Moody's rates new Axtel notes B2

Moody's Investors Service said it assigned prospective B2 senior implied and senior unsecured issuer ratings for Axtel SA de CV and a prospective B2 rating to the proposed offering of $150 million guaranteed senior unsecured notes due 2013 to be issued by the company.

The outlook will be stable pro forma for successful completion of the proposed transaction.

Moody' said Axtel's prospective ratings reflect the risks inherent in the company's limited track record of positive free cash flow, relatively smaller size compared to other rated telecommunications companies, existing competition from the dominant telephone carrier, declining prices in traditional telephone services, dependence on a key customer, currency mismatch, and mobile substitution.

Somewhat mitigating these concerns, however, are the company's status as the second largest local telephone company in Mexico, its solid operating performance and significant success at controlling churn, its "bill and keep agreement" with Telmex, a relatively healthy balance sheet, improved maturity profile pro forma for the pending transaction, under penetration of local telephone services, strong sponsorship from large shareholders and a favorable regulatory framework.

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