Fitch downgrades Solocal, PagesJaunes

Fitch Ratings said it downgraded Solocal Group SA's long-term issuer default rating to CC from B-.

The agency also said it downgraded the senior secured bonds issued by PagesJaunes Finance to CCC- with recovery rating of RR3 from B with recovery rating of RR3.

The downgrades reflect recent comments made by the company’s management about Solocal’s first quarter of 2016 earnings release, stating it plans to introduce new equity capital to help finance a drastic reduction in group debt, Fitch explained.

Solocal remains within the terms of its bank covenants and has confirmed it plans to meet upcoming interest payments on both bonds and bank debt, the agency said.

The company has acknowledged for some time that its leverage is unsustainable and that the covenant is limiting its ability to invest in client acquisition to grow business over the longer term, Fitch said.

Solocal’s competitors carry little or no debt and therefore are free from these constraints, the agency said.

The potential for new equity to reduce debt, as stated by the management, could include a request to restructure or write-down current outstanding debt, Fitch said.

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