In an ongoing effort to pay down debt, Telefonica del Peru SAA has said it will pay down a portion of the remaining debt on its three-year-old TDP Grantor Trust transaction, a net settlement securitization, which was downgraded last week to BBB-' from A' by Fitch.

"In order to help the transaction, to maintain the levels of coverage, we are planning to reduce the principal amount," said a research analyst at Telefonica del Peru. The company is currently working with shareholders to determine the conditions and exactly how much of the coverage will be paid down.

The transaction, also downgraded to Fitch's equivalent rating by Moody's Investors Service in January of this year, is said to have suffered as a result of the significant decrease in the international net settlement, the market share loss by Telefonica del Peru and the increased competition in Peru since the launch of the transaction. According to sources, when the deal first came to market, Telefonica del Peru was the only long distance phone provider. According to Fitch, the call volume growth was expected to offset the competition and the decreased international net settlement; however, Peru's recession stunted the call-volume growth, which in turn drove down the rates.

The company has a foreign corporate BB-' sovereign rating from Fitch which is said to reflect its solid business position as the dominant local exchange and long distance provider in Peru. Fixed local exchange and long distance represent 47% and 16% of total sales, respectively, and provide the company with a relatively stable source of cashflow.

"I view [the company's effort to pay down a portion of the debt] as a strong message from management that they are willing to support the transaction," said one market participant.

According to the research analyst, the company is involved in an ongoing effort to reduce its overall debt levels. Telefonica del Peru has reduced its debt by nearly $250 million in the last couple of years. "I'm not sure if the paydown will bring the rating back, but we think it will help it to remain at the current rating," said the analyst.

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