Fitch Upgrades Alestra's IDR to 'B+'; Rates Proposed Credit Facility 'BB-/RR3'; Outlook...

Fitch Upgrades Alestra's IDR to 'B+'; Rates Proposed Credit Facility 'BB-/RR3'; Outlook Stable

NEW YORK--(Business Wire)--
Fitch Ratings has upgraded Alestra's, S. de R.L. de C.V. (Alestra)
as follows:

--Foreign currency Issuer Default Rating (IDR) upgraded to 'B+'
from 'B-';

--Local currency IDR upgraded to 'B+' from 'B-';

--Senior notes due 2010 upgraded to 'BB-/RR3' from 'B/RR3';

--Assigned 'BB-/RR3' to proposed US$280 million unsecured credit
facility due 2013.

The Rating Outlook has been revised to Stable from Positive.

The upgrades reflect lower business risk profile, stable cash flow
generation, continued positive free cash flow and stronger credit
metrics which are consistent with the 'B+' rating category. An
improved mix of revenues and cash flow over the past few years, coming
from growth in data, internet and local services segment (DILS) has
lowered the company exposure to riskier long distance segment,
resulting in lower business risk and stable cash flow generation.
Continued stable operating performance and moderate capital
expenditures has resulted in free cash flow that has been used to
reduce indebtedness, strengthening the company's credit metrics. In
addition, the upgrade of the 2010 senior notes to 'BB-/RR3' as well as
the rating for the new proposed credit facility reflects the upgrade
in Alestra's IDR and above average recovery prospects. The ratings
incorporate the challenges in the long distance market, increased
competition in the DILS segment. Proceeds for the new credit facility
are expected to be used for refinancing purposes.

Alestra's operations continue to reflect its business position as
a niche provider of DILS and long-distance, which is supported by
growth in DILS that continues to compensate for revenues and cash
flows declines from long distance services. Alestra's business
strategy is focused on growing revenues from its enterprise and
consumer customers by offering value added services. Fitch expects
that over the next few years, the company should continue growing and
introducing convergent services, such as IP telephony, security,
hosting, managed services and VPNs to offer integrated solutions to
corporate customers. The company also looks to increase contribution
of consumer revenue with growth from VOIP services. While the secular
trend for long distance tariffs continues to be negative and it is
expected to continue, growth in revenues from value added services
should more than compensate long distance revenue declines over the
next few years.

Long distance business fundamentals are not expected to change.
The company has showed ability to offset the loss in revenue from this
segment with incremental revenues from the DILS division, particularly
in the corporate segment, which have resulted in stable to slight
growth in EBIDTA generation over the past few years. Competition in
the international and domestic business remains intense as prices
continue to trend down. In addition, the entrance of international and
national long distance calling party pays had a negative effect on
this segment as costs increased and traffic declined.

The company continues to face competitive challenges in the
corporate segment primarily from the incumbent telecommunications
operator, Telefonos de Mexico (Telmex) and by Axtel S.A.B. de C.V.
(Axtel). The convergence agreement, that allows the offering of voice,
video and data by the same company should not have a material effect
on Alestra's revenues as the agreement is oriented towards increasing
competition in the residential segment and most of Alestra's revenue
comes from the corporate segment.

For the last twelve months ended Mar.31, 2008, total consolidated
EBITDA grew 3.8% when compared to the same period of the prior year,
as consolidated revenues grew 6.3% as a result of DILS revenue growth
that outpaced declines experienced in the long distance segment.
During the period revenue and EBTIDA amounted to MXN4,972 million and
MXN1,331 respectively and DILS accounted for 55% of revenues. Over the
medium term Alestra's main challenge continues to be to successfully
grow its existing DILS operations at a pace that will offset continued
pressure in the diminishing long distance segment.

Credit protection measures have improved significantly since 2004.
For the LTM ended Mar.31, 2008, FFO adjusted leverage and total debt
to EBITDA ratios have declined to 2.1x and 2.2x, respectively from
levels of 4.0x each at the end of 2004. For this same period, FFO
interest coverage improve to 4.6x from 3.4x and EBITDA to interest
expense improve to 4.5x from 3.1x. As of the first quarter of 2008,
total debt rose to approximately US$270 million, composed of US$ 238
million senior notes due 2010 with, US$31 credit facility, US$1
million capital leases. Assuming the new bank facility is successful;
Alestra's expected free cash flow generation should be sufficient to
meet its debt maturities.

Alestra provides data, internet, local and long distance services
in Mexico and is 51% owned by Alfa and 49% by AT&T.

Fitch's rating definitions and the terms of use of such ratings
are available on the agency's public site, www.fitchratings.com.
Published ratings, criteria and methodologies are available from this
site, at all times. Fitch's code of conduct, confidentiality,
conflicts of interest, affiliate firewall, compliance and other
relevant policies and procedures are also available from the 'Code of
Conduct' section of this site.

Fitch Ratings
Sergio Rodriguez, CFA, +011-528-18-335-7239 (Monterrey)
John Culver, CFA, +1-312-368-3216 (Chicago)
Media Relations
Christopher Kimble, +1-212-908-0226 (New York)

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