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VTR Comunicaciones SpA -- Moody's assigns Ba3 rating to VTR's USD410 million proposed notes due 2029; Ba3 CFR and stable outlook unchanged

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Rating Action: Moody's assigns Ba3 rating to VTR's USD410 million proposed notes due 2029; Ba3 CFR and stable outlook unchangedGlobal Credit Research - 10 Mar 2021New York, March 10, 2021 -- Moody's Investors Service, ("Moody's") assigned today a Ba3 rating to VTR Comunicaciones SpA's, an indirect subsidiary of VTR Finance N.V. ("VTR"), proposed USD410 million (CLP292 billion) in senior secured notes due 2029 and guaranteed by VTR.Com SpA. VTR's existing ratings and its Ba3 corporate family rating (CFR) remain unchanged. The ratings outlook is stable.The issuance is part of VTR's liability management with the objective of extending the company's debt maturity profile while reducing its cost of debt. The new issuance will not materially affect the company's leverage metrics since most of the net proceeds will be used to repay in full existing VTR Comunicaciones SpA's CLP 174 billion (USD244 million) term loan due 2023, partially redeem its 5.125% secured notes due 2028 and some other general corporate purposes.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 that these agreements are legally valid, binding and enforceable. The new notes will rank pari passu with all other senior secured and unsubordinated debt obligations of VTR.RATINGS RATIONALEVTR's Ba3 CFR reflects its solid track record in operating performance, with regular revenue and EBITDA growth and maintenance of a stable EBITDA margin, its resilient free cash flow generation and solid liquidity. The CFR also reflects a sustained growth in its subscriber base, which is mainly driven by demand for broadband; its leading market share in broadband and pay TV, supported by VTR's strategy of offering services with the highest speed. Constraints to the rating are VTR's small scale and still-high concentration on one main market, Chile, and high capital intensity, which limits free cash flow generation. The rating also takes into consideration a financial policy with regular cash distributions to Liberty Latin America Ltd (LLA), VTR's parent company, and risks related to LLA's acquisition strategy.The Ba3 takes account of LLA's intention to contribute its 80% stake in Cabletica, a fixed line operator in Costa Rica, into the VTR credit pool, which will be completed in 2021. Once contributed into VTR, Cabletica will represent around 10% of group revenue, add geographic diversification and reduce leverage by around 0.2x-0.3x.Chile, VTR's main market, had a 6% GDP contraction during 2020 due to the spread of the coronavirus pandemic. As a consequence, VTR operating performance was hit, particularly during the second half of the year when the company had net subscriber losses due to service challenges related to higher data consumption, increasing costs due to the Chilean peso depreciation and customer service initiatives, which drove Moody's-adjusted EBITDA margin to 35.7% as of December 2020 from 39.8% in 2019. Moody's expects a 5.8% GDP growth in Chile on improving economic outlook, and the country's fast-paced vaccine roll-out. Although social demands, in addition to the process of drafting a new constitution beginning June 2021 and presidential elections scheduled for November 2021, create uncertainty. Nonetheless, Moody's expects VTR's business to remain resilient in 2021 improving its revenue and EBITDA, and continue generating positive FCF while maintaining a stable financial profile.The new senior secured notes at VTR Comunicaciones SpA will rank pari passu with VTR's existing USD600 million secured notes due 2028 and share the same collateral, including pledges over the shares of VTR Comunicaciones SpA and VTR.com SpA. The senior secured notes will represent the largest portion of VTR's debt and the notes rating is aligned with that of the CFR at Ba3.Proforma for the proposed notes, notes redemption and loan repayment, VTR's liquidity will be solid, supported by about CLP111 billion (about USD156 million) cash balance and annual FCF generation of about CLP40 billion (about USD56 million). VTR maintains two committed facilities denominated in US dollars (USD200 million) and Chilean pesos (CLP45 billion) both of them due in 2026. VTR's maturity profile is comfortable, with CLP71 billion (USD100 million) vendor financing as of December 2020 and the rest of the debt coming due in 2028 and thereafter. Although there is no formal policy to sweep excess cash flow to its parent company, Moody's expects VTR to regularly distribute excess cash to LLA. VTR has hedging in place to mitigate the effects of the depreciation of the Chilean peso on its costs, capital spending and debt (fully hedged).The stable outlook reflects Moody's expectation that VTR will continue to record growth in its subscriber and revenue base, and that its credit metrics will remain within our parameters for the Ba3 on a sustained basis, along with at least an adequate liquidity. The company's ongoing focus on cost efficiencies and some hedging will also enable it to maintain its strong profitability despite the large depreciation in the Chilean peso recently.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGMoody's would consider a positive rating action if leverage (Moody's-adjusted debt/EBITDA) is below 3.25x on a sustained basis, and interest coverage (Moody's-adjusted EBITDA - capital spending/interest) is above 3.0x on a sustained basis. A positive rating action would also be conditional on maintenance of adequate or better liquidity, sustained EBITDA growth and low probability of near-term event risks or material unfavorable changes in regulation, competition, financial policy and capital structure.Moody's would consider a negative rating action if leverage (Moody's-adjusted debt/EBITDA) is sustained above 4.25x. A downgrade would also be considered if liquidity or key performance measures (such as subscriber trends or market share) deteriorate considerably. We would view negatively material unfavorable changes in regulations, competition, financial policies, capital structure or the operating model, which lead to a significant rise in credit risk.The principal methodology used in this rating was Pay TV published in December 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1134554. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.VTR provides broadband and wireless communications services in Chile and is a wholly owned subsidiary of LLA. As of December 2020, VTR's network passed 3.85 million homes and served about 2.85 million fixed revenue generating units. The company also served around 280,300 mobile subscribers as a mobile virtual network operator. VTR reported revenue of CLP640 billion (around USD800 million). Cabletica is a leading fixed-line operator in Costa Rica, offering broadband, Pay TV and fixed telephony services, with about 633 thousand homes passed and 443 thousand RGUs as of December 2020.REGULATORY DISCLOSURESFor 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_1243406.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.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK 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.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. 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. 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