The bonds of NII Holdings Inc. are poised to lose as much as $3 billion in value after the mobile-phone carrier operating under the Nextel brand in Latin America said it will probably file for bankruptcy protection.
Recovery rates for creditors of NII, which has $5.8 billion in debt, may be as little as 20 percent, according to Moody's Investors Service. Aurelius Capital Management, the distressed-debt investor that's battling the government of Argentina and is also an NII creditor, claimed the company is already in default as it faces $119 million in interest payments due Aug. 15.
The Reston, Virginia-based company said in an Aug. 11 earnings report that it received waivers on certain financial facilities until the end of the year, at which time the holders of NII's senior notes can declare a default and demand repayment if the waivers aren't extended. NII has been losing customers as it fell behind America Movil SAB and Telefonica SA in offering faster download speeds for smartphones.
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"The company is not likely to pay the Aug. 15 coupon and will continue its negotiations with bondholders the following month," Stan Manoukian, the Agoura Hills, California-based founder of Independent Credit Research LLC, said in a telephone interview. "They will likely file when they strike a deal with current creditors."
Moody's assesses the loss-given default at one of NII's units to be 80 percent and 40 percent at a separate issuing subsidiary, according to a March 3 report. The ratings firm cut the mobile carrier's credit grade to Caa2 from Caa1 yesterday, a level denoting a "very high credit risk."
A bankruptcy filing by NII would be the largest by a telecommunications company this year, followed by Sorenson Communications Inc., according to data compiled by Bloomberg.
NII's airwave licenses in Brazil, its largest market, came too late to build faster networks that could compete with America Movil and Telefonica. The company lost 269,000 customers in Brazil in 2012, before recovering last year with 111,900 user gains. In Mexico, NII lost 637,200 subscribers in 2013, and losses have continued this year.
NII's $1.45 billion of 7.625 percent notes due April 2021 fell 5.5 cents to 19.5 cents on the dollar yesterday, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. That's the lowest closing level on record.
Bankruptcy Filing
Tahmin Clarke, a spokesman for NII, didn't return a telephone message and e-mail seeking comment.
NII lost $623.3 million in the three months ended June 30, capping nine consecutive quarterly losses, Bloomberg data show. Revenue slumped 23 percent and it reported a loss of 77,000 customers.
"As a result of the company's financial performance in combination with the potential impact of its inability to satisfy certain financial covenants under our existing debt obligations, the company will likely find it necessary to file a voluntary petition for relief under Chapter 11 of the Bankruptcy Code in order to implement a restructuring of its obligations," management said in an Aug. 11 statement.
Shares dropped 76 percent yesterday to close at 50 cents in New York. The stock has fallen 94 percent this year.
"This has been a long time coming," said Manoukian. "There is a fundamental fear that the company isn't able to turn the business around in Mexico and Brazil."
If creditors agree to restructure, it would save the company about $500 million in interest expense, according to Manoukian.
Aurelius, the hedge-fund firm that holds at least 25 percent of NII's $500 million of 8.875 percent notes due December 2019, sent a letter to the company in March saying that inter-company equity transfers in 2009 constituted a default. Aurelius and other creditors agreed not to take action regarding the claim until at least Aug. 15, according to an Aug. 11 regulatory filing.
In March, NII hired UBS AG as a financial adviser for advice on potential strategic opportunities, including partnerships, a merger or a sale of the company or its assets. The company announced in December that it would cut 1,400 jobs.
"At this point, they need to get very motivated with the sales process," said Manoukian. "What they need to do is sell itself as fast as possible."
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