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Dec 27 - Overview
-- Columbus International Inc. has continued with its double-digit revenue and EBITDA growth trend.
-- We are affirming our 'B' corporate credit rating on Columbus and our 'B' senior secured debt rating on the company's notes.
-- The stable outlook reflects our expectation of revenue growth from 2013 onwards and a gradual improvement in the company's financial metrics. Rating Action On Dec. 27, 2012, Standard & Poor's Ratings Services affirmed its 'B' corporate credit rating and debt rating on Barbados-based communications company Columbus International Inc. The outlook is stable. We also affirmed our 'B' rating on the company's 11.5% senior secured notes. Rationale The 'B' rating on Columbus reflects its weak business risk and highly leveraged financial risk profiles, the competitive environment in the telecommunications industry in the regions where it operates, its exposure to foreign-exchange risk (partially mitigated by U.S. dollar-denominated revenues), its exposure to regulatory and license renewal risk, the rapid pace of technological change in its capital-intensive industry, and its 2014 bond maturity. Positive factors include Columbus' technologically advanced subsea cable network throughout the Pan-Caribbean region, favorable growth prospects in its operating markets because of low penetration, geographic diversification in Latin America, and U.S. dollar-denominated revenues, which partially mitigate the foreign-exchange exposure. We assess the company's management as "fair." Columbus is a diversified Caribbean communications company whose core operating business consists of providing cable television services, high speed internet access, digital phone and internet infrastructure services, and the sale and lease of the telecom capacity provided by an undersea fiber optic cable network. The Company is managed under two operating businesses: Columbus Networks (Wholesale) that includes the Columbus Business Solutions (CBS) segment, and Flow (Retail Broadband Services). For the 12 months ended Sept. 30, 2012, consolidated revenues and EBITDA increased 17.4% and 14.7%, respectively, compared with the same period in 2011. The increase reflects growth in the CBS segment and the increasing capacity sold at Columbus Networks. In the Flow division the increase in revenue-generating units supported the improved credit metrics as the company gained more subscribers, existing subscribers use additional services, and the company continued with its expansion into digital services (which have higher average revenues per user). Under our base-case scenario, we expect a mid-double-digit percentage increase in revenues for the next two years. We believe this increase will derive partly from further growth in the Flow division as the company builds out its capacity as more households adopt broadband services (particularly internet), and as more subscribers adopt digital services (particularly television). We also expect the start-up operations in Barbados to grow, thanks to better-quality service and attractive pricing. We also believe the Columbus Networks segment will grow through the CBS segment from in-country expansion. For 2013 we expect margins to deteriorate to around 45% as a result of the company's new startups and in-country expansions. But we believe margins could go up again in 2014 to levels of around 47% as its new operations become more profitable. For the 12 months ended Sept. 30, 2012, Columbus' adjusted total debt-to-EBITDA and funds from operations-to-total debt ratios were 4.0x and 13.2% respectively. Despite our expectation of improved EBITDA generation, we believe the company will incur additional debt under its notes facility, keeping key credit metrics in line with the current ones. Since inception the company has generated negative free operating cash flow (FOCF) because of its high capital expenditures, mainly a continued network build-out for its businesses. We expect the company to be able to generate positive FOCF in the near future as cash flow generation increases and capital expenditure requirements decrease. Although ratios could qualify for an "aggressive" financial risk profile, Columbus' less than adequate liquidity and negative FOCF result in a "highly leveraged" financial profile. Liquidity We consider Columbus' liquidity as "less than adequate" under our criteria. We estimate sources of liquidity will consistently exceed uses by more than 1.5x. While this metric would qualify for an "adequate" liquidity descriptor, the absence of credit lines, limited access to capital markets in our view, and its next debt maturity in 2014 constrain the company's flexibility. The tight covenant headroom also limits the company's ability to incur additional debt to finance its capital expenditure program or to withstand high-impact, low-probability events. If the company successfully refinance its bond maturity ahead of time, we could consider revising the liquidity descriptor. Sources of liquidity consist of about $33.6 million in cash as of Sept. 30, 2012, and funds from operations of more than $116.2 million in the next 12 months. Cash uses are likely to include capital expenditures of about $127 million and working-capital outflows of about $10 million. The company has additional funds available under its notes facility due in 2017 of about $143 million, although access to these funds is limited to its leverage financial covenant of 4.0x. We believe as the company increases its EBITDA, it will dispose of these notes. Outlook The stable outlook reflects our expectation of double-digit revenue growth in 2013 and beyond and gradual improvement of credit metrics. We would likely raise the ratings if the company meets our expectation for revenue growth by maintaining EBITDA margins of around 45%, an adequate cash position, and its ability to refinance its 2014 bond before the scheduled maturity date. Conversely we could take a negative rating action if capital expenditures, a major acquisition, or operating weakness erodes its cash position or if we do not see any evidence of a plan to refinance its 2014 maturity ahead of time. Related Criteria And Research
-- Business Risk/Financial Risk Matrix Expanded, Sept. 18, 2012
-- Methodology And Assumptions: Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011
-- Key Credit Factors: Business And Financial Risks In The Global Telecommunication, Cable, And Satellite Broadcast Industry, Jan. 27, 2009
-- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008 Ratings List Ratings Affirmed Columbus International Inc. Corporate credit rating B/Stable/-- Senior secured B Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column. Primary Credit Analyst: Marcela Duenas, Mexico City (52) 55-5081-4437;
firstname.lastname@example.org Secondary Contact: Luisa Vilhena, Sao Paulo (55) 11-3039-9727;
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