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Fitch downgrades debt-ridden Digicel

Digicel Bermuda's Hamilton Exchange Building (Online Store) 46 Cedar Avenue, Hamilton (Photograph by David Fox)

The ratings of telecom provider Digicel have been lowered by a major rating agency.

These are the latest developments as the troubled company has hung on for a billion-dollar takeover by creditors, who had allowed an extended grace period on overdue debt. The deal avoids technical default.

Deal or no deal, Fitch Ratings has downgraded the Long-Term Issuer Default Ratings of Digicel Group Holdings Limited and of Digicel Limited from “C” to “restricted default”.

DGHL's senior unsecured notes and subordinated notes have been affirmed at “C/RR5” and “C/RR6”, respectively.

“RD” ratings indicate: “an issuer that in Fitch Ratings’ opinion has experienced an uncured payment default on a bond, loan or other material financial obligation but which has not entered into bankruptcy filings, administration, receivership, liquidation or other formal winding-up procedure, and which has not otherwise ceased operating.”

Fitch said the downgrades follow recent revisions to their rating definitions.

The downgrades for the two corporate entities reflect the expiration of the original grace periods to pay principal and interest on DL’ s 2023 notes and on interest on DGHL’s 2025 notes.

Fitch’s revisions of its definition for restricted default, the agency said, removed ambiguity regarding multiple extensions of applicable grace periods. It also clarified that the relevant event in determining an “RD” rating is the uncured expiry of any applicable original grace period.

The ratings of the DGHL subordinated notes reflect poor recovery prospects, consistent with an “RR6” Recovery Rating due to their weaker position in the capital structure.

Bondholders are about to take control of the over-indebted telecom during its massive restructuring.

But they had agreed to grant the group a bridging loan of up to $100 million as work continued on the wider overhaul.

Holders of $925 million of bonds that were due March 1, delayed redemption when the company could not pay.

Meanwhile, Fitch said the proposed restructuring of the 2025 DGHL unsecured notes indicate an expected recovery consistent with an “RR5” rating.

Fitch said Digicel’s decision to restructure debt multiple times remains a constraint on the ratings, and Fitch views its corporate governance as weak.

Digicel’s incorporation status in dozens of countries and extensive use of contractual features of debt results in a complex group structure, weakens its corporate governance and the group's consolidated credit profile, the agency argued.

The recovery analysis assumes that DGHL would be reorganised as a going concern in bankruptcy rather than liquidated. Fitch has assumed a 10 per cent administrative claim.

Asked about the rating adjustment by The Royal Gazette, Digicel responded that there was “no comment on the downgrade at this time”.

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Published May 29, 2023 at 7:59 am (Updated May 29, 2023 at 7:08 am)

Fitch downgrades debt-ridden Digicel

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