Moody’s downgrades Digicel

One of the world’s leading rating agencies, Moody’s, has downgraded Digicel’s securities and given the Group a “negative” outlook.

Moody’s downgraded Digicel from B3 to Caa2. A downgrade is a negative change in the rating of a security. This situation occurs when analysts feel that the future prospects for the security have weakened from the original recommendation usually due to a fundamental and material change in the company’s operations or future outlook.

Moody’s Investors Service provides international financial research on bonds issued by commercial and government entities. Source: Wikipedia

According to Nasdaq, obligations rated Caa2 are judged to be of poor standing and are subject to very high credit risk.

A downgrade is a negative change in the rating of a security.

With Digicel’s liquidity coming under pressure and its debt continuing to increase, Moody’s felt its assessment was appropriate.

“Digicel has continued to report declining earnings, negative free cash flow and increasing leverage. A return to sustained revenue and earnings growth has not materialised and any improvement to the company’s financial profile will only be very gradual, resulting in Digicel still facing high refining risk,” said Moody’s.

Digicel has to make good on a debt maturity that sees US$1.3 billion worth of bonds coming due in April 2021 noted the rating agency.

Digicel’s headquarters located in downtown Kingston, Jamaica (Photo: Don Waysome)

Last summer Moody’s indicated that Digicel was heading in the wrong direction, when it declared, “the change in outlook to negative reflects the company’s ongoing high leverage and the reduced runway available to the company to simultaneously improve its fundamental credit profile and address its large looming debt maturities.”

Digicel responded with a statement which read: “ Moody’s has maintained our credit rating and the business is committed to reducing leverage by one turn over the fiscal year through a combination of organic and inorganic means.”

A year on, Moody’s does not share that view.  In its assessment of Digicel’s immediate future, it declared, “The risk of Digicel making another distressed exchange or debt restructuring within the next 12-18 months has increased considering the still weak operating results and liquidity of the Group.”

Is this downgrade by Moody’s warranted?

Do tell us at BUZZ.