Bonds of Total Play Telecomunicaciones SA sank further into distressed levels on Wednesday as concerns grow over how quickly the Mexican internet and cable provider is burning cash.
(Bloomberg) — Bonds of Total Play Telecomunicaciones SA sank further into distressed levels on Wednesday as concerns grow over how quickly the Mexican internet and cable provider is burning cash.
Notes due 2025 tumbled by 6 cents on the dollar to 62 cents in their biggest one-day drop in more than three months, with the yield rising to 32%. Debt due in 2028 also slumped, according to Trace data.
The bonds have faced repeated bouts of volatility this year amid concerns about the company’s spending and its ability to refinance the 2025 debt. Total Play’s owner, Mexican billionaire Ricardo Salinas, is also waging a legal battle with bondholders of notes from his broadcaster TV Azteca, which defaulted back in 2021.
Total Play executives sparked the latest rout by announcing on a July 27 conference call that they were increasing capital expenditures — to 15.5 billion pesos ($910 million) this year from previous guidance of 14 billion — and striking deals for secured debt with local lenders.
That prompted JPMorgan Chase & Co. analyst Eduardo Nieto to cut his recommendation on the bonds to underweight from neutral. Nieto cited lower expected recovery values after the company turned to more local secured funding. He also pointed to concerns about higher capital expenditures and weaker-than-expected earnings before items.
“Cash burn this year will be more significant,” he wrote in a note on Tuesday.
Total Play didn’t immediately respond to a request for comment.
Chief Financial Officer Alejandro Rodriguez told investors last week that the company had obtained more than 8 billion pesos of financing, including around 6 billion pesos of secured debt in a “club deal” with local lenders. Some of those funds were used to pay down credit lines with Barclays Plc and Credit Suisse Group AG, he said.
The move to local funding had “arguably” stoked investors concerns about Total Play since it put the company in a similar situation to TV Azteca, which also had shifted to peso debt before ultimately defaulting on dollar bonds, said Alexis Panton, an emerging markets strategist at BNP Paribas in New York.
“As has been the case for quite some time with Total Play, the market is concerned about willingness versus ability to pay,” Panton said in an interview.
Panton said the company still has a path forward if it can maintain growth, eventually increasing market penetration to the point where capital expenditures won’t be as needed.
“If that can happen within the next six to 12 months, it could create a virtuous cycle whereby the company becomes effectively self-funding,” he said.
–With assistance from Vinícius Andrade and Maria Elena Vizcaino.
(Adds CFO and strategist comments starting in 7th paragraph)
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.