S&P rates Innova notes B+

Standard & Poor's assigned a B+ rating to Innova S de RL de CV's proposed $200 million senior unsecured notes due 2010 or 2013 and confirmed its existing ratings. The outlook is positive.

S&P said Innova's ratings reflect strong competition from cable operators, some of which are undertaking digital upgrades; financial risk from the company's heavy subscriber acquisition spending; the absence of positive free or discretionary cash flow; negative equity; high leverage in the medium term; and a significant currency mismatch as all of its debt and a significant amount of its programming and overall costs are dollar denominated, while 100% of its revenues are peso based.

These factors are partially mitigated by the company's position as the largest provider of pay-TV services in Mexico, consistent subscriber growth, positive developments on the DTH competitive front, improving cash flow and credit measures and business and financial support from its key shareholders,

60% owner Grupo Televisa S.A. (BBB-/stable) and 30% owner News Corp. Ltd. (BBB-/stable), which consider Innova an important investment, S&P added.

Innova's operating momentum should support free cash flow increases and credit measure improvement, S&P commented. An upgrade would be contingent on sustained healthy profitability and cash flow, the magnitude of which should become clearer over the next 12-18 months.

Moody's rates Innova notes B2, plans upgrade

Moody's Investors Service assigned a B2 rating to Innova S de RL de CV's proposed offering of $200 million of new senior unsecured notes due 2010 or 2013 and said that on successful completion of the transaction it will upgrade Innova's existing ratings including the $375 million 12 7/8% senior unsecured notes due 2007 to B2 from B3. The outlook is currently positive and will be changed to stable after the upgrade.

Moody's said proceeds from the new notes will be used to replace part of Innova's existing $375 million 12 7/8% notes. This refinancing will be followed by a formal capitalization of shareholder loans and interest payments amounting to around $380 million.

The new ratings are constrained by the company's still high financial leverage and weak coverage of interest and fixed charges following the debt refinancing and capitalization; intense competition; the risks associated with a potential acquisition and/or integration of DirecTV's subscribers; and susceptibility to volatile economic conditions and adverse currency exchange rate fluctuations.

However, the upgraded ratings are supported by Moody's belief that the shareholder loan capitalization represents renewed confirmation of their long-standing assumed financial support, while the refinancing, importantly, helps Innova reduce interest payments, as anticipated, and extend its debt maturity profile.

The ratings also reflect Innova's status as the largest pay-TV company in Mexico, its national coverage, the large and growing (again) size of its subscriber base and good prospects for further near-term growth given current market and competitive conditions.

The stable outlook pro forma for the proposed transactions incorporates Moody's belief that strong operating performance in recent periods will continue, cash flow growth will accelerate, and that certain other external events are likely to have a favorable impact on the company and its business prospects.

Free cash flow generation is currently quite low for the B2 rating category and in relation to the company's high debt levels, Moody's said. Cash flow coverage of interest is inadequate at less than 1x in consideration of capital expenditures. Lease-adjusted leverage currently represents more than 5x EBITDA, and this is exclusive of the shareholder loans which will now be formally capitalized as equity. Moody's also anticipates that Innova's average revenue per subscriber will continue to decline as the company penetrates lower segments of the residential market, as well as the commercial segment, which is made up of hotels, restaurants and bars.

Moody's rates ATF Bank bonds Ba1

Moody's Investors Service assigned a Ba1 rating to ATF Bank's planned senior unsecured notes. The outlook is stable.

Moody's said the Ba1 rating incorporates potential support from the Kazakhstani authorities, should the need arise, reflecting ATF Bank's importance to the banking system of Kazakhstan as the fourth-largest bank with a significant market share in banking assets as of the end of 2002.

However, Moody's cautions that any outside support from the authorities in case of distress may be of a limited nature and its volume and timeliness uncertain. This prevents the agency from placing the rating of the senior unsecured notes at the Baa3 country ceiling.

Moody's added that the rating is constrained by the still difficult operating environment in Kazakhstan.

The rating agency also noted that the top 10 depositors of the bank provide a significant portion of the bank's funding base and, while concentration in the loan book is falling, the top 20 borrowers still accounted for 35% of the portfolio as of June 2003.

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