Fitch Ratings has downgraded Atento Luxco 1 S.A.'s (Atento) Long-Term Foreign Currency Issuer Default Rating (IDR) to 'RD' from 'CC'. Fitch has also downgraded Atento's USD500 million senior secured notes due 2026 to 'C'/'RR6' from 'CC'/'RR4' and Atento Brasil S.A.'s long-term National Scale Rating to 'RD(bra)' from 'CC(bra)'.

The rating actions follow the company's missed interest payment due on Aug. 10, 2023 on its senior secured notes as part of the company's proposed restructuring plan.

Key Rating Drivers

Missed Interest Payment: Atento skipped an interest payment due on Aug. 10, 2023 on its USD500 million senior secured notes. Fitch views the failure to pay the interest payment as part of the restructuring plan as a restricted default as per its ratings definitions.

Proposed Restructuring: The company has outlined a proposed restructuring plan, which anticipates issuing approximately USD37 million in new money notes due 2025 as part of its exit financing arrangements, the provision of up to USD79 million of preferred equity new money investment at emergence from the proposed restructuring, and 100% equitization of the super-senior revolving credit facility and the senior secured notes due 2026. The company expects to complete the restructuring by the end of November 2023. The company expects net leverage to fall below 1.0x after exiting the restructuring.

Industry Overcapacity: Work from home policies are expected to continue to result in intense competition in Atento's customer relationship management (CRM) and business process outsourcing (BPO) industry. More employees working from home has resulted in cost savings for operators but also in workstation overcapacity, which has led to increased price competition as companies fight to fill available capacity. Spare capacity is estimated at 20%-25%, and Brazilian and Spanish markets in particular are seeing fierce competition.

Derivation Summary

Atento is the largest CRM/BPO provider in Latin America, with around 15% market share. Its ratings are tempered by its disproportionate leverage, pressured cash flow and weak liquidity as well as by competitive industry dynamics.

Key Assumptions

Fitch's Key Assumptions Within Our Rating Case for the Issuer:

Revenues grow low-single digits;

Fitch-defined EBITDA margins of 7%;

Capex in the range of around USD40 million to USD50 million;

Interest rates above 13% in 2023 and progressively decline in 2024;

Brazilian real exchange rate at BRL5.25/USD1.

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'.

Liquidity and Debt Structure

Limited Financial Flexibility: Atento's post-restructuring process is likely to present an improvement in terms of liquidity and debt levels, but financial flexibility will remain constrained considering challenging industry dynamics and Fitch's expectation that Atento will face negative FCF through 2024. Fitch expects Atento will need to seek additional capital contributions or debt financing to refinance the 2025 notes.

Issuer Profile

Atento Luxco 1 (Atento Luxco) is fully controlled by Atento S.A. (Atento), which is the largest provider of customer relationship management (CRM) and business process outsourcing (BPO) services in Latin America.

Summary of Financial Adjustments

Standard treatment of leases;

Debt factoring;

Foreign exchange hedges.

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

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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