Moody's Investors Service recently downgraded roughly $35 million outstanding of a securitization originated by Telefonica del Peru to Ba2' from Baa3,' making the deal a fallen angel. The transaction has fared much better with Fitch Ratings, which affirmed its BBB' rating as recently as mid September. The ratings now have a three-notch difference.

JPMorgan Securities led the original deal, sized at $150 million, according to a source close to the transaction. Issued in December of 1998, the notes' legal final maturity is Dec. 15, 2008. The yield is 7.48%.

Backed by international settlement receivables linked to the company's long-distance business, the transaction has suffered a drop in its debt service coverage ratios and settlement rates that Moody's felt was strong enough to warrant a downgrade. Collections from the obligors slid to $6.5 million, down 15% in the first half of 2004 from the same timeframe in 2003, according to the agency.

Obligors include such global names as Sprint, AT&T, and Spain's Telefonica. Settlement have dropped as alternative means of communication, such as the Internet and cheap calling cards, have heightened the competition for customers, according to a source familiar with the deal.

Moody's also noted that the debt service coverage ratio was 2.3 times in the first half of 2004, approaching a shortfall trigger of 2.1 times. The agency last downgraded the transaction in October 2003. Initially, it was rated A3.'

While Fitch has not recently put out a report on the structured transaction per se, a report on the corporate released in mid September, affirmed the rating on that deal and on the company's unsecured debt, holding at BB-'.

Nevertheless, the agency acknowledged that phone rates have been pressured downward by aggressive tariff reductions, particularly in long-distance.

Copyright 2004 Thomson Media Inc. All Rights Reserved.

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