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03 Jul 2007
Moody's affirms Consolidated Communications' B1 CFR; Outlook is stable
Approximately $624 Million of Debt Affected
New York, July 03, 2007 -- Moody's Investors Service has affirmed the B1 corporate family rating
for Consolidated Communications Holdings, Inc. ("CCHI,"
the "parent," or the "company"), following the company's
announced acquisition of North Pittsburgh Telephone Systems, Inc.
("NPSI") for $375 million. The rating agency
believes the acquisition, of which 20% of the consideration
will be paid in stock, will not materially alter CCHI's credit
profile. Pro forma for the NPSI acquisition, Moody's
expects CCHI's leverage at about 4.5x by the end of 2008,
in line with Moody's previously indicated expectations in July 2006.
At the same time, Moody's has affirmed the Ba3 ratings of
the senior secured credit facilities of Consolidated Communications Acquisition
Texas, Inc. ("CCAT") and Consolidated Communications Inc.
("CCI," together "Bank Co-Borrowers"). Moody's has
also affirmed the B3 rating on the company's senior unsecured notes and
the SGL-2 speculative grade liquidity rating. The outlook
Moody's has affirmed the following ratings:
Corporate Family Rating -- B1
Probability of Default rating -- B1
Senior Unsecured Notes due 2012 -- B3, LGD6 -- 91%
Liquidity rating -- SGL-2
CCAT and CCI
Senior Secured Credit Facilities -- Ba3, LGD3 -- 38%
The outlook for all ratings remains stable.
The B1 corporate family rating reflects CCHI's relatively high leverage
and nearly flat revenue growth prospects, offset by strong and stable
cash flow generation, modestly improving EBITDA margins, and
a favorable regulatory environment. Although the outstanding debt
is expected to increase to about $900 million as a result of acquiring
NPSI which is roughly 1/3rd the size of CCHI, the company expects
to generate about $11 million in operating expense and capex synergies.
The B1 rating incorporates the risk of integrating NPSI, which is
experiencing severe access line losses (11% ILEC line losses in
1Q 2007) due to competition from cable companies in its ILEC territories.
The B1 corporate family rating also reflects CCHI's vulnerability to heightened
wireless and cable telephony competition in its rural markets and limited
post-dividend free cash flow. Moody's also notes that
CCHI's unsecured notes include a negative pledge that would be triggered
if secured outstandings exceed $515 million. If the acquisition
financing results in a change in the mix of secured and unsecured debt,
then the individual facility ratings will likely change in accordance
with Moody's LGD methodology.
The stable outlook reflects Moody's expectations of CCHI successfully
integrating the operations of NPSI, while sustaining its current
level of revenue and free cash flow through the growth of DSL services
and enhanced bundled offerings, which include IPTV in the Illinois
and Texas markets. Moody's also expects that the company
will not increase its dividend payout and implement any share buyback
program over the intermediate term.
As CCHI plans to fully fund NPSI's purchase price by issuing new
debt and stock, Moody's does not expect the acquisition to
affect CCHI's near term liquidity, principally comprising
$30 million of unfunded revolving credit facility and $26
million of cash on hand as of 1Q 2007. Moody's notes, however,
that the company would need to reset most of the financial covenants to
offset the impact of the acquisition.
Consolidated Communications Holdings, Inc. is a rural local
exchange carrier headquartered in Mattoon, Illinois. CCHI
generated $324 million in LTM 1Q 2007. Gibsonia, PA,
based NPSI had 61,500 ILEC and 66,300 CLEC lines in service
as of 1Q 2007, with LTM 1 2007 revenue of $101 million.
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
Corporate Finance Group
Moody's Investors Service
No Related Data.
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