCPR's IDR.
LCPR has an ESG Relevance Score of '4' for Exposure to Environmental Impacts to due to its operations in a hurricane-prone region, which has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors.
LCPR has an ESG Relevance Score of '4' for Financial Transparency as LLA's financial disclosures and financial management strategy are somewhat opaque, relative to peers in the region, which has a negative impact on the credit profile, and is relevant to the rating in conjunction with other factors.
Derivation Summary
LCPRH is smaller and with less geographic diversification compared with CWC while it operates in a much safer jurisdiction. LCPR's ratings have a Negative Outlook as its net leverage could remain above 5x given increased competition and various cost pressures, compared with expectations of C&W's net leverage below 4.5x.
Compared to
Compared with
LLA's revenue base has more
Key Assumptions
Fitch's Key Assumptions Within The Rating Case for the Issuer Include:
Fixed revenue generating units (RGUs) grow about 2% overall in 2023 and slowdown in 2024, mainly due to broadband penetration offset declining Pay-Tv and telephone over the medium term;
Blended fixed ARPU declines about 1% in 2023 and increases marginally in 2024;
Flat to marginally positive mobile RGUs, with ARPUs declining in 2023 on continued promotional activity and flat to marginally positive in 2024;
Blended EBITDA margins of around 32% in the medium term, equivalent to around
Capex of around
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
Fitch does not anticipate an upgrade in the near term, given the company's and the larger group's elevated leverage profiles;
Longer-term positive actions are possible if total debt/EBITDA and net debt/EBITDA are sustained below 4.50x and 4.25x, respectively, at LCPR and LLA.
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
A meaningful contraction of mobile or fixed market share or increased competition that leads to lower cash flow generation;
Total debt/EBITDA and net debt/EBITDA at LCPR sustained above 5.25x and 5.00x, respectively, due to organic cash flow deterioration or M&A;
While the three credit pools are legally separate, net debt/EBITDA at LLA sustained above 5.0x could result in negative rating actions for one or more entities in the group.
Best/Worst Case Rating Scenario
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
Liquidity and Debt Structure
Adequate Liquidity: The company does not face any large debt maturities until 2027 when
Fitch expects LLA will manage LCPRH similarly to its other subsidiaries, with excess cash used for shareholder distributions and M&A. Although credit pools are legally separate, LLA has a history of moving cash around the group for investments and acquisitions. This approach allows subsidiaries to pursue growth opportunities, however, it limits subsidiary prospects for material deleveraging. LLA's 2022 consolidated leverage was 4.4x on a net basis and 4.9x on a gross basis based on operating EBITDA of
Issuer Profile
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
LCPR has an ESG Relevance Score of '4' for Exposure to Environmental Impacts to due to its operations in a hurricane-prone region, which has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors.
LCPR has an ESG Relevance Score of '4' for Financial Transparency as LLA's financial disclosures and financial management strategy are somewhat opaque, relative to peers in the region, which has a negative impact on the credit profile, and is relevant to the rating in conjunction with other factors.
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
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