TEXT-S&P assigns 'BB' rating to CenturyLink notes
Oct 1 - Standard & Poor's Ratings Services said today that it assigned its 'BB' issue-level rating and '4' recovery rating to Monroe, La.-based incumbent telephone company CenturyLink Inc.'s proposed senior notes due 2023 and 2043 (undetermined amount). The '4' recovery rating indicates expectations for average (30%-50%) recovery in the event of payment default. The company intends to use the net proceeds to redeem $550 million aggregate amount of Qwest Communications International Inc.'s (QCII) senior notes due 2015 and repurchase all $800 million of its senior notes due 2018. As a result of this transaction, there will be no more remaining debt at QCII. The 'BB' corporate credit rating on CenturyLink is unchanged and the outlook remain stable as the transaction is unlikely to have an impact on the company's credit measures, including leverage, which was about 3.3x on a pro forma basis as of June 30, 2012. The ratings on CenturyLink reflect a business risk profile assessment of "fair" and a financial risk assessment of "significant." Key business risk factors include our expectation that revenues will continue to decline because of competition in its core consumer wireline phone business from cable telephony and wireless substitution, which contributed to access-line losses of about 6.1% during the second quarter of 2012, year over year, pro forma for the Qwest acquisition although access-line trends have shown steady improvement since the acquisition closed. We also consider the company's financial policy aggressive, with a substantial shareholder dividend payout, which limits debt reduction. Debt to EBITDA was about 3.3x as of June 30, 2012, pro forma for acquisitions and including our adjustments for operating leases and postretirement liabilities. We expect leverage to remain in the low- to mid-3x area over the next few years. Tempering factors in the business risk assessment include good scale and a favorable market position as the third-largest ILEC in the U.S.; solid operating margins and free operating cash flow generation; and modest growth in high-speed data services, which helps mitigate revenue declines from access-line losses. (For the complete corporate credit rating rationale, see the full analysis on CenturyLink, published April 27, 2012, on RatingsDirect.) RELATED CRITERIA AND RESEARCH -- Business Risk/Financial Risk Matrix Expanded, Sept. 18, 2012 -- U.S. Telecom And Cable Companies' Maturities Are Manageable, But Lower-Rated Issuers Face Some Liquidity Challenges, July 23, 2012 -- U.S. Telecom And Cable Companies, Strongest To Weakest, July 13, 2012 -- U.S. Telecom And Cable Ratings Should Be Stable Overall During Weak Economic Recovery, July 13, 2012 -- A Matter of Policy: U.S. Telecom Companies Maintain High Dividend Payouts, But For How Long?, May 30, 2012 -- A Matter of Policy: U.S. Cable And Satellite-TV Companies Ratchet Up Shareholder Payouts, May 16, 2012 -- Top 10 Investor Questions: U.S. Telecom and Cable Industries, May 10, 2012 -- Assessing The Four-Notch Rating Gap Between The Two U.S. Direct-To-Home Satellite Video Operators, May 9, 2012 -- Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011 RATINGS LIST CenturyLink Inc. Corporate Credit Rating BB/Stable/-- New Ratings CenturyLink Inc. Proposed sr nts due 2023 and 2043 BB Recovery Rating 4 Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.
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