Fitch Ratings has affirmed Cable & Wireless Communications Limited's (C&W) Long-Term Foreign Currency and Local Currency Issuer Default Ratings (IDRs) at 'BB-'.

Fitch has also affirmed C&W Senior Finance Limited's unsecured notes, Coral-US Co-Borrower LLC's secured credit facilities, and Sable International Finance Limited's secured notes, revolver and term loan at 'BB-'/'RR4'. The Rating Outlook is Stable.

The ratings reflect the company's leading market positions across well-diversified operating geographies and service offerings, underpinned by solid network competitiveness and leading business-to-consumer (B2C) and business-to-business (B2B) offerings.

Key Rating Drivers

Steady Net Leverage: Fitch forecasts C&W will maintain net leverage in the 4.0x-4.5x range over the medium term. Moderate EBITDA margin expansion and growth in broadband and B2B services should help the company to delever organically at a gradual pace over the rating horizon. Liberty Latin America (LLA) targets net leverage of around 3.5x at the group level, although investments or operating weakness in core markets could temporarily push leverage metrics higher at the subsidiary level. Fitch expects capital intensity to be around 10%-14% of sales, mainly due to network upgrades and, to a lesser extent, network expansion.

Moderately Improving Operating Prospects: Fitch forecasts C&W's EBITDA to expand above USD1.1 billion by 2025 from USD974 million in 2023 mainly due to modest top-line growth, synergies from the acquisition in Panama, and cost cutting efforts in C&W Caribbean. The company's subsea cable business should continue to grow at low-to-mid-single digits as data demand increases. Near-term ARPU pressures in mobile are likely to be offset by favorable growth in postpaid subscribers, while residential fixed revenues are likely to continue growing at a steady pace driven by opportunities for greater penetration in fixed broadband.

Diversified Operator: The group's business diversification explains the resilience of its revenue compared with other speculative-grade issuers in the region, which generally have higher dependence on mobile revenues that are less sticky than subscription fixed-line and B2B service revenues. B2C mobile accounted for 28% of C&W's 2023 revenue, while B2C fixed accounted for 25%, and B2B represented the remaining 47%. Businesses in the Caribbean and in Panama, delivering both B2C and B2B services, generate about 55% and 20% of EBITDA, respectively. The subsea cable business and, to lesser extent, B2B offerings in Colombia and other Latin America countries generate the remaining roughly 25% of consolidated EBITDA.

Strong Market Position: Strong market share in duopoly markets reduces the risk of new entrants and allows C&W to maintain relatively stable ARPUs. C&W has the No. 1 or 2 position in its major markets, many of which are a duopoly between C&W and Digicel in most of the Caribbean markets and Millicom (Tigo) in Panama. The risk of new entrants in any given market is low given their relatively small size. C&W's largest mobile market, Panama, has consolidated to a two-player market after Digicel announced its exit from the market, leaving only C&W and Tigo. This market has remained relatively competitive despite consolidation. Although local legislation requires three operators to participate in this market, the economic prospects of a third operator in the near term are questionable.

LLA Linkage: Fitch analyzes C&W on a standalone basis and also monitors the parent's credit quality. The credit pools are legally separate, but LLA has a history of moving cash around the group for investments and acquisitions. LLA has a modest amount of debt (~USD220 million) at the parent level, and depends on upstream cash from subsidiaries to service its debt. Deterioration of the financial profile of one of the credit pools, or the group more broadly, could potentially place more financial burdens on C&W.

Instrument Ratings and Recovery Prospects: The secured debt at Sable International Finance Limited is secured by equity pledges in the various subsidiaries. Per Fitch's Corporates Recovery Ratings and Instrument Ratings Criteria, Category 2 secured debt can be notched up to 'RR2'/'+2' from the IDR. However, the instrument ratings have been capped at 'RR4' due to Fitch's Country-Specific Treatment of Recovery Ratings Criteria. The C&W Senior Finance Limited unsecured notes are rated 'BB-'/'RR4', which is the same as the IDR.

Derivation Summary

Compared with its sister entity, Liberty Communications of Puerto Rico LLC (LCPR; BB-/Negative), C&W has larger scale and better geographical diversification, although C&W also operates in weaker operating environments. LCPR's Outlook is Negative due to expectations that net leverage could remain above 5.0x.

C&W operates in slightly more balanced markets compared with Millicom International Cellular S.A.'s (BB+/Stable) subsidiaries CT Trust (Comcel; BB+/Stable) and Telefonica Celular del Paraguay S.A.E. (Telecel; BB+/Stable), which have more dominant market positions and significantly lower net leverage.

Millicom's consolidated net leverage, at around 3x, is lower than LLA's at around 4.7x. Comcel's and Telecel's respective ratings reflect strong linkage with their parent, as Millicom heavily relies on these wholly owned subsidiaries' dividend upstreams to service its debt. Millicom's subsidiary in Panama and key competitor to C&W, Telecomunicaciones Digitales, S.A. (BB+/Stable), has somewhat weaker scale and diversification relative to C&W but benefits from a stronger financial profile while its ratings reflect strong linkages with Millicom, similar to its sister companies.

Key Assumptions

B2B revenues growing low-to-mid-single digits;

Net fixed customer additions of approximately 25,000 per year;

Fixed-line customer ARPUs of around USD47/month;

Mobile subscribers recovering modestly in 2024 as continued strong growth in postpaid offsets slowing growth in prepaid;

Mobile service ARPUs of around USD13/month;

Fitch-defined EBITDA margins expanding to around 43% by 2026 from 38% in 2023, driven by the benefit of synergies, cost-savings initiatives, and modest operating leverage;

Capital intensity of around 13-14% over the medium term;

Excess cash flow returned to shareholders or kept for acquisitions or investments.

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

Fitch does not anticipate an upgrade in the near term given C&W's and LLA's leverage profiles;

Longer-term positive actions are possible if debt/EBITDA and net debt/EBITDA are sustained below 4.25x and 4.0x, respectively, for C&W and LLA;

--(CFO-Capex)/Debt ratio trending towards 7.5%.

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

Total debt/EBITDA and net debt/EBITDA at C&W sustained above 5.25x and 5.00x, respectively, due to organic cash flow deterioration or M&A;

While the three credit pools are legally separate, LLA net debt/EBITDA sustained above 5.0x could result in negative rating actions for one or more rated entities in the group.

Liquidity and Debt Structure

Sound Liquidity: Projected pre-dividend FCF averaging around USD200 million over the rating horizon, cash of around USD200 million-USD300 million and a long-dated maturity profile support the company's financial flexibility. C&W has USD572 million under the C&W revolver and USD65 million under regional facilities that are committed and undrawn. The majority of C&W's debt is due after 2027.

Issuer Profile

Cable & Wireless Communications Limited is a U.K.-domiciled telecommunications provider that is owned by Liberty Latin America (LLA), a Bermuda-domiciled entity. The company provides B2C mobile, B2C fixed and B2B services to customers mainly in the Caribbean and Panama. CWC also operates a subsea and terrestrial fiber optic cable network that connects approximately 40 markets in the region.

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

C&W has an ESG Relevance Score of '4' for Exposure to Environmental Impacts due to its operations 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.

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' 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. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.

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