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Moody’s downgrades Oi
Moody’s Investors Service said it downgraded the ratings on the notes issued by Oi SA and guaranteed by Telemar Norte Leste SA to Caa1, along with Oi’s unsecured debt to Caa2.
The outlook remains negative.
The agency also said it downgraded Oi’s corporate family ratings to Caa1 and Caa1.br, along with the ratings on its unsecured debt to Caa2 and Caa2.br.
The company has significant indebtedness at subsidiary holding companies, which have priority claims on the majority of operating cash flows, Moody’s said.
Moody’s also said it downgraded the unsecured debt at Portugal Telecom International Finance, BV and Oi Brasil Holdings Cooperatief UA to Caa2.
The agency said it believes these notes are pari passu to unsecured debt at to the parent and guarantor, Oi.
Moody’s also downgraded three specific note issuances to Caa1 from Ba3. These notes were originally issued by Telemar, but transferred to Oi, the agency said.
These downgrades were applied to the company’s 5˝% dollar-denominated notes due 2020, 9˝% dollar-denominated notes due 2019 and 5 1/8% euro-denominated notes due 2017.
Moody’s said it believes that the Telemar guarantee is sufficient to differentiate the creditworthiness of these issuances versus other unsecured obligations of Oi.
The downgrades were based on the company’s persistently increasing leverage and cash consumption, which has reduced financial flexibility and led to an untenable capital structure, the agency said.
The ratings also consider the group’s scale, geographic diversity, broad asset base, wide network coverage and strong margins, Moody’s said.
These strengths are offset by the company’s challenges to upgrade its network in Brazil to meet shifting consumer demand, highly competitive market in the country and margin pressure it faces from an unfavorable product mix shift, the agency added.
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