The ratings review was triggered by the company's elevated leverage due to weaker than expected cash flow performance and Moody's expectation that an improvement in leverage will only be gradual.
The company has experienced some margin compression over the past several quarters due to a combination of the challenging competitive environment, regulatory requirements to increase service quality and changes in products mix. In our view, it is unclear whether we will see a recovery in the near term.
The ratings review process will focus on prospects for Oi to sustain its current margins, deleverage within a reasonable timeframe and support its market position in an increasingly competitive environment. The review will also assess Oi's ability to comply with increasing regulatory pressures for better services and network coverage.
The date of the last Credit Rating Action was February 14, 2012.
Headquartered in the city of Rio de Janeiro, Oi is Brazil's largest incumbent local exchange carrier by number of subscribers (13 million as of June 30, 2012). It also provides wireless, broadband and Pay TV services to 45.2 million, 4.8 million and 487 thousand subscribers, respectively, as of June 30, 2012. The company reported net revenues of BRL 28.2 billion (about USD 13.9 billion) in the last twelve months ended on June 30, 2012.
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