Upon confirming Liberty Communications of Puerto Rico LLC’s recovery from the 2017 hurricanes, including the improvement of its financial profile, and the restoration of service, Fitch Ratings has affirmed all of the company’s ratings, including the Long-Term Foreign Currency Issuer Default Rating (IDR) at ‘B+’.
Fitch also affirmed the ‘BB-‘/’RR3’ ratings on the company’s secured debt, its revolving credit facility, and several other financials. Liberty’s senior secured debt is rated one notch above the IDR due to above-average recovery prospects, Fitch said.
“Liberty’s ratings continue to reflect the company’s strong business position in pay-TV and broadband services in Puerto Rico,” Fitch said.
However, the ratings agency also said, “the ratings are tempered by Liberty’s lack of geographic diversification, making it vulnerable to weak macroeconomic conditions in Puerto Rico.”
In October 2019, Liberty announced the acquisition of AT&T Inc.’s operations in Puerto Rico and the U.S. Virgin Islands. The transaction is expected to close in the fourth quarter of 2020.
Following the closing of the acquisition, Fitch expects Liberty to approximately triple in size, predicting revenue in the $1.2 billion to $1.3 billion range, with EBITDA generation in the $500 million to $550 million range over the rating horizon.
“The combined entity should benefit from economies of scale, as well as enhanced product offerings across both its mobile and fixed-line businesses, which should contribute around 2/3 and 1/3 of the company’s revenues, respectively. There are not significant overlaps in the product portfolio,” the ratings agency said.
“The combined entity boasts leading market shares in both wireless and broadband Puerto Rico. While the merger of T-Mobile and Sprint presents a formidable mobile competitor with a similar market share, neither company has a broadband presence on the island,” Fitch said.
America Movil S.A.B. de C.V.’s Claro has a significant broadband and mobile share on the island; however, AT&T’s mobile subscriber base is weighted toward post-paid, while America Movil’s is weighted towards prepaid, Fitch said.
Meanwhile, Fitch predicted that Liberty’s net debt across should rise by $1.95 billion to finance the acquisition.
“While Fitch does not rate Liberty Latin America, the rated subsidiaries are ultimately responsible for servicing the group’s consolidated debts, including the parent company’s $403 million convertible bond due 2024. While net leverage across the rated entities should remain in the 4.0x-4.5x range, consolidated LLA leverage is high for the rating category, and could result in a negative rating actions in the future,” it said.