"The Outlook is Negative"
 

Rating Action: Microcell Telecommunications Inc.


MOODY'S DOWNGRADES SENIOR NOTES OF MICROCELL TELECOMMUNICATIONS TO C

Approximately C$1.4 Billion (equivalent) of Debt Affected.

Toronto, September 05, 2002 -- Moody's Investors Service today downgraded the ratings on Microcell Telecommunications Inc. as detailed below:

Senior Implied rating to Ca from Caa2

Issuer rating to C from Caa3

Senior Unsecured rating to C from Caa3, which is comprised of the following debt issues:

14% Senior Discount Notes due 2006, US$418 million face value

11.125% Senior Discount Notes due 2007, C$429 million face value

12% Senior Discount Notes due 2009, US$270 million face value

The outlook is negative.

The ratings action is caused by Microcell's recent announcement that it is not certain it may comply with some of its covenants and that there is significant uncertainty regarding the Company's ability to continue as a going concern. In the event of a debt restructuring, the unsecured Notes, which are structurally subordinate to approximately C$580 million of bank and related debt, are, in Moody's opinion, likely to have only minimal value. In the first six months of this year, Microcell had negative free cash flow of C$140 million, in part attributable to capital expenditures equal to 38% of Revenue. Approximately ½ of the Company's subscribers are pre-paid users, with an ARPU of only C$17 per month, and blended churn is up to 3% per month.

Microcell may be able to obtain financing from its strategic equity owners or from its vendors, but Moody's considers this unlikely. Given foreign ownership restrictions, it is uncertain that there are buyers for Microcell outside of Canada. Within the country, there is only one other operator of a GSM system, and that operator has already stated it is not interested in purchasing Microcell. Microcell's creditors might end up owning the firm, but given the current rate of cash consumption, it would seem necesssary to obtain commitments from the creditors or other parties for sufficient additional funds to take the company to break-even free cash flow. It is therefore highly likely that the firm will need to be restructured, with very little if any value being attributable to the unsecured Notes, and likely even impairment of the senior-ranking bank debt.

Microcell Telecommunications Inc. is a Canadian wireless telecommunications service provider with 1.2 million GSM subscribers. The company is headquartered in Montreal, Quebec, Canada.

New York
Julia Turner
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Toronto
Donald S. Carter CFA
Vice President - Senior Analyst
Corporate Finance
Moody's Canada Inc.
(416) 214-1635

Where is this article from? When posting articles please post the source.

I wasn't able to find the source for the above article, but here is a globe investor article that discusses it:

http://tsedb.theglobeandmail.com/se...=gam&slug=RMICR

Sorry scratch that, here is the source for the original article that was posted:

http://www.moodys.com/moodys/cust/r...y=Rating+Action

Damn, seems like Moody has declared Microcell as "certified"...

But aren't Rogers AT&T losing money too, just that Mr. Rogers still has plenty of dough in his neighbourhood...

Yeah, Moody's declared Telus a bad investment a couple of weeks back too, so i don't know. Either they know what they're talking aboot with both companies, or they're just talking out of their asses. I hate to say it, but judging from the past, moody's defimitely knows what they're talking aboot.

Sorry for not posting the URL but it was a mile long. At the bottom of the article it clearly states that it's from Moodys.

There are so many rumours floating around now about Microcell. I have heard some that state that upper management is putting on a rosy picture to employees in return for a sizeable package when/if Microcell goes under.

The one thing I'd like to know is how much money Microcell has left in the coffers and how long can they go for. Of course, there's a few of us who are wondering that.

I think in the end, Microcell is going to have to restructure and I think that means Mr Sirios is going to have to leave. Hopefully, the restructuring will work much like it is working for 360Networks and others..

they told their reps in august, ( i used to be one of them) that they have enough money to continue operations for 18 months.... but i strongly doubt it will be that long...

TELUS is still rated as investment grade by Moody's.

Yes, but they were downgraded. And if i remember correctly, you were saying how its only one investment company, so its not bad.

Well it's one investment firm that we know of. There are probably many more.

Moody's is also usually regarded as "The" investment firm.

I like to follow S&P...

Ok:



Microcell Telecommunications Inc. Ratings Lowered, Still on Watch Negative
Credit Analyst: Linli Chee, Toronto (1) 416-507-2552; John R Tysall, Toronto (1) 416-507-2531



TORONTO (Standard & Poor's) Aug. 30, 2002--Standard & Poor's Ratings Services today said it lowered its long-term corporate credit rating on Microcell Telecommunications Inc. to triple-'C' from single-'B'. At the same time, the senior unsecured debt rating on the company was lowered to triple-'C'-minus from single-'B'-minus. The ratings remain on CreditWatch with negative implications, where they were placed July 16, 2002.

Montreal, Que.-based Microcell is the fourth-largest national wireless operator in Canada with 1,188,754 subscribers at June 30, 2002, and total debt of C$1.9 billion.


"The downgrade reflects Standard & Poor's heightened concerns that financial flexibility has been significantly impaired given cash equivalents of only C$121.9 million, lending to inadequate funding beyond the end of 2002," said Standard & Poor's credit analyst Linli Chee.


After taking into account the company's cash burn rate for the first half of the year, Standard & Poor's does not believe there to be sufficient funding beyond 2002 without access to other sources of cash. Microcell's weak liquidity position is further affected by uncertainty about the company's access to about C$264 million of unused funds under its credit facilities, which is contingent on maintaining covenants under its long-term debt agreements.


Given a weaker economy and a challenging competitive environment among the remaining three national wireless players, operating risk has risen in recent quarters. Operating metrics such as churn have deteriorated, leading to concerns of falling brand equity in the marketplace due to uncertainties about Microcell's ability to continue as a going concern in the absence of a material amendment to its bank credit facilities. Although a portion of customer churn was company-initiated to disconnect nonpaying customers, blended monthly churn peaked at 3.0% in the second quarter of 2002 versus 2.3% last year. As a result, the company has had lower-than-anticipated subscriber additions, most of which were in the lower margin prepaid segment. Accordingly, Standard & Poor's believes Microcell's ability to grow revenue and EBITDA in successive quarters is limited due to liquidity concerns.


The CreditWatch resolution will depend on the outcome of Microcell's discussion with its bankers regarding amendments to its covenant structure, and Standard & Poor's evaluation of the company's revised operating and financial plans. Microcell has retained a special committee of the Board to review its options, which include debt restructuring, recapitalization, or potential capital infusion.


A complete list of the ratings is available to RatingsDirect subscribers at www.ratingsdirect.com, as well as on Standard & Poor's public Web site at www.standardandpoors.com under Ratings Actions/Newly Released Ratings.


ANALYTICAL E-MAIL ADDRESSES
linli_chee@standardandpoors.com
john_tysall@standardandpoors.com
canadian_ratings@standardandpoors.com



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Uh oh, outlook is negative. From what I understood of the conference call, there are several covenants that they are unable to meet, not just one. Anyone know what those covenants are? In the call, they refused to specify.

here's how it is...I really don't care who runs Fido, jus' as long as my kick a$$ service still remains, with my kick a$$ plan....why wouldn't Rogers buy out Fido?? or at least their towers in Ontario....