Analysts: Alestra's creditors unforgiving despite good results

The positive first quarter results posted by Mexican long distance operator Alestra last week will not be enough to stave off the restructuring of US$570mn debts with bondholders, analysts told BNamericas. "Operating performance was very strong. Sales and Ebitda in that quarter were higher than interest expense," said one analyst with a major international ratings agency, adding he doubted Alestra's better performance would allow the company to pay its debts. "The company has already defaulted because it couldn't pay it debts," he said, adding, "When a company defaults very rarely does it start repaying its debts." Alestra reported first quarter Ebitda of 302mn pesos, up 100% from 151mn pesos a year ago. Sales also grew 48.7% to 1.45bn pesos at the end of the quarter, compared to 973mn pesos last year. Even so the company had a 367mn-peso loss due to exchange rate losses and higher interest expenses. "Operationally they were very good. Revenues were up 48% and Ebitda was very good and the margin went up significantly," said Manuel Guerena, corporate ratings director at Standard & Poor's Mexico. "Whether or not good results benefit Alestra is anyone's guess. If the bondholders see that the company has better operational results and performance they could be more demanding (in the restructuring process)," Guerena said. Last year, Alestra chose to default on interest payments of US$35mn that were due on November 15 and payable until December 15. The payments are related to bonds worth US$570mn, maturing in 2006 and 2009. On May 30 this year, Alestra extended the deadline for its outstanding exchange and cash tender offers until June 11, with no change to the terms of the offers. The offers apply to US$270mn of 12 1/8% Senior Notes due 2006, and US$300mn of 12 5/8% Senior Notes due 2009. Alestra is offering to buy back each US$1,000 of principal amount for US$400. The company also said that about US$144mn principal amount of its outstanding 12 1/8% Senior Notes due 2006 and about US$95mn principal of its outstanding 12 5/8% Senior Notes due 2009 had been tendered as of May 30. Alestra reported total liabilities of 7.97bn pesos at the end of the first quarter, of which 6.14bn pesos were in the form of senior notes and 998mn pesos of accrued interest, expenses and other payables. Debt restructuring is probably the best and most likely outcome for Alestra and bondholders, according to Guerena, who pointed to the depressed value of telecom assets worldwide as one reason why creditors would not want to end up owning the company. "There aren't many buyers of telecoms assets today, especially in Mexico," he said. AT&T (NYSE: T) has a 49% controlling stake in Alestra. Onexa - a 50:50 joint venture between local bank BBVA Bancomer and Mexican industrial group Alfa - holds the other 51%.