(Bloomberg) -- For most of the past decade, some of the world’s wealthiest investors poured billions of dollars into Latin American telecom companies, betting they would win by luring in customers with cheaper rates.

Now, cut-throat competition and the cost of keeping up with changing technology have left businesses in the region saddled with debt burdens they can’t pay back. 

“Markets were open, the music was playing, the sector had room for disruption,” said Eduardo Ordonez, a portfolio manager at BI Asset Management in Copenhagen. “The music has stopped.”

The latest domino to fall was WOM Chile, a flashy startup backed by Icelandic businessman Bjorgolfur Thor Bjorgolfsson that pulled in bondholders by winning market share but ended up in bankruptcy last week. Its demise is an example of how difficult it is to make money in an industry dominated by players like Carlos Slim’s America Movil BAS, John C. Malone’s Liberty Media Corp. and Spanish media giant Telefonica SA. 

Wall Street — which didn’t hesitate to fund them in the past — is poised to foot the bill. Roughly $2.7 billion of bonds issued by Latin American telecommunications firms trade at or near levels that suggest they’re teetering on the brink of default, according to data compiled by Bloomberg. 

WOM’s bonds have handed investors losses of more than 50% in the first quarter, one of the worst-performing across emerging markets, the data show. The notes plummeted after the company delayed the release of its year-end results in March as it rushed to raise money ahead of a $348 million bond due in November.

WOM told bondholders that it was in talks for a loan to refinance the bond, but a surge in borrowing costs hampered the company’s recovery. It was stung by “external events,” WOM said in a statement, pointing to limited access to credit lines following Moody’s Ratings downgrade deeper into junk in late 2023. 

Read more: CEO of Bankrupt WOM Leaves, Criticizes Chilean Firm’s Owner

Thor’s Novator took some money out of the business in the form of dividends amid the sale of some of WOM’s towers a few years ago. With less than $10 million in cash, creditors counted on support from the parent, which never came.

“If you really want a strong business, ideally you’d have a strong shareholder who wants to see the company thrive,” said Cesar Fernandez, a partner at Alpha Credit Advisors Ltd. If there isn’t one, “the ones who really lose are the bondholders.”

No Lenders 

Total Play Telecomunicaciones SA, the Mexican internet and cable provider owned by Ricardo Salinas, also failed to lock in a loan to refinance a bond due in 2025. It concluded a private debt swap with some local creditors last month, and is offering the remaining holders of the notes the same deal. Nearly 85% of the bonds were tendered ahead of an early participation deadline, the company said Tuesday. The swap sent the notes soaring to near 78 cents on the dollar, after a roller coaster year that saw them fall to as low as 50 cents. 

A spokesperson for the company declined to comment beyond press releases on recent debt exchanges.

“Banks, it seems, in general, have been a bit reticent to lend to these companies,” Marcos Raisanen, a senior credit analyst at Muzinich & Co. in London. “These companies have continued to expand as they used to do, assuming they’ll be able to roll over not only debt but also working capital facilities.”

Amid scarce access to capital, credit rating firms have begun to sound the alarm. Colombia Telecomunicaciones SA, of which Telefonica is the main shareholder, was the latest to be downgraded by Fitch Ratings. “The potential for legal, strategic, and operational support” from its majority owner is low, Fitch said, as there aren’t guarantees or cross-default clauses linking the two entities. 

The company didn’t respond to a request for comment.

Digicel, the Caribbean mobile operator founded by Irish billionaire Denis O’Brien, is another example of how complicated things can get for bondholders. The firm has an “aggressive financial policy with a history of distressed exchanges in the last couple of years,” according to Moody’s. Interim Chief Executive Officer Maarten Boute said the company is well positioned to continue operating following its recent debt restructuring.

“As investors, we need to be extra vigilant of any issuers that have defaulted more than once in the past,” said Guido Chamorro, co-head for EM debt at Pictet Asset Management Ltd.“That’s bondholder 101.”

Money managers are betting that WOM’s collapse will benefit ClaroVTR, a Chilean joint venture between Slim’s America Movil and Malone’s Liberty Media. VTR Finance bonds — which jumped after the owners pledged they would invest as much as $1.1 billion — have gained about 16 cents on the dollar since its competitor delayed its results. The company declined to comment.

Fitch says consolidation pressure in the industry will “remain intense” amid limited pricing power. 

“When you see this many participants in a market that’s so saturated with operators, naturally one would think that there would be consolidation,” said Tyler Stenger, an analyst at Federated Hermes.

--With assistance from Nicolle Yapur.

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