Ratings agency Standard & Poors’ Global Ratings (S&P’s) has downgraded telecoms operator Cell C’s debt rating to ‘CC’ and its partial debt restructuring to ‘SD’.

This followed after Cell C amended the terms of its R1.4-billion private airtime facility agreement to delay the timing of selected repayments.

“Although no conventional payment or legal default event under the amended agreement has occurred to date, we view the repayment profile restructuring as a distressed exchange and tantamount to selective default, given Cell C's weak liquidity position.

“We are, therefore, lowering our rating on Cell C to ‘SD’ (selective default) from ‘CCC-’and our issue rating on the company's senior secured debt to 'CC' from 'CCC'. The '2' recovery rating reflects our estimate of substantial (70% to 90%, or rounded estimate of 85%) recovery to creditors in the event of a payment default,” S&P’s said in a statement on Thursday.

S&P’s downgraded Cell C’s rating to ‘CCC-’in April, stating at the time that its liquidity position continued to weaken. Engineering News Online in April quoted S&P’s as stating that R8.8-billion of Cell C’s R9-billion debt would mature within the next 18 months, while the company’s free cash flow remained negative under normal working capital and capital expenditure conditions.

“The company's upcoming debt maturities in 2019 and 2020 include a R1.4-billion airtime backed facility due in July; about R3.8-billion of bank funding due in January and July 2020; a R2.6-billion senior secured bond due in August 2020; and a rolling R900-million handset financing facility.

S&P’s added that it understood Cell C wanting to amend the private airtime facility agreement to preserve cash and financial flexibility while implementing various conditions precedent ahead of concluding the previously announced Buffet Consortium transaction.

In February, Blue Label Telecoms, which holds 45% of Cell C’s common equity, notified the market of the Buffet Consortium’s intention to return Cell C to operational and financial sustainability.

“We believe that further amendments to the airtime facility agreement will be required as part of the ongoing discussions with service providers, lenders and major shareholders, whose consent is required to implement the Buffet Consortium transaction.

“We could also view these additional amendments as a distressed exchange. We will re-evaluate our ratings on Cell C when we no longer believe that there is a high likelihood of another distressed restructuring or exchange, or when discussions and conditions precedent related to the pending transaction have reached a conclusion,” S&P’s stated.