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Rating Action:

Moody's assigns B2 CFR to EarthLink Holdings Corp.

Global Credit Research - 21 Jan 2014

New York, January 21, 2014 -- Moody's Investors Service has assigned a B2 corporate family rating (CFR) and B2-PD probability of default rating (PDR) to EarthLink Holdings Corp. ("EarthLink" or the "company"), the new holding entity established at the top of the corporate structure. The existing B2 rated issuer, EarthLink, Inc. will become a wholly owned subsidiary of EarthLink which will assume the role of borrower for all existing obligations of EarthLink, Inc., including the existing B3 (LGD5-77%) rated $300 million senior unsecured notes due 2019 and Ba3 (LGD2-26%) rated $300 million senior secured notes due 2020. Moody's has also assigned an SGL-2 speculative grade liquidity to the company. The outlook is stable.

With the completion of the transaction, Moody's has withdrawn all existing org level ratings of EarthLink, Inc including the B2 CFR and B2-PD PDR.

Assignments:

..Issuer: EarthLink Holdings Corp.

.... Probability of Default Rating, Assigned B2-PD

.... Speculative Grade Liquidity Rating, Assigned SGL-2

.... Corporate Family Rating, Assigned B2

....Outlook, Stable

Withdrawals:

..Issuer: EarthLink, Inc.

.... Probability of Default Rating, Withdrawn , previously rated B2-PD

.... Speculative Grade Liquidity Rating, Withdrawn , previously rated SGL-2

.... Corporate Family Rating, Withdrawn , previously rated B2

RATINGS RATIONALE

EarthLink's B2 CFR reflects its negative revenue trajectory, weak free cash flow generation and rising leverage as a result of a continued decline in EBITDA. However, the rating is supported by the expected long tail decline in the consumer Internet Service Provider (ISP) base, which also includes subscribers signing up for high speed broadband services and modest capital expenditure needs relative to revenue.

The stable rating outlook reflects Moody's expectation that EarthLink will be able to slow the rate of revenue decline such that leverage will remain below 3.5x over the next 12-18 months. While unlikely, Moody's could raise EarthLink's ratings if the company were to successfully transition to a profitable CLEC servicing business customers with free cash flow to debt ratio exceeding 5% and leverage were to trend below 3x (Moody's adjusted), both on a sustainable basis. Moody's could lower the ratings if leverage were to stay above 4.5x (Moody's adjusted) or free cash flow continued to be negative for an extended period of time.

The principal methodology used in this rating was the Global Telecommunications Industry published in December 2010. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

With headquarters in Atlanta, GA, EarthLink Holdings Corp ("EarthLink") is a competitive local exchange carrier (CLEC) serving roughly 1.2 million customers throughout the US and providing IP infrastructure to small and medium-sized businesses and residential customers. For the twelve months ended September 30, 2013 revenue totaled approximately $1.28 billion.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Mark William Stodden
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

John Diaz
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's assigns B2 CFR to EarthLink Holdings Corp.
No Related Data.

 

© 2014 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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