S&P Statement
- Cell C (Pty) Ltd. has amended the terms of the private Airtime Facility agreement to delay the timing of selected repayments.
- Although no conventional payment or legal default event under the amended agreement has occurred to date, we view the repayment profile restructuring as a distressed exchange and tantamount to selective default, given Cell C's weak liquidity position.
- We are therefore lowering our rating on Cell C to 'SD' (selective default) from 'CCC-' and our issue rating on the company's senior secured debt to 'CC' from 'CCC'. The '2' recovery rating reflects our estimate of substantial (70%-90%, rounded estimate: 85%) recovery to creditors in the event of a payment default.
S&P Global Ratings today took the rating actions listed above.
The downgrade follows Cell C's amendment of the payment schedule of the private and unrated South African rand 1.4 billion Airtime Facility agreement, delaying selected repayments.
Cell C has fulfilled all of its debt obligations to date, including repayments under this amended agreement, and as such no conventional event of default has been triggered. However, we view the repayment schedule restructuring as a distressed exchange, and therefore tantamount to a selective default given Cell C's liquidity stress and unsustainable capital structure.
Furthermore, because the schedule of agreed repayments has slowed, we believe lenders will receive less value than the promise of the original agreement. We also believe there was a realistic possibility of a conventional payment default before the exchange, given the company's weak liquidity position.
We understand that Cell C wanted to amend the agreement in order to preserve cash and financial flexibility while implementing various conditions precedent ahead of concluding the previously announced Buffet Consortium transaction.
In February 2019, Blue Label Telecoms, which holds 45% of Cell C's common equity, notified the market of the Buffet Consortium transaction. The intention of this transaction is to return Cell C to operational and financial sustainability (See Cell C Downgraded To 'CCC-' On Liquidity And Refinancing Risks; Outlook Developing published April 16, 2019, on RatingsDirect).
We believe that further amendments to the Airtime Facility agreement will be required as part of the ongoing discussions with service providers, lenders, and major shareholders, whose consent is required in order to implement the Buffet Consortium transaction. We could also view these additional amendments as a distressed exchange.
We will reevaluate our ratings on Cell C when we no longer believe there is a high likelihood of another distressed restructuring or exchange, and when discussions and conditions precedent related to the pending transaction have reached a conclusion.
