Moody’s has decided to enhance Digicel’s credit rating in light of recent financial improvements, which included a return to $14 million (€12.5 million) free cash generation in the most recent fiscal year, following a large-scale debt restructuring completed in January. Although Moody’s lifted its rating by one level to B3, Digicel still maintains a “junk” status, six steps into it and 15 levels beneath the Aaa rating.
Moody’s indicated that the upgrade is a reflection of the company’s enhanced liquidity and revamping of capital structure post-debt restructuring. The ratings firm also indicated expectations for Digicel to maintain capital expenditure and deliver solid operating profit margins drawing strength from its firm competitive position across the Caribbean and Central America.
January saw Digicel founder, Denis O’Brien, losing control to bond investors led by Contrarian Capital Management, PGIM, and GoldenTree Asset Management, who traded $1.7 billion debt for a 90 per cent stake. This marked the company’s third debt restructuring in five years, eventually bringing its gross debt down to an estimated $3.1 billion from its peak of over $7 billion in early 2019.
O’Brien might eventually hold up to 20 per cent of the company if the warrants provided as a reward during restructuring get triggered; this will occur if the company attains a specific equity value with persistent earnings growth. Service revenue rose by 5 percent to $1.8 billion and reported earnings and revenues both went up by 3 per cent. This pattern has extended into this year as well, with bondholders’ briefings on results expecting Ebitda to grow between 3 and 6 per cent in the current quarter,sources have said.
Moody’s continuous low judgement on Digicel is partially a reflection of its establishment in developing nations with a track-record of volatility and susceptibility to harsh weather conditions, and its risk of currency value drops against the US dollar. Haiti constitutes for roughly 18 percent of Digicel’s group profits; recently, it has faced considerable socio-political unrest and financial fluctuations. As time progresses, Digicel’s involvement with nations having a low rating could further exert pressure on their rating, Moody’s cautioned. “The company’s restructuring process has essentially transformed Digicel’s interest expenditure and liquid capital profile, providing it with financial agility. However, to enhance the rating, there would be a need to see and implement the company’s operational plan,” Moody’s stated.