Fitch downgrades Digicel Group Holdings and Digicel Limited to 'R'D

Press Release

By Fitch Ratings

Fitch Ratings - Chicago - 22 May 2023: Fitch Ratings has downgraded the Long-Term Issuer Default Ratings (IDRs) of Digicel Group Holdings Limited (DGHL) and of Digicel Limited (DL) to 'RD' from 'C'. DGHL's senior unsecured notes and subordinated notes have been affirmed at 'C/RR5' and 'C/RR6', respectively.

The downgrades follow recent revisions to Fitch's rating definitions.

KEY RATING DRIVERS

The downgrades of DL and DGHL reflect the expiration of the original grace periods to pay principal and interest on DL' s 2023 notes and on interest on DGHL's 2025 notes. Fitch's revisions of its definition for restricted default (RD) removed ambiguity regarding multiple extensions of applicable grace periods. It also clarified that the relevant event in determining an 'RD' rating is the uncured expiry of any applicable original grace period.

Recovery Prospects: The ratings of the DGHL subordinated notes reflect poor recovery prospects, consistent with an 'RR6' Recovery Rating due to their weaker position in the capital structure. The proposed restructuring of the 2025 DGHL unsecured notes indicate an expected recovery consistent with an 'RR5' rating.

ESG - Governance Structure: Digicel's decision to restructure debt multiple times remains a constraint on the ratings, and Fitch views its corporate governance as weak.

ESG - Group Structure: Digicel's incorporation status in dozens of countries and extensive use of contractual features of debt results in a complex group structure that weakens its corporate governance and the group's consolidated credit profile.

DERIVATION SUMMARY

DGHL and DL's IDRs reflect the expiry of the original grace period to pay principal and interest and interest, respectively.

KEY ASSUMPTIONS

The recovery analysis assumes that DGHL would be reorganized as a going concern in bankruptcy rather than liquidated. Fitch has assumed a 10% administrative claim.

The going concern operating EBITDA reflects Fitch's estimates of mid-cycle EBITDA that is achievable in the medium term, given the company's position primarily in duopoly markets and its growth prospects under a scenario of only gradual currency depreciation. This going concern EBITDA of USD550 million is approximately equal to Fitch's projection for fiscal 2024.

Fitch uses an enterprise value/EBITDA multiple of 5.0x, reflecting the company's long-term prospects and good market shares in mostly duopoly markets amid a scenario of financial distress.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to positive rating action/upgrade:

--Fitch will reassess the IDRs upon the completion of a debt restructuring process; the updated IDRs would reflect the new capital structure and credit profile of the issuer.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

--Filing for bankruptcy protection, liquidation, or any other formal winding-up procedure would lead to a downgrade of the corporate ratings to 'D'.

BEST/WORST CASE RATING SCENARIO

International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579..

LIQUIDITY AND DEBT STRUCTURE

Insufficient Liquidity: DL entered into a grace period on USD925 million of note maturities due March 1, 2023, which the company has extended. DGHL experienced an uncured interest payment default on its unsecured debt, following the expiration of the 30-day grace period.

ISSUER PROFILE

Digicel is a diversified telecom operator that provides mobile and fixed-line services to consumers and businesses in the Caribbean.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG CONSIDERATIONS

Digicel Group Holdings Limited has an ESG Relevance Score of '5' for Group Structure due to its complex group structure and incorporation status in dozens of countries, which has a negative impact on the credit profile, and is highly relevant to the rating, resulting in an implicitly lower rating.

Digicel Group Holdings Limited has an ESG RS of '5' for Governance Structure due to its willingness to restructure debt multiple times, which has a negative impact on the credit profile, and is highly relevant to the rating, resulting in an implicitly lower rating.

Digicel Group Holdings Limited has an ESG RS of '4' for Exposure to Environmental Impacts due to its presence in a hurricane prone region, which has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors.

Digicel Group Holdings Limited has an ESG RS of '4' for Financial Transparency due to the company's relatively opaque financial strategy, which has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors.

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visitwww.fitchratings.com/esg.