TEXT-S&P rates Windstream's proposed term loan, notes
Jan 8 - Standard & Poor's Ratings Services today assigned its 'BB+' issue-level rating and '1' recovery rating to Little Rock, Ark.-based telecommunications service provider Windstream Corp.'s proposed $300 million senior secured term loan B-4 due 2020. The '1' recovery rating indicates expectations for very high (90% to 100%) recovery in the event of payment default. We also assigned a 'B' issue-level rating and '6' recovery rating to the company's proposed $700 million of senior notes due 2023. Proceeds from the notes will be used to tender for the $650 million of PAETEC senior secured notes while proceeds from the new term loan B tranche will be used to refinance upcoming bank maturities. At the same time, we raised the issue-level rating on subsidiary PAETEC Holding Corp.'s senior unsecured debt to 'BB-' from 'B' and revised the recovery rating to '3' from '6'. The '3' recovery ratings indicates our expectation for meaningful (50% to 70%) recovery in a default scenario. The upgrade reflects the improved recovery prospects following the redemption of secured debt at that entity. Our 'BB-' corporate credit rating and stable outlook on Windstream are not affected by the new debt. Pro forma adjusted leverage of around 4.2x for the rolling-12-months ended Sept. 30, 2012, is somewhat high but still supportive of the company's "aggressive" financial risk profile. (For the corporate credit rating rationale, see "here 3752492&rev_id=36&sid=991746&sind=A&" published on Oct. 25, 2012, on RatingsDirect.) The ratings on Windstream reflect an "aggressive" financial risk profile, incorporating the company's shareholder-oriented financial policy with a commitment to a substantial common dividend, which limits potential debt reduction. We also expect leverage to remain high because of the company's aggressive acquisition strategy. We consider the business risk profile "weak," based on industry-wide competitive pressures from wireless substitution and cable telephony. In the third quarter of 2012, pro forma revenue and EBITDA declined 1% and 2%, respectively, year-over-year, due primarily to consumer voice access line losses of about 4%. Moreover, we expect secular industry declines to continue to hurt Windstream's overall operating and financial performance, despite growth in business services. Through a series of acquisitions, the company has increased its exposure to business segments with some growth potential but even greater competition, including competitive local exchange carriers (CLECs), which have lower margins and depend on the incumbent local telephone company to provide services. Tempering factors include the company's solid market position as the leading provider of telecommunications services in somewhat less competitive and geographically diverse secondary and tertiary markets, growth from digital subscriber-line (DSL) services, still-healthy EBITDA margins, and solid free operating cash flow (FOCF). RELATED CRITERIA AND RESEARCH -- Business Risk/Financial Risk Matrix Expanded, Sept. 18, 2012 -- Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011 -- Use Of CreditWatch And Outlooks, Sept. 14, 2009 -- Criteria Guidelines For Recovery Ratings, Aug. 10, 2009 -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008 -- 2008 Corporate Criteria: Rating Each Issue, April 15, 2008 -- 2008 Corporate Criteria: Ratios And Adjustments, April 15, 2008 RATINGS LIST Windstream Corp. Corporate Credit Rating BB-/Stable/-- New Rating Windstream Corp. $300 Mil. Senior Secured Term Loan B-4 Due 2020 BB+ Recovery Rating 1 $700 Mil. Senior Unsecured Notes Due 2023 B Recovery Rating 6 Ratings Raised; Recovery Ratings Revised To From PAETEC Holding Corp. Senior Unsecured BB- B Recovery Rating 3 6 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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