Fitch Ratings Puts Digicel Debt Ratings As Stable

Fitch Ratings has confirmed that the debt ratings outlook for pan-Caribbean operator, Digicel Group is Stable. Fitch said that Digicel's ratings are supported by a historically strong operating performance, its position as the leading provider of wireless services in the Caribbean (including strong market positions in Jamaica, Haiti and Trinidad & Tobago), strong brand recognition, and an increasingly diversified revenue and cash flow stream across the Caribbean.

The ratings also incorporates lower capital expenditure requirements over the next few years and management initiatives of cost controls in the face of the global economic environment.

Concerns regarding Digicel's ratings reflect the company's high leverage, medium term refinancing risk and the effect the global economic environment may have in the Caribbean economies and tourism in particular. Growing EBITDA from newer operations, such as Haiti and Trinidad and Tobago, has helped to further diversify away its cash flow generation from Jamaica. Proceeds from the issuance will be used to acquire an equity stake close to 40% in sister company Digicel Holdings (Central America) Limited (DHCAL) and for general corporate uses. The new notes will rank pari passu with the existing DL senior notes due 2012.

Digicel's operating performance continues to be strong. The company maintains leading market shares in most of the markets served, holding the first or second position by market share as a result of successfully executing a strategy of launching operations with extensive initial geographic coverage, good customer service, effective branding and strong product offerings. Wireless penetration in Digicel's markets varies widely from 8% to 135% with a weighted average of approximately 65%. 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.

Going forward Fitch expects capital expenditures to decline and stabilize over the next few years, resulting in positive free cash flow which should be used to pay debt maturities as they amortize. Lower debt levels and stable to growing EBITDA should strengthen Digicel's capital structure and credit profile absent any increased indebtedness. Digicel's total debt has grown rapidly in the past few years as a result of acquisitions, necessary funding for the rapid build out of new markets and the 2007 US$1.4 billion recapitalization. Proforma the new issuance and considering debt as of Dec. 31, 2008, total consolidated debt at DGL should approximate to US$3.3 billion and total proforma debt to last twelve months EBITDA, may approach to 4.9 times (x). For the same period, total debt to EBITDA for DL and DIFL was 2.8x and 1.5x, respectively.

Revenue generation in U.S. dollars mitigates currency risk associated with devaluation of local currency and foreign currency denominated debt. Digicel's most important markets in terms of revenues and cash flow generation are Jamaica, Haiti and Trinidad & Tobago. For the nine months ended Dec. 31, 2008 approximately 66% of revenues were generated either in USD, Euros or pegged to these currencies. About 5% of Digicel consolidated revenues are generated by international roaming services in USD. Despite this, the ratings incorporate sovereign risks including transfer and convertibility risks associated with investments in Jamaica, Haiti and Trinidad & Tobago which are Digicel's most important markets.

Digicel is a GSM-based mobile services provider in 24 markets in the Caribbean including Jamaica, St. Lucia, St. Vincent, Aruba, Grenada, Barbados, Cayman, Curacao, Martinique, Guadeloupe, Trinidad & Tobago and Haiti among others, as well as El Salvador.

For the 12 months ended Dec. 31, 2008, Digicel's consolidated revenues and EBITDA were approximately US$1,735 million and US$661 million, respectively, and total subscribers amounted to approximately 7.1 million.

Posted to the site on 3rd March 2009