Bloomberg News

Axtel Falls Most in Mexico Amid Downgrades; Yields Soar

November 29, 2011

(Updates prices in second paragraph.)

Nov. 29 (Bloomberg) -- Axtel SAB, Mexico’s second-largest land-line phone company, led declines among the 35 stocks on Mexico’s benchmark gauge after Standard & Poor’s and Moody’s Investors Service downgraded its debt.

The stock fell 4.3 percent to 4.27 pesos at the close of trading in Mexico City, making it the worst performer on the IPC index, which gained 0.4 percent on the day. Yields on the company’s dollar bonds due in 2019 surged 227 basis points, or 2.27 percentage points, to 14.36 percent, the highest on record.

Moody’s and S&P downgraded the company within minutes of each other yesterday. Moody’s cut Axtel’s corporate rating one step to Caa1, seven levels below investment grade, saying the company had a “higher probability of default” because of limited cash. S&P trimmed its rating one step to B, five levels into junk status.

“They have very significant maturities, and that squeezes their liquidity situation,” said Martin Gonzalez, an equity analyst at Invex Casa de Bolsa SA in Mexico City, who recommends selling Axtel stock. “That’s something the market doesn’t like.”

Moody’s also reduced its rating on Axtel’s global bonds two levels to Caa2, citing the subordination of those notes to creditors in a $60 million syndicated loan obtained this month. That agreement also included a $40 million revolving facility.

The loan’s maturity in November 2013 could be moved to an earlier date if Axtel’s debt reaches more than 3.5 times earnings before interest, taxes, depreciation and amortization, creating a “high possibility” for a breach, New York-based Moody’s said.

Axtel is spending about $200 million next year to extend fiber-optic lines to homes and businesses, boosting Internet speeds to compete with Telefonos de Mexico SAB, Chief Financial Officer Felipe Canales said on an Oct. 28 conference call. Axtel, based near Monterrey, Mexico, will end 2012 with a cash- flow surplus after a 2011 deficit of as much as $20 million, Canales said.

--Editors: Marie-France Han, Glenn J. Kalinoski

To contact the reporter on this story: Jonathan J. Levin in Mexico City at jlevin20@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net


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