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Fitch affirms Liberty Communications of Puerto Rico ratings at ‘BB-’

Fitch Ratings has confirmed its ratings for Liberty Communications of Puerto Rico LLC (LCPR) and related companies. The global credit rating agency is somewhat concerned about the company’s debt levels and the competition it faces in Puerto Rico, but believes that despite its financial strains, LCPR’s plans will lead toward recovery and future growth.

Fitch sees a viable path forward for the company to improve its financial health and maintain a significant role in the island’s telecommunications industry. The agency noted that LCPR benefits from operating in an economically stable and well-governed region and “is a leading telecom in broadband and Pay-TV, and it is positioned at number three in the mobile segment in Puerto Rico (number two in postpaid).”

“We believe Fitch has continued to affirm its rating because it trusts that our financial performance will improve once the migration process is completed. We appreciate this trust and are confident that we will return to growth once this transition is over,” said Eduardo Díaz-Corona, general manager of Liberty Puerto Rico.

Fitch said the company’s “fixed, mobile, and [business-to-business (B2B)] segments represented 34%, 28%, and 16% of [Liberty Communications of Puerto Rico Holding’s (LCPRH)] 2023 consolidated revenue, respectively. The remaining 22% comes from residential fixed non-subscription revenue, interconnect, equipment sales, and other revenue.” It added that “T-Mobile US, Inc. (BBB+/Stable) holds the number one mobile market share on the island but does not have a significant broadband or fixed-line presence.”

The agency maintained its ratings on various financial instruments of LCPR, including its loans and notes, at ‘BB+’/‘RR2’. These are LCPR’s revolving credit facility (RCF), LCPR Loan Financing LLC’s 2028 Term Loan, and LCPR Senior Secured Financing Designated Activity Company’s 2027 and 2029 senior secured notes. 

Fitch also kept the company’s overall credit rating, or Long-Term Issuer Default Rating (IDR), at ‘BB-’. However, the agency pointed out concerns, stating, “The Negative Outlook reflects high leverage ratios, a slower pace of deleveraging than initially expected, and high competition in Puerto Rico’s mobile segment.” 

Despite these, Fitch is optimistic about LCPR’s future prospects, anticipating stronger free cash flow generation in the second half of 2024, based on the expectation that LCPR will significantly improve its performance over the next 18 months as it concludes its mobile network integration projects in Puerto Rico and the U.S. Virgin Islands. 

Its ‘BB-’ rating also takes into account that LCPR faces no significant debt repayment obligations until 2027.

Fitch’s analysis suggests that LCPR will substantially reduce its debt relative to its earnings before interest, taxes, depreciation and amortization (EBITDA) by the end of 2025. However, the agency expects the net debt-to-EBITDA ratio “to remain elevated and steady at close to 6x in 2024 due to integration costs, pressure on the mobile segment, and acquisition costs related to DISH spectrum assets in Puerto Rico and the United States Virgin Islands (USVI), as well as approximately 120,000 prepaid mobile subscribers in those markets, in exchange for an aggregate purchase price of $256 million to be paid in four annual installments.”

Fitch projects a significant improvement in LCPR’s profitability after the mobile network integration concludes, saying, “EBITDA is projected to reach close to $560 million by 2025, up from $430 million in 2023,” given that the company “won’t have to incur additional integration costs and will be able to develop its commercial initiatives.”

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