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Rating Action:

Moody's assigns B2 rating to Fibertech; outlook stable

12 Oct 2010

$260 million of credit commitments rated

Toronto, October 12, 2010 -- Moody's Investors Service (Moody's) assigned a B2 corporate family rating (CFR) and a B2 probability of default rating (PDR) to Firefox Merger Sub, LLC, (Firefox) a special purpose acquisition holding company formed to acquire the companies that comprise Fibertech Networks. At the same time, the company's senior secured credit facilities (comprised of a $235 million amortizing term loan and a $25 million revolving credit facility) were also rated B2. The ratings outlook is stable.

It is currently contemplated that concurrent with Firefox Merger Sub, LLC drawing funds, that it will merge with and into Fibertech Networks LLC. As a result, Fibertech Networks LLC (Fibertech) will become the borrower.

The following summarizes Firefox/Fibertech's ratings and today's rating actions:

Assignments:

..Issuer: Firefox Merger Sub, LLC

....Corporate Family Rating, Assigned B2

....Probability of Default Rating, Assigned B2

....Senior Secured Bank Credit Facility, Assigned B2 (LGD3, 48%)

....Outlook, Assigned Stable

RATINGS RATIONALE

Firefox's rating is influenced by its position as a metro fiber company that makes telecommunications network capacity available to telecommunications companies and business/institutional customers. Broadband transmission trends are quite strong and, despite Fibertech's small aggregate scale, margins have been solid. Also, with the preponderance of revenue contracted with well-regarded counter-parties, there is very good short term earnings visibility. While we expect recent robust demand trends to continue through the short-term, there is little mid-to-long term visibility and the biggest risk is an abrupt disruption in the supply/demand balance. Were the demand trajectory to normalize or plateau, and were this to occur with an over-hang of speculatively constructed capacity (whether by a competitor or Firefox/Fibertech) that was not contracted for, there would be a rapid transition from excess demand to excess supply and margins would erode. In addition, Firefox/Fibertech will be owned by a financial investor. We believe it is reasonable to presume that the new owner's investment thesis involves some combination of cash returns or significant investment in incremental capacity intended to fuel future returns and exit value. Consequently, while Fibertech's solid operations and strong margins indicate relatively strong de-levering capability, we believe that the new owners will be motivated to exploit that capability, and we expect little free cash generation and only nominal (contracted) debt reduction. We note that the acquisition financing is structured to guard against this, effectively mandating the company to finance growth from internally generated cash. The free cash flow potential, together with a $25 million revolving term loan, route miles that could be sold to raise cash (although we do not expect divestiture activity), and little in the way of expected financial covenant compliance issues, liquidity is assessed as good.

Rating Outlook

The stable outlook is predicated on our expectation that the company will allocate de-levering potential towards discretionary growth capital expenditures and that, as a result, free cash flow will be minimal and leverage will remain relatively constant in the low-to-mid 4x range (on a fully adjusted basis) over the rating horizon.

What Could Change the Rating - Up

A rating upgrade is not contemplated within the rating horizon. However, among other things, Moody's would consider an upgrade or positive outlook if FCF/TD was expected to be maintained at near 10% and TD/EBITDA was expected to be sustained below 4x (with Moody's standard adjustments). A rating upgrade would also have to involve assurance of solid liquidity arrangements and positive industry fundamentals.

What Could Change the Rating - Down

Moody's would consider a ratings downgrade if free cash flow generation was expected to be nominal or negative) for a prolonged period and/or if TD/EBITDA was expected to be in excess of 4.75x, once again, on a sustained basis. Any of a debt-financed acquisition (of more than nominal size), adverse liquidity developments, or deteriorating industry fundamentals could also cause downwards rating pressure.

The principal methodologies used in rating Firefox Merger Sub, LLC were Global Telecommunications Industry published in December 2007, Moody's Approach to Global Standard Adjustments in the Analysis of Financial Statements for Non-Financial Corporations - Part I published in February 2006, and Probability of Default Ratings and Loss Given Default Assessments published in June 2009. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

Company Profile

Firefox Sub, LLC is a special purpose acquisition holding company formed to acquire the companies that comprise Rochester, New York-Headquartered Fibertech Networks, a builder/operator of fiber optic networks in mid-size cities in the Eastern and Central United States. Firefox Sub LLC is owned by Court Square Capital Partners, a financial investor

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Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service's information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of assigning a credit rating.

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Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

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Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Toronto
Bill Wolfe
VP - Senior Credit Officer
Corporate Finance Group
Moody's Canada Inc.
(416) 214-1635

New York
Russell Solomon
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada

Moody's assigns B2 rating to Fibertech; outlook stable
No Related Data.
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