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.
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.
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
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.
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.
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
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
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
Primary Credit Analyst: Marcela Duenas, Mexico City (52) 55-5081-4437;
Secondary Contact: Luisa Vilhena, Sao Paulo (55) 11-3039-9727;