Moody’s Downgrades GCX Limited To Ca; Outlook Negative

Posted by Moody’s Investors Service

Moody’s Investors Service has downgraded GCX Limited’s corporate family rating (CFR) to Ca from Caa1.

The rating outlook remains negative.

GCX — held through intermediate holding companies Global Cloud Xchange Limited (GCXL) and Reliance Globalcom BV — is ultimately a wholly owned subsidiary of Reliance Communications Limited (RCOM), which is currently undergoing insolvency proceedings under India’s Insolvency and Bankruptcy Code.

Ratings Rationale

“The rating downgrade on GCX’s corporate family rating to Ca from Caa1 follows the payment default on the company’s $350 million 7% senior secured notes,” says Annalisa Di Chiara, a Moody’s Vice President and Senior Credit Officer.

The notes, issued on a senior secured basis by GCX, a holding company, and unconditionally guaranteed and secured by a pledge of the outstanding equity interests and security interests of all material subsidiaries, matured on 1 August 2019.

GCX reported a cash balance of $62.6 million at 31 March 2019.

“Although the company announced the signing of a forbearance agreement with 87% of its bondholders on 31 July — one day in advance of the maturity of the notes — a missed scheduled payment of either interest or principal is considered a default under Moody’s definitions,” adds Di Chiara, who is also Moody’s Lead Analyst for GCX.

Under the terms of the forbearance agreement, bondholders have agreed not to exercise remedies under the existing indenture as a result of the payment default for a minimum period of two weeks, with the possibility of extending the agreement for an additional two weeks, assuming GCX continues to progress in its negotiations. The forbearance agreement provides GCX with an opportunity to continue negotiating options related to the refinancing of the notes.

GCX operates one of the largest privately owned global subsea fiber networks. For the fiscal year ended 31 March 2019, the company reported EBITDA of $110 million, excluding impairments, and a resultant reported leverage of around 3.3x.

At the same time, governance risk is high considering the company’s concentrated ownership — as a wholly owned subsidiary of RCOM — and lack of independent board level oversight. To that end, in early June the company announced its intention that additional independent directors will join the boards of GCX and GCXL to strengthen corporate governance.

The rating outlook is negative, reflecting the ongoing uncertainty on the progress of debt restructuring.

Moody’s could downgrade the rating further if the debt restructuring fails to be completed during the forbearance period.

Moody’s could upgrade the rating once a committed debt restructuring plan is agreed with noteholders, which improves in turn the company’s liquidity.

The principal methodology used in this rating was Communications Infrastructure Industry published in September 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

GCX Limited, incorporated in Bermuda in 2014, wholly owns five subsea cable systems on major data traffic routes, including the world’s largest private undersea cable system spanning more than 68,000 route kms.

GCX provides data connectivity solutions to major telecommunications carriers and large multinational enterprises in the US, Europe, Middle East and Asia Pacific with a need for multinational IP-based solutions and connectivity.―CT Bureau