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Moody's puts NII Holdings' ratings under review for possible upgrade

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Moody's Investors Service has placed its ratings for NII Holdings which operates Nextel branded networks in Latin America under review for possible upgrade.

The review is prompted by the potential for improving credit metrics and a strengthening of the Company's capital structure driven by its strong operating performance and a pending cash infusion by Grupo Televisa, should NII be successful in winning certain amounts of spectrum in partnership with Grupo Televisa in the Mexican auctions. In addition, Moody's believes that NII's competitive position would solidify if it acquires meaningful spectrum licenses in the upcoming auctions in Mexico and Brazil, which are its largest markets.

The review will focus on NII's spectrum acquisition strategy and success in Mexico and Brazil, its subsequent market expansion strategy and 3G network build-out plans, and the consummation of Grupo Televisa's equity investment. Equally important will be our assessment of the sustainability of the Company's operating trends amid growing competition and still challenging economic conditions in all of its markets. The rating agency will then assess the impact of these factors on NII's future credit metrics.

Moody's notes that Grupo Televisa has agreed to invest $1.44 billion in cash for an initial 30% equity stake in NII's Mexican subsidiary to jointly fund the 3G spectrum purchases and network build. The investment is contingent upon the consortium (Nextel Mexico and Grupo Televisa) winning rights to use specified amounts of spectrum in the auction.

While Moody's recognizes that NII's credit metrics and liquidity are consistent with higher rated Telecom peers and the Company has delivered strong operating results, including robust subscriber growth and low subscriber churn, its ratings have been constrained by the uncertainties surrounding the spectrum auctions, the Company's build-out strategies, and the potential for significant increases in debt to fund additional expansion. Moody's expects NII's ratings to be raised by one notch if the Company's spectrum acquisitions enhance its competitive position in Mexico and if, as expected, it continues to grow revenues at a healthy rate while preserving financial flexibility.

Specifically, Moody's will evaluate the likelihood that NII could maintain leverage of less than 3.0x (Moody's adjusted Debt-to-EBITDA) and strong liquidity sufficient to fund the anticipated free cash flow deficit due to its large planned and expected capital expenditure program.

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Tags: televisa  nextel  nii holdings  latin america  grupo televisa  3g network  Mexico