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Axtel Called ‘Vulnerable’ as Moody’s, S&P Cut Debt Ratings

Axtel SAB (AXTELCPO), Mexico’s second-largest land-line telephone company, had its debt ratings reduced by Moody’s Investors Service and Standard & Poor’s because of competition and financial constraints.

Moody’s trimmed Axtel’s corporate rating one step to Caa1, seven levels below investment grade, saying in a statement today that the company had a “higher probability of default” because of limited cash. New York-based S&P cut its rating one step to B, five levels into junk status, according to a statement.

“The downgrade reflects our concerns about Axtel’s business profile, which we now consider as vulnerable, amid very competitive operating conditions,” S&P said. The ratings company also said “Axtel’s liquidity is less than adequate.”

Axtel is spending about $200 million next year to extend fiber-optic lines to homes and businesses, boosting Internet speeds to compete with Telefonos de Mexico SAB. (TELMEXL) Axtel, based near Monterrey, Mexico, will end 2012 with a cash-flow surplus after a 2011 deficit of as much as $20 million, Chief Financial Officer Felipe Canales said on an Oct. 28 conference call.

Moody’s also reduced its rating on Axtel’s global bonds two levels to Caa2, citing the subordination of those notes to creditors in a $60 million syndicated loan obtained this month. That agreement also included a $40 million revolving facility.

The loan’s maturity in November 2013 could be moved to an earlier date if Axtel’s debt reaches more than 3.5 times earnings before interest, taxes, depreciation and amortization, creating a “high possibility” for a breach, New York-based Moody’s said.

The company’s press office didn’t immediately respond to an e-mail or phone calls.

Axtel rose 1.8 percent to 4.46 pesos at the close in Mexico City. The shares have dropped 37 percent this year.

Telefonos de Mexico is the country’s largest land-line phone carrier.

To contact the reporter on this story: Crayton Harrison in Mexico City at tharrison5@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net

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