Moody's rates PR Wireless' add-on loan at B2, changes outlook to negative

Thursday, June 16, 2011

Moody's has assigned its B2 rating to PR Wireless' proposed US$71.5mn add-on to its US$160mn outstanding senior secured bank credit facility due in 2016, the ratings agency said in a report.

PR Wireless is the holding company of Open Mobile, the fifth largest wireless service provider in Puerto Rico.

Moody's also assigned a B2 probability of default rating (PDR) to the add-on credit facility. The proceeds of the add-on, together with US$29.5mn in cash, will be used mostly to reduce preferred and common equity.

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The ratings outlook was changed to negative from stable because the proposed transaction will include a US$29.5mn reduction in PR Wireless' available cash, negatively impacting the company's liquidity position for the next 12 months.

This might limit operating flexibility, which is particularly worrisome in a highly competitive telecoms market such as Puerto Rico's.

Moody's believes the company's expected Ebitda for the remainder of 2011 and full 2012 may not be enough to cover cash outflows during the period.

But the company's debt maturity profile is still relatively comfortable since the majority of total debt consists of loans that mature in 2016.

Open Mobile's B2 ratings are principally based on its small revenue size relative to its domestic and global peers, as well as on its small market share in Puerto Rico, estimated by the company at 11% in 2010. Competition in the local market will remain intense or increase, especially due to expanded service offerings by AT&T and América Móvil.

Solid operating margins, although declining, and a growing subscriber base support the ratings.