At the same time, they lowered the senior unsecured debt rating to 'B-' from 'B'. The recovery rating on the senior unsecured debt remains '5', indicating their expectation for modest (10%-30%) recovery in the event of payment default.
"The downgrade of NII follows the company's weak operating and financial results in the second quarter of 2012, which were below our expectations, and its lower guidance for full year 2012," said Standard & Poor's credit analyst Allyn Arden.
During the quarter, total revenue and EBITDA declined 15% and 56%, respectively, from the prior-year period. Increased competitive pressures, especially in Brazil, and depreciating local currencies caused NII's ARPU to fall by over 25% compared to the prior-year period. The Brazilian real and Mexican peso declined 23% and 15%, respectively, from the year-ago period, relative to the U.S. dollar.
These factors, coupled with expenses related to the deployment of 3G services in Mexico and Brazil contributed to the sharp decline in EBITDA.
The outlook is stable though, and reflects S&P's expectation that EBITDA will improve modestly in 2013 from substantially lower levels in 2012 as 3G network expenses moderate and that leverage will be in the low- to mid-5x area. However they said that they could lower the rating if competitive pressures accelerate and adverse currency movements result in sharper declines in ARPU and EBITDA, resulting in leverage rising above 6x. These factors could result also in a revision of business risk assessment to "vulnerable" from "weak."
Conversely, S&P said it could raise the ratings if the deployment of 3G services in its markets results in churn to improvement and ARPU stabilization such that leverage is in the 4x area or lower on a sustained basis.
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