S&P downgrades Cell C to its worst rating after default
The rating agency has given the cellphone network’s senior secured bonds a ‘D’, sending it deeper into junk territory
Cell C missed interest payments in January, and has been slapped with a "D" for default rating by S&P Global Ratings.
S&P said in a statement on Tuesday morning that it was cutting the rating on Cell C’s €400m worth of senior secured bonds from "CC" — shorthand for "default imminent with little prospect for recovery " — to "D" because it had failed to pay lenders by the due date. D is the worst credit rating S&P issues.
Cell C is in the process of reducing its debt by selling shares to Blue Label Telecoms. The last announcement on this proposed deal was in November when Blue Label said it would cut Cell C’s debt to about R6bn.
Part of Cell C’s woes are due to the government’s regulator, the Independent Communications Authority of SA (Icasa). S&P noted that when Vodacom wanted to buy Neotel, the deal collapsed because Icasa refused to allow the new owner to take over Neotel’s broadcasting spectrum. Blue Label Telecoms is likely to face the same red tape, making Cell C’s bankruptcy a scenario lenders need to consider.
"Uncertainty over which potential buyers could emerge and whether Icasa could restrict spectrum use makes Cell C’s spectrum assets difficult to value. As such, our expectations for recovery could significantly improve or weaken, depending on the circumstances," S&P said.
S&P said in Tuesday’s statement that there were delays in concluding the restructuring agreement, leading to a cash crunch in which Cell C "has missed interest payments on its senior secured bonds, as well as other unrated debt instruments".
"Cell C had received waivers from its lenders for missing principal payments through January 2017 on its debt instruments, but it is now beyond the waiver period and has missed interest payments on its senior secured bonds.
"The company has not sought bankruptcy protection, and we expect it will continue to operate and meet its non-debt obligations, including payroll and suppliers.
"However, we note that the company currently relies on its lenders not exercising their acceleration rights as negotiations on a restructuring continue," S&P said.