Investing.com -- Fitch Ratings has announced a downgrade of Telefonica (NYSE: TEF ) del Peru S.A.A.’s (TdP) Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) to ’RD’ from ’C’. This change came about due to TdP’s failure to meet the principal and interest payments on its 2027 international bond as of April 10, 2025, and local bonds due April 19.

Simultaneously, TdP is going through an Ordinary Restructuring Bankruptcy Process (PCO), which began on February 14, 2025, to restructure its financial obligations. This has been declared as an event of default. However, the recent acquisition of TdP by Integra Tech International Inc. (Integra) is seen as neutral for TdP’s ratings.

On April 10, 2025, TdP was unable to pay the principal and interest installments of its 2027 international bond, which amounted to PEN567 million and PEN62 million respectively. This, combined with the ongoing PCO, is seen as an event of default. The 2027 international bond does not provide a cure period for principal payment. The company’s cash position is insufficient to meet upcoming financial obligations.

In February, TdP entered a PCO with the aim to restructure its financial obligations, including its tax commitments with Superintendencia Nacional de Aduanas y de Administración Tributaria (SUNAT). Contingencies from 2000-2001 were recently formalized for PEN947 million. Once the National Institute for the Defense of Free Competition and the Protection of Intellectual Property (INDECOPI) approves the PCO, it is expected that Fitch will further downgrade TdP’s ratings to ’D’.

The acquisition of TdP by the Argentinean company Integra is seen as neutral for TdP’s ratings as the restructuring process continues. TdP announced in April 2025 that its shareholder Telefónica Hispanoamérica S.A. (Telefonica HISPAM) had signed a share purchase agreement in which it sold all its shares of TdP (99.3% of its share capital) to Integra for PEN3.7 million (around USD1 million). Both parties have agreed to keep the total undrawn amount of the credit of PEN1.54 billion available to TdP.

Fitch expects TdP’s FCF to remain negative throughout the rating horizon due to weak profitability and capex needs. Its liquidity position is supported mainly by access to a loan with Integra and Telefonica HISPAM of PEN1.54 billion to support TdP’s current operation.

The ’RD’ ratings reflect that TdP has entered a default process following its missed payment on the principal and interest of the 2027 international bond and local bonds, along with the ongoing debt restructuring process with creditors.

Fitch undertakes a bespoke recovery analysis for issuers with IDRs of ’B+’ and below. This analysis assumes TdP would be considered a going concern in bankruptcy and would be reorganized rather than liquidated. The enterprise value/EBITDA multiple applied is 4.5x; this reflects TdP’s deteriorating operational performance and financial profile despite its diversified business profile and strong brand recognition.

A downgrade to ’D’ is contingent on the acceptance of the Ordinary Bankruptcy Procedure. An upgrade is contingent on the completion of the insolvency process reflecting the post-financial structure of the company.

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