Fitch Ratings has downgraded Atento Luxco 1 S.A.'s (Atento) Long-Term Foreign Currency Issuer Default Rating (IDR) to 'CC' from 'CCC'.
In addition, Fitch has downgraded Atento's
The downgrades reflect Atento's elevated credit risk due to increased debt and expectations of sustained cash flow burn resulting from large payments on derivative positions tied to
Key Rating Drivers
Default Appears Probable: Atento's high financial obligations on derivatives and capital markets debt relative to its EBITDA generation will likely lead to a default or a default-like process absent a shareholder injection of equity. Net leverage is forecast at above 6x in 2023 and should weaken as FCF is projected to remain negative through 2025.
Additional Debt After Missed Payment: Atento recently issued
Pressured Cash Flow: Fitch expects Atento to generate negative FCF of approximately
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
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
Interest rates above 13% in 2023 and progressively decline in 2024;
Brazilian real exchange rate at
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
Extraordinary measures by shareholders to recapitalize the company;
Reduction of risks related to its derivative position;
Neutral FCF generation.
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade:
The entrance into a grace or cure period following non-payment of a material financial obligation or the announcement of a distressed debt exchange would lead to a downgrade to 'C';
A filing for bankruptcy protection would lead to a downgrade 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 '
Liquidity and Debt Structure
Weak Liquidity: Atento's liquidity is weak. The company entered a cure period when it missed a coupon payment due on
Issuer Profile
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
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, visit www.fitchratings.com/esg.
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