Fitch Ratings Downgrades ColTel Amid Credit Metric and Free Cash Flow Concerns

New York-based credit ratings agency Fitch Ratings downgraded key ratings of Colombia Telecomunicaciones S.A. E.S.P.’s (ColTel), citing the telecom’s strained credit metrics, negative free cash flow generation, and intense competition.

Specifically, Fitch Ratings set the following ratings for ColTel

• Long-Term Foreign Currency Issuer Default Ratings: BB+ (down from BBB-)
• Long-Term Local Currency Issuer Default Ratings: BB+ (down from BBB-)
• National Scale Rating: AA+(col) (down from AAA(col))

The big three ratings agency also downgraded ColTel’s $500 million USD notes (due 2030) to BB+ from BBB- as well as its local issuances of bonos ordinarios to AA+(col) from AAA(col).

Though controlled by Telefonica S.A. of Spain, the Colombian government owns roughly a one-third stake in the telecom, which provides mobile, broadband, television, and other services to consumers and enterprises.

“Although the Colombian government holds a 32.5% stake in ColTel,” stated Fitch in its ratings announcement, “it does not influence the company’s management, so the government’s involvement does not directly impact the ratings.”

ColTel’s net leverage hit 3.2x last year, per Fitch, which noted that it expects this figure to stay relatively steady over the next two years and close at around 3x by the end of 2025. While the firm also projects adjusted EBITDA to “improve modestly” this year to around COP 1.2 trillion (from COP 1.1 trillion), Fitch says it “anticipates that free cash flow will remain negative and be constrained by significant capital expenditures, including the renewal of spectrum anticipated for 2024 and 2025.”