Moody’s Ratings has upgraded the Digicel International Finance Limited corporate family rating (CFR) and its senior secured bank credit facility ratings to B3, with a stable outlook.

This rating finalises the review for upgrade started on 26 February 2024.

According to Moody’s “The upgrade reflects the company’s improved liquidity and capital structure following the company’s debt restructuring process. It also incorporates our expectation that the company will build a positive track record under its new configuration, posting EBITDA margin above 40 per cent, supported by the company’s solid competitive position in the markets in which it operates.

The ratings agency further states that Digicel’s B3 corporate family rating (CFR) reflects the company’s more manageable capital structure and adequate liquidity.

“The rating also incorporates our expectation of positive free cash flow (FCF) generation driven by no dividend distributions and capex below 15% of revenues. Digicel’s CFR takes into consideration adequate credit metrics for the rating category including Moody’s adjusted leverage of 3.1x and positive FCF generation of $14 million for the last twelve months ended March 2024. We also expect the consolidated leverage for the group including the holding companies to remain below 4x.”

The B3 rating reflects Digicel’s presence in emerging markets with a history of instability and exposure to adverse weather events, and its exposure to the risk of currency depreciation against the US dollar.

Moody’s notes that Digicel continues to face a number of challenges that constrain operating improvements. These include difficult economic and operating conditions in some of the company’s large markets, namely Haiti, which accounts for around 18 per cent of the company’s revenues. Longer term, the company’s exposure to low rated countries could also put pressure on Digicel’s rating.

“The restructuring process significantly changed Digicel’s interest expenses and liquidity profile, providing the company with financial flexibility. Nonetheless, rating progression would require visibility and execution over the company’s operating plan,” the ratings agency advised.

Digicel’s liquidity is adequate supported by a cash balance of US$200 million as of March 2024. However, the company’s cash flows have been under pressure due to tough operating environment in markets such as Haiti, while the situation is more stable now, its consumer environment remain fragile.

Under the financial agreements, the company is allowed to obtain a US$100 million revolving credit facility (RCF); however, it currently does not have access to any RCF.

Moody’s points out that governance was a key consideration of the rating action, including improved capital structure, adequate liquidity and improved organisational structure. These are now reflected in the company’s Financial Strategy and Risk Management assessment.