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S&P cuts, upgrades Telefonica de Argentina
Standard & Poor's downgraded then upgraded Telefonica de Argentina SA and Compania Internacional de Telecomunicaciones SA including cutting Telefonica de Argentina's $300 million 11.875% notes due 2004 and $400 million 9.125% notes due 2008 to D from CC, then upgrading them to CCC- and cutting Cointel's $225 million 8.85% medium-term notes series A due 2004 and ARS175 million 10.375% medium-term notes series B due 2004 to D from CC, then upgrading them to CCC-. S&P also upgraded Telefonica de Argentina's $71.375 million 9.875% notes due 2006 and Telefonica Holding de Argentina SA's $225 million 9.75% medium-term notes series B due 2007 to CCC- from CC. S&P assigned a CCC- rating to Telefonica de Argentina's $189.8 million 11.875% notes due 2007, $220.1 million 9.125% notes due 2010, ARS0.22 million 8.85% notes due 2011 and $148.2 million 8.85% notes due 2011. The outlook is negative.
S&P said the action follows completion of the exchange offer launched in May.
Although an important percentage of the holders of the original notes have exchanged them for the new notes, S&P said it views the concluded exchange as a default because recovery of the exchanged bonds is deferred beyond the original maturity date.
The exchange offer has resulted in a lengthening of the maturity schedule for Telefonica de Argentina and Cointel, reflected in the subsequent upgrade.
In spite of the relief of Telefonica de Argentina's short-term refinancing risk, the company has to overcome the challenges regarding the tariff renegotiation and the economic recovery and stability in Argentina, S&P said. In addition, Cointel still faces the maturity of its capital market debt in August 2004.
The negative outlook reflects S&P's expectations that Telefonica de Argentina's cash flow generation will remain unclear as log as the renegotiation of tariffs is not resolved. In addition, even after the exchange, Telefonica de Argentina's and Cointel's liquidity is tight.
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