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Fitch Rates BC Luxco 1 S.A. 'BB'; Outlook StableRIO DE JANEIRO --(Business Wire)-- Fitch Ratings has assigned the following ratings to BC Luxco 1 S.A. (Luxco), Atento Group's new intermediate holding company: -- Foreign currency Issuer Default Rating (IDR) 'BB'; and -- Proposed USD250 million senior secured notes due 2019 'BB'. The Rating Outlook is Stable. The proceeds are to support the leverage buyout acquisition of Atento Group by Bain Capital Partners, a private investment firm, from Telefonica (News - Alert) in the amount of EUR932 million. The additional sources of cash for the transaction include a BRL914 million (EUR341 million) debenture issued by the main subsidiary Atento Brasil S.A. and an equity contribution of EUR360 million. Atento Group's existing debt will be prepaid, which means that the consolidated on-balance sheet debt will be EUR536 million at the end of the transaction, with estimated cash of EUR102 million. The proposed notes will have all subsidiaries, with the exception of Brazil and Argentina, as guarantors, and will be secured by the guarantor's shares. Under the new group structure post acquisition, Luxco is an intermediate holding company controlling all operational subsidiaries. Luxco's ratings reflect Atento's increased consolidated leverage ratio post its acquisition, which is somewhat mitigated by the group's expected strong cash flow generation in the coming years and extended debt maturity profile. They also consider the growth prospects of the contact center sector and the group's business position as one of the main players in this fragmented market. Atento has a good geographic diversification, with its main operations in investment grade countries. Atento's credit quality is tempered by the strong competition; high revenue concentration in Telefonica Group; and increasing labor costs and high turnover in Brazil. Moderate Leverage Post Acquisition Fitch expects Atento's consolidated net leverage to reduce to a more moderate level in the medium term, consistent with the rating assigned. The net adjusted debt-to-EBITDAR ratio should range between 3.5x-4.0x, above the 1.5x-3.5x in the last five years. For the last 12 months (LTM) ended on Sept. 30, 2012, Atento's total adjusted debt-to-EBITDAR ratio and net adjusted debt-to-EBITDA ratio were 3.6x and 3.4x, respectively. According to Fitch's calculations, total adjusted debt of EUR1,193 million incorporates off-balance sheet debt of EUR883 million related to rental expenses. On a pro forma basis, post acquisition considering the LTM ended Sept. 30, 2012, net adjusted debt-to-EBITDAR should approximate to 4.0x. Margins Should Remain Strong
Positive free cash flow (FCF) is expected until the notes are fully paid. Atento should not distribute dividends during this period and Fitch foresees capital expenditures at 5% of net revenues, in line with its sector peers. In the LTM ended Sept. 30, 2012, cash flow from operations (CFFO) recovered to EUR126 million, with capital expenditures of EUR117 million and reduced dividends of EUR2 million leading to a FCF of EUR6 million. The ratings incorporate that Atento will not participate in any acquisition over the next few years. Strong Business Position The ratings are supported by Atento's positive geographic diversification with its main operations in investment grade countries. Brazil, Spain and Mexico accounted for 77% of revenues and 81% of EBITDA in 2011. Atento is also one of the main players in the global fragmented market of contact center, being one of the leaders in all countries. Market share is estimated at 4.7% globally and 24% in Brazil. Extended Debt Maturity Profile Atento's liquidity risk is mitigated by a strong operational cash generation and a lengthened debt maturity profile. After the payment of the existing debt and the conclusion of the proposed notes and debentures, the initial debt amortization of just EUR26 million will occur after a two year grace period. In the case of the notes, there is a bullet payment in 2020. The notes are U.S.-dollar denominated and will be hedged proportionally for the maturity into EUR and MXN, effectively hedging approximately 65% of the exposure. The debentures in Reais scheduled to mature from 2014 to 2019 should be paid by Atento Brasil with no currency risk. A positive FCF should help the group to build higher cash balances going forward in order to meet financial obligations. KEY RATING DRIVERS A negative rating action can occur as a result of a decline in operational margins combined with negative FCF and inability to meet expectations of credit metrics improvements. Increased cash flow generation along with sound liquidity that lead to more conservative credit metrics can trigger a positive rating action. Additional information is available at 'www.fitchratings.com`. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings. Applicable Criteria and Related Research: -- 'Corporate Rating Methodology' (Aug. 08, 2012). Applicable Criteria and Related Research: Corporate Rating Methodology http://www.fitchratings.com/creditdesk/reports/report_frame.cfm rpt_id=684460 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON (News - Alert) THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.
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