Rating Action: Moody's assigns a Prime-2 short term rating to America Movil, B.V.'s EUR2.0 billion commercial paper program
Global Credit Research - 01 Sep 2020
New York, September 01, 2020 -- Moody's Investors Service, ("Moody's") today assigned a Prime-2 short term rating to America Movil, B.V.'s EUR2.0 billion commercial paper program. The new notes will be guaranteed by America Movil, S.A.B. de C.V.'s ("America Movil"). All other ratings on America Movil are unaffected.
The new notes will be issued by America Movil, B.V. (a wholly owned subsidiary of America Movil, domiciled in Netherlands). These notes will rank pari passu with all other unsecured and unsubordinated debt obligations of America Movil. Proceeds from the issuance of the new notes will be used for refinancing purposes. Moody's does not anticipate commercial paper weekly maturities to exceed the availability under the EUR250 million committed back-up facility at any time. The rating of the notes assumes that the final transaction documents will not be materially different from draft legal documentation reviewed by Moody's to date and assume that these agreements are legally valid, binding and enforceable.
The Prime-2 short term rating reflects America Movil's adequate liquidity, which is primarily supported by its solid free cash flow generation, cash balance and access to committed revolving credit facilities. Moody´s expects the company to maintain liquidity buffers in at least the full amount of the program. America Movil currently has $700 million available under its $2.5 billion facility due August 2024 and one fully withdrawn facility for the euro equivalent of $2.0 billion due May 2021 at America Movil's level, and another for EUR1 billion at Telekom Austria due July 2024, fully available. The company's cash balance as of June 2020 totaled $5.9 billion.
America Movil's A3 ratings incorporate its strong business model, supported by the company's large scale among telecom operators globally, and its extensive presence in Latin America, complemented by its leading market shares. The company benefits from positive free cash flow generation and a multiregional revenue base, coupled with solid infrastructure, fully integrated operations and significant scale to support its competitive position. In addition, the company's relatively conservative financial policies promote a healthy financial profile. At the same time, America Movil faces intense competition, which limits its margin improvements; risk from foreign-exchange fluctuations; and regulatory shifts in some of its large markets.
Moody's expects America Movil's credit metrics to be impacted in 2020 by a weaker operating environment, with sharp GDP contractions in several of its largest markets. Nevertheless, the company has levers that it can pull to limit these negative effects and preserve cash, which include cost cutting and a reduction in capital spending. We expect the group to maintain an adequate liquidity buffer and its metrics to recover in 2021-22.
Since October 2011, America Movil has been issuing senior unsecured bonds without the guarantee from Radiomovil Dipsa, S.A. de C.V. (brand name "Telcel"), a Mexican mobile operator and America Movil's largest subsidiary. Although the new notes are structurally subordinated to the guaranteed notes, Moody's has not notched down the rating of the unguaranteed notes due to the overall strength of America Movil and the expectation that going forward all debt issued by the group will no longer carry a guarantee. In addition, we expect that the company will not materially increase the current level of debt at its subsidiaries, which would further subordinate the debt at the holding company.
The outlook assigned on America Movil, B.V. is negative and mirrors the outlook on America Movil. At the same time, the negative outlook on America Movil's rating reflects the negative outlook on the rating of the Government of Mexico (Baa1 negative), with a weaker sovereign having the potential to create a rating drag on companies operating within its borders.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
An upgrade of America Movil's rating could be considered if Mexico's sovereign rating is upgraded and, concurrently, the company improves its financial profile as follows: its adjusted gross debt/EBITDA is sustained below 2.0x, adjusted EBITDA margin recovers toward 35% and adjusted retained cash flow/debt is maintained above 35%. An upgrade could also be considered if, over time, America Movil geographically diversifies its business further, substantially reducing its exposure to Mexico and other lower-rated countries, which include Brazil (Ba2 stable), representing about 20% of its EBITDA, while reaching and maintaining the above-mentioned metrics.
A downgrade of Mexico's sovereign rating would very likely result in a downgrade of America Movil's rating. A rating downgrade could also result if America Movil reports the following credit metrics: (1) adjusted gross debt/EBITDA sustained above 2.5x; (2) adjusted EBITDA margin deteriorating toward 25%, without any prospects of recovery; (3) adjusted retained cash flow/debt maintained below 20%; (4) sustained negative FCF. The rating could also be downgraded if America Movil makes large debt-funded acquisitions or reinstates significant returns of capital to shareholders while its leverage rises. Significant market share reductions in key markets, negative regulatory shifts affecting profitability or a deterioration in the company's liquidity would also strain the ratings.
The principal methodology used in this rating was Telecommunications Service Providers published in January 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1055812. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
America Movil, headquartered in Mexico City, Mexico, is Latin America's leading telecom operator, with 278 million wireless lines and 81 million revenue-generating units as of June 2020. The company offers wireless, fixed and pay TV services to 18 countries in the Americas and various European nations through a controlling stake of 51% in Telekom Austria AG (Telekom Austria, Baa1 stable). America Movil reported revenue of around $52 billion for the last twelve months ended June 2020.
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
The rating has been disclosed to the rated entity or its designated agent (s) and issued with no amendment resulting from that disclosure.
This rating is solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
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Rosa Morales Asst Vice President - Analyst Corporate Finance Group Moody's de Mexico S.A. de C.V Ave. Paseo de las Palmas No. 405 - 502 Col. Lomas de Chapultepec Mexico, DF 11000 Mexico JOURNALISTS: 1 888 779 5833 Client Service: 1 212 553 1653 Marianna Waltz, CFA MD - Corporate Finance Corporate Finance Group JOURNALISTS: 0 800 891 2518 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653
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