With a challenging two years of domestic and international debt service, a transaction involving Total Play’s (B-/Caa1) fiber optic assets could offer a path forward, in addition to actions such as cutting capex, according to two bondholders and two credit analysts.

The options the Mexican provider of fixed telecommunications services has mentioned to bondholders include obtaining financing secured by its unencumbered optical assets, perhaps through a bond swap or agreement to extend the maturity, according to the first bondholder.

Total Play’s secured debt represented 58% of total debt as of September 2023, according to Fitch director Velia Valdes. The company’s total debt was MXN 50.3bn (USD 2.95bn) at that time, according to its earnings.

The company has communicated that it is not planning to seek any haircut on its USD 575m senior unsecured 7.5% 2025 bonds, nor pursue and reorganize in-court, the first bondholder said. It intends to present a solution for the 2025 bond maturities in the next few months, the bondholder said.

A representative for Total Play did not respond to a request for comment.

The fiber assets are fully unencumbered, and could be an option to negotiate something, Rosa Morales, Assistant Vice President at Moody’s, told Debtwire. A Chapter 11 filing is not in the agency’s base-case scenario, but remains a possibility considering where the bonds trade, she said.

The 2025 bond traded at 57.6 on 6 February, according to MarketAxess. Total Play’s USD 600m 6.375% senior unsecured 2028 bond traded at 43.7 on 1 February.

Total Play has a strong business, with 100% retention on its fiber optical business, as “once it gets a client, it is like perpetual income,” the first bondholder said. A this point, the bonds offer an opportunity, “but everything depends on the refinancing,” the bondholder said.

The company’s fiber assets are valued at MXN 75bn under a very conservative estimate, and MXN 90bn under a base-case estimate, based on the number of homes passed and average price, according to the second bondholder.

Total Play’s reported a value of MXN 60.4bn for its fixed assets, including its fiber optics business, in its 3Q23 earnings release.

“We are moving to the bullish side because we see a lot of equity value in the business,” the second bondholder said. “It’s not particularly levered, even if you include receivables. And since there is a lot of equity we think [owner] Grupo Salinas is less likely to play one of their tricks.”

The Grupo Salinas-owned TV Azteca missed interest payments on its USD 400m 8.25% 2024 bond in 2021 and bondholders filed an involuntary US Chapter 11 in 2023, raising concerns about Total Play meeting future maturities.

So far, Total Play has been able to refinance domestic debt without difficulty, most recently refinancing MXN 1bn in short-term domestic bonds on 20 December. The next significant domestic maturity is MXN 1bn in April, Fitch’s Valdes told Debtwire.

In 2024, Total Play has MXN 1.5bn in unsecured domestic bonds due, MXN 1.2bn in leasing debt, MXN 1 in short-term unsecured domestic bonds, MXN 500m in revolving debt facilities, and MXN 1bn in “other” debt, as reported.

Capex control

Fitch downgraded Total Play on 19 January due to the inaction to materially address its refinancing needs. The agency found it has limited access to capital to address the 2025 maturity and has been slow to adjust capex spending to prioritize debt repayment.

The options are either a capital injection, selling part of their fiber network, or reducing capex, Valdes said.

“Total Play may need to cut off its expansionary capex to get money for their maturities. But it looks like they don’t want to do it and hope to refinance and grab the biggest market share,” the first bondholder said.

Total Play’s expected capex for 2024 is MXN 12-MXN 13bn, with around half used for maintenance, potentially allowing it to free up MXN 6.5bn, according to Valdes.

“The question is how much will they cut capex to permit them to have this flexibility,” Valdes said.

If Total Play cuts capex by a third this year and a third next year, it would be able to obtain the MXN 6bn-MXN 7bn, which would make the company’s refinancing needs much less, giving them access to the local market, according to Valdes.

A reduction in capex in each year of MXN 3.0bn-MXN 3.5bn would give Total Play the financial flexibility to repay the bonds. There is competition in Mexico’s telecom industry to consider, but this type of cut would strengthen the company’s finances significantly and would take it out of this situation without a capital injection, according to Valdes.