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Rating Action:

Moody's assigns Baa3 rating to tw telecom's new senior secured credit facilities and affirms Ba3 CFR; outlook stable

27 Mar 2013

Approximately $570 million of new debt rated

New York, March 27, 2013 -- Moody's Investors Service has assigned a Baa3 rating to the proposed $100 million revolving credit facility due 2018 and $470 million senior secured term loan B due 2020 to be issued by tw telecom holdings inc. ("TWTH"), a wholly-owned subsidiary of tw telecom inc. ("TWTC" or the "company"). Moody's also affirmed TWTC's Ba3 Corporate Family Rating (CFR), Ba3-PD Probability of Default Rating (PDR) and SGL-1 Speculative Grade Liquidity Rating. The rating outlook is stable.

The new revolver will replace TWTH's existing $80 million revolver scheduled to mature December 2014. Net proceeds from the new term loan B will be used to retire the existing term loan B facility maturing December 2016 (approximately $463 million outstanding). Moody's views the refinancing transaction favorably due to the extension of the debt maturity structure and comparatively lower interest rate on the new credit facilities. The collateral package and subsidiary and parent guarantees are expected to be substantially similar to the existing credit facilities. The new term loan B will have negative covenants that are expected to mirror the covenants governing TWTH's $480 million 5.375% senior notes due 2022 (the "2022 notes") issued in October 2012.

Moody's notes that TWTC's total debt to EBITDA, at 3.7x (Moody's adjusted), was temporarily elevated as of December 2012 due to the 2022 notes issuance. Net proceeds from the 2022 notes, which were included in TWTC's $974 million cash and marketable securities balance at year end 2012, are expected to fund the conversion obligation for the 2.375% senior convertible debentures due 2026 (approximately $374 million outstanding) to the extent holders elect to convert the debentures when they become putable on April 1, 2013. If any portion of the convertible obligation has not converted when it becomes callable on April 6, 2013 and debenture holders elect to convert at that time, Moody's believes the company has sufficient liquidity if TWTC elects to redeem the obligation with cash. Consequently, we expect financial leverage to revert to the 3x level by year end 2013.

Ratings Assigned:

..Issuer: tw telecom holdings inc.

$100 Million Senior Secured Revolving Credit Facility due April 2018 -- Baa3 (LGD-2, 14%)

$470 Million Senior Secured Term Loan B due April 2020 - Baa3 (LGD-2, 14%)

Ratings Affirmed:

..Issuer: tw telecom inc.

Corporate Family Rating -- Ba3

Probability of Default -- Ba3-PD

Speculative Grade Liquidity - SGL-1

..Issuer: tw telecom holdings inc.

$430 Million 8% Senior Unsecured Notes due March 2018 -- B1, LGD assessment revised to (LGD-5, 70%)

$480 Million 5.375% Senior Unsecured Notes due October 2022 -- B1, LGD assessment revised to (LGD-5, 70%)

The assigned ratings are subject to review of final documentation and no material change in the terms and conditions of the transaction as advised to Moody's. Moody's will withdraw the Baa3 ratings on the existing senior secured credit facilities and B2 rating on the 2.375% senior convertible debentures once these obligations are retired.

RATINGS RATIONALE

TWTC's Ba3 Corporate Family Rating reflects the company's successful track record of revenue growth, operational execution and consistently low customer churn, while recognizing the challenging position as a competitive telecommunications provider. We expect TWTC to operate at adjusted total debt to EBITDA leverage in the range of 2.5x to 3.0x (incorporating Moody's standard adjustments) over the next 12 to 24 months, with moderate free cash flow generation, given that the business remains highly capital intensive. Debt repayment is possible since roughly one-third of the pro forma debt structure consists of an amortizing pre-payable term loan. However, debt reduction will be limited by TWTC's likely plans to direct free cash flow towards stock purchases. As of December 2012, $278 million was available under the existing $300 million share repurchase authorization.

Despite elevated levels of capital spending and relatively high leverage, the company's strong operating performance driven by consistent revenue growth in the enterprise customer and data and internet services segments, and strong margins that stem from TWTC's significant fiber infrastructure, are credit positives for the ratings. TWTC's results reinforce its differentiated business model that relies on its own purpose-built fiber-rich network with direct connections to major customers, eliminating the need to rely on incumbent carriers for a critical portion of its last mile connections. TWTC continues to have success targeting medium-to-large enterprise customers rather than small-to-medium sized business (SMB) customers, and the company's stake is built on its near-nationwide scalable operating platform interconnected across 75 markets in the US.

Rating Outlook

The stable rating outlook reflects Moody's expectation that EBITDA growth and margins will contract somewhat in 2013 due to higher operating and SG&A expenses as TWTC expands its sales, support and technical staff to grow market share with new product offerings, accelerate future revenue growth and offset lower growth trends for service installations. Moody's also believes the company will continue to effectively manage cash spending through cost efficiency efforts and operating productivity improvements.

What Could Change the Rating - Up

An upgrade is unlikely until Moody's believes the operating pressure on competitive telecom providers will be alleviated over a sustained period. However, upward rating pressure could develop if earnings growth leads to stronger free cash flow generation such that TWTC's free cash flow exceeds 10% of its total adjusted debt, and the company's leverage, as measured by total debt to EBITDA on a Moody's adjusted basis, is expected to be maintained below 2.5x.

What Could Change the Rating - Down

The rating and/or outlook is likely to come under pressure if TWTC's operating performance deteriorates due to heightened price competition, increasing revenue/customer churn, changes in the regulatory environment or weakness in the US economy beyond our current expectations, such that EBITDA erodes, free cash flow becomes negative or leverage cannot be maintained below 3.5x total debt to EBITDA (Moody's adjusted). Additionally, if an increase in stock repurchase activity depletes cash balances, ratings could be pressured.

The principal methodology used in rating tw telecom inc. was the Global Telecommunications Industry Methodology 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 head offices in Littleton, Colorado, tw telecom inc. is a competitive communications provider. The company provides managed network services, Internet access, virtual private network, voice and data services, and network security to enterprise organizations and communications services companies throughout the US. TWTC's footprint extends to 75 of the top 100 markets in the US. Revenue for the fiscal year ended December 31, 2012 totaled approximately $1.47 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.

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.

Gregory A Fraser
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 Baa3 rating to tw telecom's new senior secured credit facilities and affirms Ba3 CFR; outlook stable
No Related Data.
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