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03 Feb 2004
MOODY'S ASSIGNS Ba3 RATING TO D&E COMMUNICATIONS' PROPOSED $225 MILLION SENIOR SECURED CREDIT FACILITIES; SGL-2 LIQUIDITY RATING ASSIGNED
Approximately $225 Million of Debt Securities Affected
New York, February 03, 2004 -- Moody's Investors Service assigned a Ba3 rating to D&E Communications,
Inc.'s (D&E) proposed $225 million senior secured
credit facilities. The company was also assigned a Ba3 senior implied
rating and a SGL-2 speculative grade liquidity rating. Details
of the assigned ratings are as follows:
Senior Implied rating -- Ba3
$25 million senior secured revolving loans -- Ba3
$50 million senior secured term loan "A"- Ba3
$150 million senior secured term loan "B" -- Ba3
Issuer rating -- B1
Liquidity rating -- SGL-2
The rating outlook is stable.
The ratings reflect the company's high financial leverage, its line
count erosion and the low growth potential that characterizes D&E's
business model. However, the ratings also recognize management's
seasoned experience in the rural Pennsylvania telephone business,
the predictability and defensibility of D&E's rural local exchange
operations and the measured approach that management has taken with respect
to its CLEC initiatives.
The stable outlook reflects the relative stability of D&E's core regulated
business and the scalability of the company's capex model.
The proposed senior secured credit facility effectively represents a refinancing
of approximately $196 million outstanding under the company's
current senior secured bank credit facility. Accordingly,
there is little impact to the company's financial leverage,
which remains at approximately 3.7 times total debt-to-EBITDA.
Since the acquisition of Conestoga in May 2002, D&E has generated
positive free cash flow, largely attained through margin improvement
resulting from cost-cutting measures. Retained cash flow
(defined as cash from operations less capex and dividends) has also been
positive. Accordingly, Moody's anticipates minimal
usage of the company's proposed $25 million revolving credit
Lenders benefit from a guarantee of D&E's operating subsidiaries,
supported by a pledge of subsidiary company stock and a first security
interest on substantially all assets. The guarantees and security
interest are shared, on a pari passu basis, by lenders under
Conestoga's senior secured term loans, which will be fully
assumed by D&E at closing.
Moody's believes that the operation of rural telephone properties is characterized
by stable and predictable cash flows, resulting in relatively low
business risk. Historically, D&E's RLEC properties
have experienced little competition due to market demographics and a favorable
regulatory regime. However, compared to some of its RLEC
peers, D&E's properties have a relatively stronger demographic
profile that may invite increasing competitive pressure. Moody's
notes that D&E's RLEC access lines have experienced decline
over the past year, and CLEC line growth has been slower than management's
earlier expectations. Going forward, management will be challenged
to offset RLEC line slippage with line count growth in its CLEC business.
D&E's SGL-2 rating reflects Moody's view that the company
possesses good liquidity and has an ability to meet its estimated obligations
over the next twelve months through internal resources. For the
last twelve months ended 9/30/03, the company was free cash flow
positive and generated $19 million of retained cash flow.
At 9/30/03, D&E recorded total liquidity (pro forma for the
proposed financing) of $42 million, comprised of $17
million in cash and $25 million available under its undrawn revolver.
Moody's projects the company will end FYE04 with a marginal improvement
in liquidity as its operations are expected to continue generating positive
free cash flow results. In addition, the company is projected
to remain in compliance with its bank covenants, affording it full
access to the $25 million undrawn revolver. D&E's
assets are largely encumbered and therefore povide for only limited additional
D&E expects that its CLEC business will turn EBITDA positive during
2004, and that its investment in Eurotel will require no further
capital calls. Moody's assessment of present trading levels for
RLEC assets indicates that debt holders benefit from adequate asset protection
D&E Communications is headquartered in Ephrata, Pennsylvania.
The company generated last twelve month 9/30/03 total revenues of $174
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
Senior Vice President
Corporate Finance Group
Moody's Investors Service
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.
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