Fitch Affirms Bite Latvia's Debt ratings, with Stable Outlook
Published on: 1st May 2012
Note -- this news article is more than a year old.
Fitch Ratings has affirmed UAB Bite Lietuva's (Bite) Long term Issuer Default Rating (IDR) at 'B '. The Outlook on the Long term IDR is Stable.
Fitch said that Bite's ratings are supported by the continued cash flow generation improvements in its Latvian operations and the relatively stable underlying performance, excluding regulatory cuts, in its Lithuanian operations. LTM EBITDA in Latvia grew to EUR3.8m in Q112, from -EUR1.9m in Q111 and -EUR10.2m in Q110. The company continues to add high numbers of postpaid subscribers in Latvia, which gives Fitch comfort that the company will not return to generating negative EBITDA in the country.
Although mobile service revenue continues to decline in Lithuania, this is largely attributed to regulatory cuts, which should begin to ease after 2012. While these revenue declines are causing overall EBITDA to decline in Lithuania, the growth in Latvia is more than compensating for the Lithuanian decline. Overall group EBITDA has grown to EUR44.7m in Q112 from EUR39.2m in Q111 and EUR36m in Q110.
The growth in EBITDA has helped the company to continually improve its leverage, with net debt:EBITDA standing at 4.2x in Q112, from 5.1x in Q111 and 5.9x in Q110. Fitch believes this trend will continue to improve, although a potential LTE network rollout at some point over the next few years could impact free cash flow generation and slow further leverage improvements.
Bite competes with two much larger, international operators. If either of these competitors were to engage in disruptive market practices, Bite might not have the financial flexibility to match such moves. This size differential constrains the rating to a certain extent.
Fitch would consider a negative rating action if the company returns to a negative FCF generating position, although temporary spikes related to capex would be tolerated. A negative rating action could also occur if FFO adjusted net leverage approaches 5.5x or if the company does not make headway into refinancing its 2014 bond maturity.
Conversely, the refinancing of the 2014 maturity could allow for positive rating action to be taken at some point in the future. As well as the refinancing, further improvements in the Latvian operations together with stable Lithuanian operating trends would be required before a positive rating action is envisaged. If Latvian margins begin to approach 20% and Fitch believes that the operations in the country are firmly established, then a positive rating action could be taken.