Moody’s Upgrades Axtel

Moody’s has upgraded Axtel to Ba2 (stable) from Ba3 based on a rapid improvement in the credit metrics to levels prior to the acquisition of Avantel, as well as expected improvements in free cash flow generation. This impacts Axtel’s $162.5m 11% of 2013 notes and $275m 7.625% of 2017. The adjusted debt to Ebitda ratio is 2.3x, versus 3.8x just after the acquisition, which was completed in December 2006, says Moody’s. Simultaneously, interest coverage as per funds from operations plus interest expenses to interest expenses improved to 4.3x in the last 12 months, from a low of 3.1x in Q1 2007. “Constraining Axtel’s ratings are escalating challenging operating environment consequence of strong competition from incumbent Telmex, increasing wireless substitution and the strengthening of new-comers to the telecom arena such as cable TV companies and IP telephony service providers” says Moody’s analyst Nymia Almeida Almeida. This operating risk is somewhat mitigated by the growth potential for Mexico, evidenced by a low fixed line penetration rate of approximately 19% as of September 2007, as well as by Axtel’s stronger customer base mix.