Moody's Upgrades Telefonica Celular Del Paraguay's Debt Ratings

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The debt ratings agency Moody's has upgraded Telefonica Celular del Paraguay (Telecel)'s corporate family rating to Ba3 from (P)B1. Simultaneously Moody's upgraded the company's senior unsecured global notes due 2022 to Ba3 from (P)B1. The ratings outlook is stable.

The ratings upgrade was based on Paraguay's sovereign rating upgrade to Ba3 from B1 on January 8, 2013 as Telecel ratings had been constrained by Paraguay's rating. ­The rating on Telecel and its notes is supported by the company's status as the top mobile operator in the country, with an estimated 56% market share; track record of strong and resilient growth despite changes in government; and solid credit profile driven by low adjusted leverage of 0.8x and high adjusted EBITDA margin during the twelve months ending September 30, 2012.

The ratings are constrained by the company's modest revenue size (US$617 million in LTM) as compared to global peers; a low amount of free cash flow generation after capex and dividends; a high foreign exchange risk related to USD debt and USD capex; and the competitive nature of the Paraguayan telecom market, which places negative pressure on revenue growth and margins. The Ba3 ratings on Telecel and its notes now reflect the company's intrinsic credit quality and are no longer constrained by Paraguay's sovereign rating.

The stable rating outlook reflects Moody's expectation that Telecel will grow at high single digit rates in the next 3 years despite the competitive mobile market given its solid market share and long operating track record; the stable outlook also assumes that the company will be able to sustain current operating and credit metrics.

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