Colum­bus In­ter­na­tion­al Inc, which trades as Flow in the re­gion, is in line for an up­grade from two rat­ing agen­cies.Fol­low­ing last Thurs­day's an­nounce­ment that the Ca­ble & Wire­less (CWC) board had agreed terms to ac­quire Colum­bus for US$3.02 bil­lion, in­clud­ing the as­sump­tion of debt, Moody's and Stan­dard & Poors put out state­ments favour­ing the deal.

"Dur­ing the last twelve months (LTM) end­ed in June 2014, Colum­bus' rev­enues and ad­just­ed earn­ings be­fore in­come tax, de­pre­ci­a­tion and amor­ti­sa­tion (EBIT­DA) mar­gin amount­ed to US$547 mil­lion and 46 per cent, re­spec­tive­ly," Moody's said in its state­ment. The Moody's state­ment did not give the rev­enue for the com­par­a­tive pe­ri­od last year.

Moody's placed Colum­bus' rat­ings on re­view for up­grade. On Thurs­day, af­ter 9 pm a state­ment is­sued from Moody's New York of­fice said: "Moody's In­vestors Ser­vice has to­day placed on re­view for up­grade Colum­bus In­ter­na­tion­al Inc's B2 cor­po­rate fam­i­ly rat­ing and the B2 debt rat­ings of its US$1.25 bil­lion se­nior un­se­cured notes ma­tur­ing in 2021.

The ac­tion fol­lows to­day's an­nounce­ment that Colum­bus has en­tered in­to a de­fin­i­tive agree­ment to be ac­quired by Ca­ble & Wire­less Com­mu­ni­ca­tions Plc. in a trans­ac­tion to­tal­ing US$3 bil­lion."

Giv­ing the ra­tio­nale be­hind the de­ci­sion, Moody's an­a­lyst San­dra Bel­tr�n said: "The re­view was trig­gered by CWC's plans to ac­quire Colum­bus, and our view that it would lead to an en­hance­ment of Colum­bus cred­it pro­file, giv­en CWC's larg­er scale and lead­ing mar­ket po­si­tions through­out the Caribbean and Pana­ma, as well as its stronger bal­ance sheet and cred­it met­rics."

In Moody's view, she said, the plan, "if ex­e­cut­ed suc­cess­ful­ly, is cred­it pos­i­tive for Colum­bus. Where­as Colum­bus' lever­age cal­cu­lat­ed as debt/EBIT­DA reached 5.3x in the last twelve months (LTM) end­ed in June 2014, CWC's ad­just­ed debt/EBIT­DA was 2.5x in the LTM end­ed in March of 2014, lead­ing to ex­pec­ta­tions of a 3.5x lever­age lev­el for the con­sol­i­dat­ed en­ti­ty by the end of 2015."

The re­view will main­ly but not ex­clu­sive­ly fo­cus on the "time­ly and suc­cess­ful ex­e­cu­tion of the ac­qui­si­tion," Moody's said. The rat­ing on the notes will al­so be pend­ing on the fi­nal cap­i­tal struc­ture of the con­sol­i­dat­ed en­ti­ty.Moody's ex­pects to close the re­view short­ly af­ter the clo­sure of the ac­qui­si­tion, which it said, is ex­pect­ed in the first quar­ter (Q1) of 2015. S&P came out first just af­ter 8 pm, putting "Colum­bus In­ter­na­tion­al 'B' Rat­ings" on watch to have its out­look up­lift­ed to "pos­i­tive."

"We are plac­ing our 'B' cor­po­rate cred­it and is­sue-lev­el rat­ings on Colum­bus on Cred­it­Watch with pos­i­tive im­pli­ca­tions.

The Cred­it­Watch place­ment re­flects the pos­si­bil­i­ty that we could raise the rat­ings on Colum­bus if the ac­qui­si­tion is com­plet­ed, since we will then view Colum­bus as a "core sub­sidiary" for CWC. S&P said: "The Cred­it­Watch place­ment re­flects the po­ten­tial for S&P to raise the rat­ings on Colum­bus to the same rat­ing as that on Ca­ble & Wire­less Com­mu­ni­ca­tions PLC (CWC), which plans to ac­quire Colum­bus for about $3.025 bil­lion.

Colum­bus' se­nior un­se­cured notes for US$1.25 bil­lion will re­main in place un­less bond hold­ers are will­ing to re­deem their bonds at 101 per cent of par, ac­cord­ing to the change of con­trol clause." Bond hold­ers who forego "101 per cent of par" could hold on­to their bonds un­til March 2021 when they ma­ture.

Adding a line not in CWC's orig­i­nal re­lease, S&P al­so said: "The trans­ac­tion is sub­ject to gov­ern­ment and reg­u­la­to­ry ap­provals and oth­er cus­tom­ary con­di­tions." Moody's said Colum­bus' B2 cor­po­rate fam­i­ly rat­ing re­flects its "high fi­nan­cial lever­age and neg­a­tive cash flow gen­er­a­tion."

The com­pa­ny's re­cent his­to­ry of be­ing ac­tive with ac­qui­si­tions al­so lim­its the rat­ing as it pos­es event and ex­e­cu­tion risk. "As a small tele­com op­er­a­tor in Cen­tral Amer­i­ca and the Caribbean, the com­pa­ny al­so faces high busi­ness risks, mit­i­gat­ed by sig­nif­i­cant ca­pac­i­ty in Colum­bus' state-of-the-art sub-sea and ter­res­tri­al net­works in the re­gion, which of­fer room to grow rev­enues with lim­it­ed com­pe­ti­tion," Moody's said.

Al­so sup­port­ive of Moody's view, the state­ment said, is the up­side growth po­ten­tial for its ca­ble TV and tele­com busi­ness in broad­band and the com­pa­ny's sol­id mar­ket shares in its cov­er­age ar­eas. Moody's said neg­a­tive rat­ing pres­sure would build if the an­nounced merg­er could not con­clude and, if at the same time, Colum­bus' con­tin­ues to run neg­a­tive free cash flow for an ex­tend­ed pe­ri­od and if in­ter­est cov­er­age, mea­sured by EBIT­DA mi­nus capex to in­ter­est ex­pense, weak­ens fur­ther.