Fitch Ratings has assigned the following ratings to BC Luxco 1 S.A.
(Luxco), Atento Group's new intermediate holding company:
-- Foreign currency Issuer Default Rating (IDR) 'BB'; and
-- Proposed USD250 million senior secured notes due 2019 'BB'.
The Rating Outlook is Stable.
The proceeds are to support the leverage buyout acquisition of Atento
Group by Bain Capital Partners, a private investment firm, from
Telefonica in the amount of EUR932 million. The additional sources of
cash for the transaction include a BRL914 million (EUR341 million)
debenture issued by the main subsidiary Atento Brasil S.A. and an equity
contribution of EUR360 million. Atento Group's existing debt will be
prepaid, which means that the consolidated on-balance sheet debt will be
EUR536 million at the end of the transaction, with estimated cash of
EUR102 million. The proposed notes will have all subsidiaries, with the
exception of Brazil and Argentina, as guarantors, and will be secured by
the guarantor's shares. Under the new group structure post acquisition,
Luxco is an intermediate holding company controlling all operational
Luxco's ratings reflect Atento's increased consolidated leverage ratio
post its acquisition, which is somewhat mitigated by the group's
expected strong cash flow generation in the coming years and extended
debt maturity profile. They also consider the growth prospects of the
contact center sector and the group's business position as one of the
main players in this fragmented market. Atento has a good geographic
diversification, with its main operations in investment grade countries.
Atento's credit quality is tempered by the strong competition; high
revenue concentration in Telefonica Group; and increasing labor costs
and high turnover in Brazil.
Moderate Leverage Post Acquisition
Fitch expects Atento's consolidated net leverage to reduce to a more
moderate level in the medium term, consistent with the rating assigned.
The net adjusted debt-to-EBITDAR ratio should range between 3.5x-4.0x,
above the 1.5x-3.5x in the last five years. For the last 12 months (LTM)
ended on Sept. 30, 2012, Atento's total adjusted debt-to-EBITDAR ratio
and net adjusted debt-to-EBITDA ratio were 3.6x and 3.4x, respectively.
According to Fitch's calculations, total adjusted debt of EUR1,193
million incorporates off-balance sheet debt of EUR883 million related to
rental expenses. On a pro forma basis, post acquisition considering the
LTM ended Sept. 30, 2012, net adjusted debt-to-EBITDAR should
approximate to 4.0x.
Margins Should Remain Strong
Positive free cash flow (FCF) is expected until the notes are fully
paid. Atento should not distribute dividends during this period and
Fitch foresees capital expenditures at 5% of net revenues, in line with
its sector peers. In the LTM ended Sept. 30, 2012, cash flow from
operations (CFFO) recovered to EUR126 million, with capital expenditures
of EUR117 million and reduced dividends of EUR2 million leading to a FCF
of EUR6 million. The ratings incorporate that Atento will not
participate in any acquisition over the next few years.
Strong Business Position
The ratings are supported by Atento's positive geographic
diversification with its main operations in investment grade countries.
Brazil, Spain and Mexico accounted for 77% of revenues and 81% of EBITDA
in 2011. Atento is also one of the main players in the global fragmented
market of contact center, being one of the leaders in all countries.
Market share is estimated at 4.7% globally and 24% in Brazil.
Extended Debt Maturity Profile
Atento's liquidity risk is mitigated by a strong operational cash
generation and a lengthened debt maturity profile. After the payment of
the existing debt and the conclusion of the proposed notes and
debentures, the initial debt amortization of just EUR26 million will
occur after a two year grace period. In the case of the notes, there is
a bullet payment in 2020. The notes are U.S.-dollar denominated and will
be hedged proportionally for the maturity into EUR and MXN, effectively
hedging approximately 65% of the exposure. The debentures in Reais
scheduled to mature from 2014 to 2019 should be paid by Atento Brasil
with no currency risk. A positive FCF should help the group to build
higher cash balances going forward in order to meet financial
KEY RATING DRIVERS
A negative rating action can occur as a result of a decline in
operational margins combined with negative FCF and inability to meet
expectations of credit metrics improvements. Increased cash flow
generation along with sound liquidity that lead to more conservative
credit metrics can trigger a positive rating action.
Additional information is available at 'www.fitchratings.com`.
The ratings above were solicited by, or on behalf of, the issuer, and
therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
-- 'Corporate Rating Methodology' (Aug. 08, 2012).
Corporate Rating Methodology
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