Chile’s WOM files for Chapter 11, secures US$200mn financing

Following weeks of speculation about its financial health, Chilean mobile operator WOM filed on Monday for Chapter 11 proceedings in the US District Court for Delaware.

The company also announced it secured a US$200mn debtor-in-possession (DIP) financing line from JPMorgan.

“The beginning of this process does not imply the liquidation or bankruptcy of the company. It provides WOM with the ability to work with its creditors and other stakeholders, access new sources of financing and strengthen its financial position to support long-term business viability,” the group said in a statement.

WOM attributed its decision, among other factors, to high interest rates, a difficult credit market and the upcoming maturity of bonds, all of which it said affected its short-term liquidity.

The telco has a US$348mn senior unsecured bond due in November this year.

While noting it mulled “several options,” the group considered that Chapter 11 would be the most appropriate move.

Owned by UK fund Novator Partners, WOM debuted in 2015 with the acquisition of Nextel Chile to become the country’s second mobile operator and has a current market share of over 25%. WOM often boasts that no other carrier has ever grown that fast.

In recent months, however, the company grappled with two rounds of lay-offs and arm wrestling with authorities over 5G deployments, licensing and operational fees. On top of that, there were discussions with bondholders.

Last December, S&P warned in a ratings report that WOM’s failure to close its refinancing, together with lack of improvements in cash flow, would put the company “at the risk of a significant liquidity shortfall over the next 12-18 months.”

“While we understand that WOM is making progress in its refinancing plan, we believe negotiations have been difficult and there's risk they might not close the transaction soon,” the ratings agency wrote.

S&P placed its 'B' issuer credit rating on WOM and its 'B' issue-level rating on senior unsecured notes issued by financing vehicle Kenbourne Invest (and guaranteed by WOM) on CreditWatch with negative implications.

In March this year, Fitch Ratings downgraded its long-term foreign currency and local currency issuer default ratings of WOM to 'CCC-' from 'B-', meaning a substantial credit risk with real default possibility. 

Fitch had also downgraded the unsecured dollar-denominated bonds issued by Kenbourne Invest to 'CCC’ from ‘B-’.

“The downgrades reflect WOM's weak liquidity position and heightened refinancing risk given delays in the refinancing process of the company's 2024 notes as the maturity date continues to approach. Additionally, FCF [free cash flow] is likely to remain negative through at least 2024, further straining liquidity,” Fitch wrote in a report.

NEXT STEPS

The US corporate court will now examine WOM's filing to assess the best way to restructure the company's debts and assets. Details are expected in the coming days.

Once the plan is finalized, the company is expected to begin working with its lenders, shareholders, suppliers and other stakeholders to meet its financial obligations.

WOM estimates that the process will take "probably months" and in the meantime it said there will be no interruption in its services or operations.

“Our commitment to completing 5G and [national fiber optics] FON projects remains as strong as ever. We are fully committed to carrying out these projects,” the telco added.  

Chile’s telecom regulator Subtel, meanwhile, said WOM's Chapter 11 proceedings will not affect the provision of telephony, pay TV or fiber to clients.

“We will oversee that this measure allows the company to respond to the financial difficulties it currently faces,” the watchdog said in a statement.