Xplornet Communications Inc. Outlook Revised To Negative From Stable On Lower-Than-Expected Subscriber Growth, EBITDA

  • Xplornet Communications Inc.'s 2019 subscriber growth is weaker than expected, resulting in revenue and EBITDA growth lower than previous forecasts.
  • As a result, S&P Global Ratings projects higher debt-to-EBITDA and tighter liquidity for the company over the next 18 months.
  • Therefore, on Sept. 24, 2019, S&P Global Ratings revised its outlook on Xplornet to negative from stable. S&P Global Ratings also affirmed its 'B-' issuer credit rating on the company
  • In addition, we revised our liquidity assessment on the company to less than adequate from adequate.
  • The negative outlook reflects our view that if Xplornet is unable to improve its growth trajectory in the next six months, despite its significant capital spending to improve broadband services, we could take a negative action on the company.
TORONTO (S&P Global Ratings) Sept. 24, 2019--S&P Global Ratings today took the rating actions listed above. We project Xplornet's 2019 EBITDA (S&P Global Ratings' adjusted) to be higher than 2018 at about C$230 million-C$240 million, but still lower than our previous expectations. An anomaly in the company's new satellite, Viasat-2, has limited new customer loading, pressuring subscriber and top-line growth. At the same time, underperformance in gaining new fixed wireless customers and losing legacy broadband customers has pressured net subscriber additions. We forecast Xplornet will continue to add new customers through 2019, but at a slower pace than expected, resulting in lower revenue and EBITDA, albeit higher than 2018 levels. Based on weaker performance, we now expect the company's adjusted debt-to-EBITDA to be about 7.5x for the next 12 months.
The negative outlook on Xplornet reflects S&P Global Ratings' view there is a higher risk that, in spite of EBITDA growth, the company's debt to EBITDA does not show any improvement. The outlook also reflects the potential for a liquidity shortfall ahead of the September 2021 revolver and term loan B maturity, if EBITDA growth is weaker than expected due to lower-than-expected subscriber additions.
We could lower the ratings in the next six months if Xplornet's cash flow performance is lower than our moderate growth expectations leading to an unsustainable capital structure or weaker liquidity. This could materialize if there is slower subscriber growth leading to operational underperformance and weakening coverage metrics. Difficulty in accessing capital markets to either finance liquidity shortfalls or refinance upcoming maturities could also pressure the ratings.
We could stabilize the ratings if cash flow performance improves substantially such that EBITDA to fixed charges improves above 1x and debt-to-EBITDA approaches 6x. The stable outlook would also be contingent on Xplornet refinancing its revolver and term loan within the next 12 months while demonstrating prudent capex spending and a sound liquidity buffer.
We work across the world

From London to San Francisco, to our home base in (Saint Helier) Jersey, we’re looking for extraordinary and creative scientists to help us drive the field forward.

AC Investment Inc. currently does not act as an equities executing broker or route orders containing equities securities. If AC Invest’s business model were to change and it begins routing non-directed orders in NMS securities, it will comply with the disclosure requirement of Rule 606.

77 Massachusetts Avenue Cambridge, MA 02139 617-253-1000 pr@ademcetinkaya.com