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Rating Action:

Moody's assigns ratings to Integra's new debt; outlook changed to positive

Global Credit Research - 06 Feb 2013

New York, February 06, 2013 -- Moody's Investors Service has assigned a B2 (LGD3-35%) rating to Integra Telecom, Inc.'s ("Integra" or "Company") proposed $555 million senior secured 1st lien term loan due 2019 and $60 million senior secured revolver due 2018 and a Caa2 (LGD5-87%) rating to the $225 million senior secured 2nd lien term loan due 2020. The net proceeds will be used to refinance Integra's existing senior secured term loan and $475 million of 10.75% senior secured notes. Moody's has also changed Integra's ratings outlook to positive from stable to reflect Moody's expectation that the company will be able to achieve sustainable year over year revenue growth within the next twelve months. As part of the rating action, Moody's has also affirmed Integra's B3 Corporate Family Rating (CFR) and B3-PD Probability of Default Rating (PDR).

..Assignments:

....US$555M Senior Secured 1st Lien Term Loan due 2019, Assigned B2 (LGD3, 35%)

....US$60M Senior Secured Revolver due 2018, Assigned B2 (LGD3, 35%)

....US$225M Senior Secured 2nd Lien Term Loan due 2020, Assigned Caa2 (LGD5, 87%)

..Changes:

.Outlook, changed to Positive from Stable

RATINGS RATIONALE

Integra's B3 corporate family rating reflects the company's competitive challenges from incumbent carriers like CenturyLink as it shifts to target larger size enterprises and from cable companies which hold a strong position within the small business segment. The rating is supported by the company's recent improvement in operating performance which has led to a stabilization of revenues since the first quarter of 2012. The improvement in revenue trajectory along with cost cutting efforts have allowed the company to grow EBITDA and reduce leverage. In addition, Moody's expects Integra to achieve positive free cash flow from lower interest expense following the refinance and a continuation of more modest capital investment. The proposed refinancing will extend the current maturities and save approximately $15 million in annual interest expense. The company's extensive fiber-optic network assets in the Pacific Northwest and its relatively stable base of recurring revenues provide additional support.

The ratings for the debt instruments reflect both the overall probability of default of Integra, to which Moody's assigns a probability of default rating (PDR) of B3-PD, the average family loss given default assessment and the composition of the debt instruments in the capital structure. Moody's assumes a 50% family recovery rate given the capital structure of first lien and second lien bank debt. The senior secured first lien term loan and revolver are rated B2 (LGD3-35%), one notch above the CFR due to loss absorption provided by the second lien debt, which is rated Caa2 (LGD5-87%) to reflect its junior ranking within the capital structure.

Moody's believes that Integra will maintain good liquidity over the next twelve months with an undrawn $60 million revolver and $13 million of cash on hand as of September 30, 2012. The first lien debt will be subject to a 4.25x net first lien leverage covenant, which Moody's beleives will have sufficient cushion for the next 12 months.

Moody's could upgrade Integra's ratings if the company is able to generate consistent revenue growth and positive free cash flow while its Moody's adjusted Debt/EBITDA approaches 4x. Moody's could stabilize Integra's outlook if revenue growth fails to materialize and leverage remains above 4x over the next 12-18 months and could lower Integra's ratings if free cash flow turns negative, if liquidity becomes strained or if adjusted Debt/EBITDA leverage exceeds 6x for an extended period.

The principal methodology used in rating Integra 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.

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.

Mark Stodden
Asst Vice President - 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 ratings to Integra's new debt; outlook changed to positive
No Related Data.

 

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