Telefonica Edges Closer to Junk

Moody’s has downgraded Telefonica Chile to Baa2 from Baa1 and cut the outlook to negative from stable. The agency says that credit risk has increased as intensifying competition is impacting the company’s pricing power and causing an ongoing trend of weaker margins and cashflow. “In addition, weaker economic conditions may drive further negative pressure on fixed telephony, a major business line already in decline due to mobile substitution and alternative cable TV bundled offerings, as well as on other developing business such as broadband access and pay TV,” says Moody’s. As of last December, the company had weak liquidity, with cash and marketable securities of CLP84bn to address CLP130bn in syndicated loans maturing this coming December, the agency adds. “Beyond 2009, debt refinancing will continue to remain a risk, since the company will need to pay down or roll over an average of CLP90bn annually until 2013,” says Moody’s. It adds that mitigants to refinancing risk include the ability to generate free cashflow for debt amortization and plans to refinance most of the loans either with relationship banks or in the local markets.