New York, April 17, 2012 -- Moody's Investors Service has placed the ratings of Primus Telecommunications
Group, Inc. ("Primus" or "the company") under review with
direction uncertain following the company's announcement that it
has agreed to sell its Australian business for $200 million.
The company has not indicated its plan for the use of sale proceeds,
but based on the terms of the indenture governing the company's
10% secured notes, Primus has considerable flexibility with
the sale proceeds. The company can repay the notes, re-invest
in capital expenditures or acquire businesses or assets as long as the
net proceeds are applied to such a use within 365 days following the deal
close. It is unclear at this time whether the proceeds will be
subject to taxes, either in the US or Australia.
Issuer: Primus Telecommunications Group, Incorporated
..On Review Direction Uncertain:
.... Corporate Family Rating, Placed
on Review Direction Uncertain, currently B3
.... Probability of Default Rating,
Placed on Review Direction Uncertain, currently B2
..Outlook Actions:
....Outlook, Changed To Rating Under
Review From Stable
Issuer: Primus Telecommunications Holding, Inc.
..On Review Direction Uncertain:
....US$240M 10% Senior Secured
Regular Bond/Debenture, Placed on Review Direction Uncertain,
currently B3
..Outlook Actions:
....Outlook, Changed To Rating Under
Review From Stable
RATINGS RATIONALE
The Australian business generates approximately one half of Primus's
total EBITDA. In addition to the disposal of its Australian assets,
Primus has announced plans to split its remaining Canadian assets into
two businesses. One business will be a "pure-play"
data center company and the other will be a more traditional CLEC.
If the company pays down a portion of the existing 10% notes maturing
in 2017 or acquires businesses or assets resulting in higher EBITDA such
that leverage falls below 3.0x (Moody's adjusted),
the company may have a better financial profile which could result in
an upgrade from its existing ratings. As of year-end 2011,
Primus had $235 million of the 10% notes and $2.4
million of its 13% notes outstanding.
On the other hand , if the company uses the proceeds to increase
capital expenditure or acquire businesses such that EBITDA declines on
a pro-forma basis, its operating and financial profile may
well come under significant pressure, which could have negative
implications for the rating. The remaining business could have
lower scale and weaker cash flows than the pre-sale business.
In this scenario, the remaining segments could generate negative
free cash flow until or unless the company is able to grow to offset the
EBITDA loss from sale of the Australian business.
The company's plan to separate its Canadian business would also
have implications on the rating, as these two companies could have
materially smaller scale and different credit profiles. Given the
magnitude of the structural changes, Moody's believes that
the company is likely to ultimately repay or refinance the majority of
its existing indebtedness as part of this overall restructuring process.
The principal methodology used in rating Primus Telecommunications 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.
Primus is a competitive telecom provider headquartered in McLean,
VA. The company offers telecommunications, IP and data center
services to small and medium-sized enterprises, residential
customers and other telecommunications carriers and resellers in the United
States, Canada and Australia.
REGULATORY DISCLOSURES
The Global Scale Credit Ratings on this press release that are issued
by one of Moody's affiliates outside the EU are endorsed by Moody's
Investors Service Ltd., One Canada Square, Canary Wharf,
London E 14 5FA, UK, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that has issued a particular Credit Rating is available on www.moodys.com.
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant 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 relevant 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 relevant 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.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
Moody's adopts all necessary measures so that the information it
uses in assigning a rating is of sufficient quality and from sources Moody's
considers to be reliable including, when appropriate, independent
third-party sources. However, Moody's is not
an auditor and cannot in every instance independently verify or validate
information received in the rating process.
Please see Moody's Rating Symbols and Definitions on the Rating
Process page on www.moodys.com for further information on
the meaning of each rating category and the definition of default and
recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history. The date on
which some ratings were first released goes back to a time before Moody's
ratings were fully digitized and accurate data may not be available.
Consequently, Moody's provides a date that it believes is
the most reliable and accurate based on the information that is available
to it. Please see the ratings disclosure page on our website www.moodys.com
for further information.
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.
Mark Stodden
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 places Primus's ratings on review, direction uncertain
