Fitch Affirms Digicel's Ratings; Outlook Stable

Fitch Ratings has affirmed the pan-Caribbean operator, Digicel Group (DGL), Digicel Limited (DL) and Digicel International Finance Limited (DIFL), collectively referred as Digicel, as having a stable outlook.

Fitch says that Digicel's ratings are supported by an historical strong operating performance, its position as the leading provider of wireless services in the Caribbean (including strong market positions in Jamaica, Haiti and Trinidad and Tobago), its strong brand recognition, and an increasingly diversified revenue and cash flow stream across the Caribbean. In addition, Fitch expects the company to reduce leverage due to future EBITDA growth. Concerns regarding DGL's ratings reflect the company's high leverage and medium-term refinancing risk. Growing EBITDA from newer operations, such as Haiti and Trinidad and Tobago, should help to further diversify away its cash flow generation from Jamaica.

Digicel's operating performance continues to be strong. The company has rapidly gained leading market shares in most of the markets served by successfully executing a strategy of launching operations with extensive initial geographic coverage, good customer service, effective branding and through strong product offerings. The company has leading market share positions versus incumbent operators in most its markets. The wireless penetration level in many of Digicel's markets is high. High wireless penetration rates are the result of low fixed-line penetration, long waiting periods to get fixed-line connections, good network coverage by wireless service providers and substitution of fixed-line services by mobile.

Digicel financial strategy is focused on reducing leverage after a 2007 recapitalization which resulted in $1.4 billion of additional debt. Digicel's total indebtedness also has grown rapidly in the past few years as a result of acquisitions and necessary funding for the rapid build out of new markets. As of Dec. 31, 2007, total consolidated debt at DGL was high at US$2.8 billion and total debt to last twelve months (LTM) EBITDA, considering Haiti and Trinidad and Tobago for the twelve months, was 6.8 times (x). For the same period, total debt-to-EBITDA for DL and DIFL was 3.5x and 2.5x, respectively. Over the next few years, Fitch expects increased EBITDA generation from DGL to result in a reduction in the ratio of total debt-to-EBTIDA to near 4.0x.

For the nine months ended Dec. 31, 2007 approximately 63% of service revenues were generated either in US dollars, Euros or pegged to these currencies, while an important part of group EBITDA is still linked to the Jamaican dollar. Digicel's most important market is Jamaica, with the country accounting for approximately 1.8 million of its 6.3 million users. The acquisition by America Movil of Oceanic Digital (Oceanic), Jamaica's third wireless provider, is expected to add competition in the future as Oceanic completes its network deployment. Haiti and Trinidad and Tobago should continue growing their cash flows helping to further diversify away the company's cash generation from Jamaica.

The ratings incorporate sovereign risks including transfer and convertibility risks associated with investments in Jamaica. Fitch considers that future expected EBITDA generation from the Haitian operation will support growth in cash flow but will also add a riskier source of revenue and cash flow generation relative to the current operations due to higher sovereign risk.

DL's unsecured notes are guaranteed by all existing wholly owned subsidiaries, including Trinidad and Tobago and Haiti. The secured DIFL facility has a US$200 million revolving facility of which US$156 million is undrawn, adding flexibility to the company's liquidity position. The DIFL facility is secured by a first priority lien by all shares and assets of Digicel. In December 2007, Digicel incorporated into the restricted group the operations of Haiti and Trinidad and Tobago. To pay the debt of these two operations, which was previously structured under project finance debt, DIFL's secured credit facility was upsized by US$296 million. With these inclusions, the restricted group has all operating companies of Digicel eliminating the difference between the restricted group and the total group.

With regard to Digicel's capital structure and the associated ratings, debt at DIFL is rated one notch higher than the group's IDR reflecting its above average recovery prospects. The DL IDR reflects the increased burden the DGL subordinated notes place on the operating assets and the loss of financial flexibility. The ratings of DGL's 2015 notes incorporate their subordination to debt at DIFL and DL, as well as the subordinated notes below average recovery prospects in the event of default.

Digicel is a leading, GSM-based mobile services provider in 23 markets in the Caribbean including Jamaica, St. Lucia, St. Vincent, Aruba, Grenada, Barbados, Cayman, Curacao, Martinique, Guadeloupe, Trinidad and Tobago and Haiti among others, as well as El Salvador. Digicel's operating assets are owned by operating subsidiaries of DIFL, which in turn is a subsidiary controlled by DL. DL is a wholly owned subsidiary of DGL, an entity owned by Denis O'Brien. In addition to Digicel, Denis O'Brien owns Digicel Central America and Digicel South Pacific. For the LTM ended Dec. 31, 2007 Digicel's consolidated revenues and EBITDA were approximately US$1,480 million and US$417 million, respectively and total subscribers amounted to approximately 6.3 million.

Posted to the site on 2nd June 2008