Fitch Ratings has affirmed all of
Fitch also affirmed the USD secured 2026 notes of
Oi's ratings reflect weak cash flow prospects once the company executes its divestment plan as well as the limited expected dividends over the next few years from Oi's proforma 42% stake in V.tal. Fitch projects net leverage will be well above 10x on a pro forma basis with the divestments. Positively, asset sales have progressed, which has increased certainty of a liquidity boost in the near term. If divestment proceeds of
Key Rating Drivers
Asset Sales: Oi is in the process of completing the sale of its mobile unit for
Debt Prepayments: The net proceeds of the mobile sale and to a lesser extent the proceeds from the sale in the stake of V.tal will be used to pay down both pre-petition and post-petition liabilities. Oi is expected to use part of net sales proceeds of
Partial Divestment of Fiber Infrastructure: The main objectives behind the sale of Oi's stake in V.tal are to enhance Oi's financial flexibility while allowing V.tal to continue to expand its fiber optic network. After the V.tal transaction is concluded V.tal will cease to be jointly and severally liable with the debtors for their payment obligations as per the amendments to the judicial reorganization plan.
The remaining Oi group (New Oi) will house the legacy copper infrastructure and will focus on providing fiber optic and other digital services for its residential, commercial and customers through V.tal's network. The company will maintain other assets such as call center and technical & logistics services, in addition to most of the debt.
Fiber Strategy: There has been a sharp increase in the demand for high-speed internet in
V.tal will also offer fiber to other telecoms. A neutral infrastructure provider can aggregate wholesale telecom demand, providing a cost-effective solution to carriers seeking to expand network coverage and capacity. As carriers plan for 5G deployment, V.tal also hopes to capitalize on increased demand for fiber to the tower (FTTT).
Weak Financial Profile: New Oi's leverage and coverage metrics will be remain weak after the completion of the asset sales. Fitch anticipates that V.tal will have superior growth characteristics relative to New Oi. However, Fitch does not expect V.tal to pay dividends until 2024 at the earliest. The low growth potential of New Oi and the deconsolidation of V.tal contribute to the overall weak assessment of Oi's credit profile despite the planned reductions in overall debt.
Debt Ratings Capped: Fitch applies a bespoke approach to recovery for issuers rated 'B+' and lower, using the higher of going-concern and liquidation estimates to enterprise valuation. Fitch forecasts recovery rates commensurate with an 'RR1' rating for the secured notes due in 2026, which could potentially cause an uplift of up to three notches (B+/RR1) from Oi's IDR. However, Fitch's 'Country-Specific Treatment of Recovery Ratings Criteria' caps Brazilian issuers at 'RR4', resulting in an instrument rating of 'CCC+', equal to Oi's FC IDR, despite the new secured notes collateral package and seniority.
Derivation Summary
Oi's ratings reflect its restructured financial profile and the still uncertain outlook for its turnaround strategy. Compared to Latin American carriers in the low speculative grade/distressed territory, such as
The ratings are not constrained by
Key Assumptions
Fitch's Key Assumptions Within Our Rating Case for the Issuer
New Oi revenues in the
Successful mobile and infrastructure transactions for the agreed upon amounts (
Proceeds from asset sales are used to pay down debt, according to JRP amendments;
For the recovery analysis, Fitch estimates a going concern EBITDA of around
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Fitch does not anticipate a positive rating action for Oi in the near term due to the expected high leverage and negative free cash flow.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Failure to repay debt in excess of
Weak operating results at New Oi;
Competitive pressures leading to lower than expected revenue and cash flow generation and coverage ratios dropping below 1.0x.
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
Adequate Liquidity: As of
Oi will launch a tender offer for the 2026 secured notes at par plus 33.33% of the coupon following the sale of the mobile unit. The net proceeds from the mobile sale will be applied to tendered notes. The economic rationale underlying the transaction is to save on interest expense and to reduce refinancing risk.
Fitch expects the gross proceeds from these divestments to be around
Issuer Profile
Oi owns copper infrastructure provides fiber optic and other digital services for residential and corporate customers. The company is in the process of selling its mobile operations as well as a stake in V.tal, which is a fiber optic network in
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
RATING ACTIONS
Entity / Debt
Rating
Recovery
Prior
LT IDR
CCC+
Affirmed
CCC+
LC LT IDR
CCC+
Affirmed
CCC+
Natl LT
B(bra)
Affirmed
B(bra)
senior secured
LT
CCC+
Affirmed
RR4
CCC+
senior unsecured
LT
CCC+
Affirmed
RR4
CCC+
senior secured
LT
CCC+
Affirmed
RR4
CCC+
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