Research Update: Brazilian Telecom Operator Oi S.A. Ratings Lowered To 'B-' From 'B' On Weaker Credit Metrics; Outlook Negative

Rio de Janeiro-based telecom operator Oi S.A. (Oi) is one of the main integrated telecom service providers in Brazil, with approximately 53 million revenue generating units (RGUs) and R$20 billion in net revenue in 2019. We expect the macroeconomic challenges imposed by the COVID-19 pandemic to hurt Oi's revenue and cash flow generation, which, coupled with a material local currency depreciation, will drive debt to EBITDA above 7x and funds from operations (FFO) to debt below 10% in the next three years, breaching our downgrade triggers for the rating. Additionally, we expect COVID-19 to increase uncertainty around non-core asset sales, hampering a key part of Oi's business plan. On May 11, 2020, S&P Global Ratings lowered its global scale issuer

...- Rio de Janeiro-based telecom operator Oi S.A. (Oi) is one of the main integrated telecom service providers in Brazil, with approximately 53 million revenue generating units (RGUs) and R$20 billion in net revenue in 2019. - We expect the macroeconomic challenges imposed by the COVID-19 pandemic to hurt Oi's revenue and cash flow generation, which, coupled with a material local currency depreciation, will drive debt to EBITDA above 7x and funds from operations (FFO) to debt below 10% in the next three years, breaching our downgrade triggers for the rating. - Additionally, we expect COVID-19 to increase uncertainty around non-core asset sales, hampering a key part of Oi's business plan. - On May 11, 2020, S&P Global Ratings lowered its global scale issuer credit and issue-level ratings on Oi to 'B-' from 'B' and lowered its national scale rating to 'brBBB-' from 'brA-'. - The negative outlook reflects the cash flow constraints and execution challenges in Oi's capital expenditures (capex)...

Research Update