Moody's upgrades Millicom

Moody's Investors Service upgraded Millicom International Cellular SA including raising its 13.5% senior subordinated discount notes due 2006 to B3 from Caa3 and assigning a B2 rating to its new 11.0% senior unsecured notes due 2006. The outlook is stable.

The upgrade reflects Millicom's improved liquidity position and reduced leverage following the completion of the company's recent exchange offer and subsequent issuance of 5% mandatory exchangeable bonds, the proceeds of which will be used to retire approximately $167 million of the company's 11% senior notes, Moody's said.

The ratings continue to reflect broad-based country risks related to Millicom's multinational operations (which are concentrated in emerging market countries); the limited purchasing power of the populations where Millicom operates (overall), which may constrain the company's revenue growth; the challenge of managing a broad base of multi-national operations spread across a number of different countries; and structural considerations with respect to the company's consolidated capital structure, Moody's said.

Positively, the ratings continue to reflect the strong operating cash flow generation of Millicom's businesses; the geographic diversification of Millicom's subsidiaries which reduces the company's exposure to the risks of any individual country; and the generally low penetrations rates and resultant strong growth prospects for the mobile markets where Millicom operates.

Pro forma for the expected cancellation of the $167 million of Millicom's 11% senior notes, the company's holdco cash interest expense will be reduced to approximately $62 million (excluding interest from the exchangeable notes, which will be serviced from escrowed cash) from $145 million prior to the debt restructuring, Moody's said.

While Millicom has a comfortable pro forma coverage ratio for holdco interest of 1.61x (using the $100 million forecast figure for cash to be upstreamed), the company currently has a somewhat limited cushion for the amortization requirements of the new senior notes (amortization equal to $35 million in 2004 and 2005, payable in June and December of each year).

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