Fitch affirms Grupo Iusacell Celular

Fitch Ratings said it affirmed its foreign and local currency debt ratings of D for holding company Grupo Iusacell SA and operating company Grupo Iusacell Celular SA.

The ratings apply to $500 million in outstanding securities, including $350 million senior notes due 2006 and $150 million senior notes due 2004.

Fitch said the ratings reflect the payment default that took place during June 2003 and indicate that potential recovery for bondholders is estimated at less than 50% of principal. Prior to this event, Iusacell's profitability had been pressured by a weak economy. In addition, Iusacell's business model was primarily focused on the post-paid subscriber market, which was limited in size due to low per capita income levels.

In an effort to improve its financial performance, the company had implemented cost-reduction measures and significantly lowered capital expenditures to boost cash flow availability, but these measures constrained Iusacell's ability to maintain subscriber growth levels amid heightened competition.

After the default, shareholder control of Iusacell changed hands when majority shareholders Verizon Communications and Vodafone plc sold their equity stake to Movil Access SA, a subsidiary of Biper SA, which is in turn is controlled by the Salinas group.

Fitch said Iusacell's new shareholder structure has not materially changed its financial profile because Iusacell has not received capital contributions and continues to operate with internally generated cash flow.

Nevertheless, Iusacell has the potential to eventually derive some operational synergies with Unefon, the third-largest Mexican wireless operator that is also part of the Salinas group.

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