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Fitch: CDS Signal Higher Risk for America Movil

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America Movil's USD9.6 billion bid to acquire Dutch telecom company KPN appears to have been largely anticipated by the CDS market with higher risk levels priced in for the Latin American telecom giant, according to Fitch Solutions.

CDS spreads for America Movil have widened 57% over the past quarter, notably underperforming the 9% widening observed for the broader telecom industry. The new, wider CDS trading pattern caused the CDS Implied Rating (CDS IR) for the company to drop to 'BBB', or three notches below its Fitch Issuer Default Rating (IDR).

America Movil Friday offered to buy the remaining 70% stake of KPN that it doesn't already own.

CDS contracts referencing America Movil have become increasingly liquid over the past three months, signaling growing market uncertainty over the company's credit prospects. America Movil CDS are now trading in the 19th global percentile (or with higher liquidity that 81 percent of the names in Fitch's CDS pricing universe), compared to the 57th percentile three months ago.

Fitch expects America Movil's net debt to EBITDA to remain stable during 2013 and to trend slightly downward in 2014. The debt ratings agency said that its expectations for the long-term net debt to EBITDA is approximately 1.2x. While this level is slightly higher than their previous expectation of 1.0x,Fitch still considers this level consistent with the rating category.

For the 12 months ended March 31, 2013, America Movil's total debt to EBITDA was 1.6x, while net debt to EBITDA approximated 1.4x. At March 31, 2013 total debt amounted to MXN401 billion (USD32.5 billion), of which 97% is issued in the international and domestic capital markets and approximately 90% is fixed rate. America Movil's currency risk exposure strategy is to have a net currency exposure to match the majority of its cash flow.

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