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16 Oct 2000
MOODY'S ASSIGNS Ba3 RATING TO TIME WARNER TELECOM INC.'S PROPOSED $1 BILLION SENIOR SECURED CREDIT FACILITY AND CONFIRMS EXISTING RATINGS
Approximately $1.4 Billion of Debt Securities Affected.
New York, October 16, 2000 -- Moody's Investors Service has assigned a Ba3 rating to Time Warner Telecom
Inc.'s ("TWTC") proposed $1 billion senior secured bank
credit facility. At the same time, Moody's confirmed the
company's existing B2 senior unsecured debt rating and its B1 senior implied
rating. The outlook has been changed to negative from positive.
This action concludes the review process that was initiated on August
25, following the announcement that TWTC had reached an agreement
to acquire substantially all of the assets of GST Telecommunications Inc.
("GST"). Other ratings affected are detailed below.
The ratings reflect the risks associated with the company's relatively
early stage of operations and the challenges associated with building
a sizable, stable customer base and developing the necessary support
systems in order for the company to develop into a profitable facilities-based
service provider. The ratings also recognize the company's strengths,
which include a well-regarded management team, strategic
owners who provide significant value and a track record of good execution
The acquisition, which is expected to close within six months,
provides a good geographic fit with little overlap, and permits
TWTC to significantly expand its network coverage area to serve business
customers in 44 metropolitan markets throughout the US. However,
this represents a large transaction for TWTC and will bring with it certain
cultural and operational integration challenges. GST has been operating
under bankruptcy court protection since May and it is likely that the
implicit revenue streams, customer base and corporate infrastructure
relating to the assets purchased by TWTC may encounter further degradation
prior to closing.
TWTC management has demonstrated good execution of its business plan since
our initial rating was assigned in June 1998, and the company is
presently one of only a few CLEC's to enjoy positive EBITDA. Moody's
believes that the absorption of GST's negative results will be more than
offset by TWTC's organic EBITDA growth. Nevertheless, the
acquisition and related network capital expenditures are being funded
by a level of debt that significantly increases the company's balance
sheet and EBITDA leverage and, in particular, places a greater
emphasis on secured debt. The acquisition is financed, in
part, by a bridge facility, which we expect will be taken
out by a combination of public debt or equity. However, if
present conditions in the public debt markets persist, TWTC may
be unable to refinance the bridge facility on satisfactory terms.
The negative outlook ascribed to TWTC's debt ratings reflects Moody's
view that without additional equity, TWTC's capital structure will
be fully leveraged following the GST acquisition.
TWTC has benefited from and continues to leverage its relationship with
Time Warner Inc. TWTC not only benefits from the use of the Time
Warner brand name, but TWTC has also acquired the right to use certain
fiber, rights-of-way and office space from Time Warner
in markets in which it operates. This arrangement has allowed TWTC
to quickly enter markets at a lower cost. Presently, Time
Warner maintains a 48% ownership interest (67% voting control)
The $1billion senior secured bank facility comprises an amended
and restated existing $475 million credit facility and a new $525
million credit facility consisting of a 7 year, $225 million
amortizing delayed draw term loan and a $300 million 7 1/4 year
term loan with a balloon payment. The borrower, Time Warner
Telecom Holdings Inc, is an intermediate holding company,
and its obligations are structurally senior to those of TWTC. The
credit facility, which is expandable by $250 million,
will be secured by all of the assets and guaranteed by all subsidiaries.
The Ba3 senior secured rating reflects Moody's assessment that secured
creditors benefit from good asset protection in a distress scenario.
The ratings confirmed and removed from credit review are:
Time Warner Telecom's Inc.'s B1 senior implied rating, its
B2 issuer rating and its B2 rated 9.75% $400 million
senior notes due 2008.
The new rating assigned is:
Time Warner Telecom Holdings Inc.'s proposed $1 billion
senior secured bank facility, rated Ba3.
The outlook is changed to negative from positive.
Time Warner Telecom Inc. is headquartered in Littleton, Colorado.
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: (212) 553-0376
SUBSCRIBERS: (212) 553-1653
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: (212) 553-0376
SUBSCRIBERS: (212) 553-1653
No Related Data.
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