New York, November 08, 2018 -- Moody's Investors Service (Moody's) has placed the ratings
of Zayo Group, LLC (Zayo) on review for downgrade, including
its B2 corporate family rating (CFR), B2-PD probability of
default rating (PDR), Ba2 senior secured bank credit facility ratings
and B3 senior unsecured note ratings. Zayo's SGL-2
speculative grade liquidity (SGL) rating is not affected at this time.
The review for downgrade was prompted by Zayo's recent announcement
that it plans to separate into two publicly-traded companies by
calendar year end 2019, with one company, Zayo Infra Co,
comprised of most of Zayo's infrastructure businesses and the other,
Enterprise Co, focused mainly on enterprise services. The
company may convert Zayo Infra Co to a real estate investment trust (REIT)
by January 1, 2020 as well. It is expected that Enterprise
Co will enter into a long-term master customer agreement with Zayo
Infra Co to provide network connectivity services and that Zayo Infra
Co may maintain up to a 9.9% ownership stake in Enterprise
Co.
While this corporate reorganization reduces some of Zayo's existing
business complexity, Moody's review will focus on Zayo Infra
Co's leverage and cash flow following the Enterprise Co spin-off
and Zayo Infra Co REIT conversion. This structural simplification
could negatively impact competitive positioning, sustainable growth
opportunities and financial policy at Zayo Infra Co, the successor
company to Zayo and where Zayo's currently existing debt will remain
outstanding, resulting in potential downward ratings pressure.
Zayo Infra Co will be comprised of Zayo's current Fiber Solutions
and zColo business segments, as well as the Wavelength and IP Transit
businesses of Zayo's Transport segment. Enterprise Co will
be comprised of the Zayo's current Enterprise Networks segment,
as well as the currently separated Allstream segment, along with
the slower growing SONET and Ethernet businesses of Zayo's Transport
segment.
If or when it is rated, and based on its final capital structure,
Moody's would apply the Telecommunications Service Providers Rating
Methodology to Enterprise Co. Prior to its spin-off,
Moody's expects proceeds of debt to-be-issued at Enterprise
Co will be available to Zayo Infra Co for potential debt pay down.
On Review for Downgrade:
..Issuer: Zayo Group, LLC
.... Probability of Default Rating,
Placed on Review for Downgrade, currently B2-PD
.... Corporate Family Rating, Placed
on Review for Downgrade, currently B2
....Senior Secured Revolving Credit Facility,
Placed on Review for Downgrade, currently Ba2 (LGD2)
....Senior Secured Term Loan B1, Placed
on Review for Downgrade, currently Ba2 (LGD2)
....Senior Secured Term Loan B2, Placed
on Review for Downgrade, currently Ba2 (LGD2)
....Senior Unsecured Regular Bond/Debenture,
Placed on Review for Downgrade, currently B3 (LGD5)
Outlook Actions:
..Issuer: Zayo Group, LLC
....Outlook, Changed To Rating Under
Review From Stable
RATINGS RATIONALE
Headquartered in Boulder, Colorado, Zayo Group, LLC
is a provider of bandwidth infrastructure and network-neutral interconnection
services with significant fiber network assets and international reach.
The company emphasizes its communications infrastructure business which
is divided into four key segments along with other revenues. Zayo
also operates a noncore business segment, Allstream.
The principal methodology used in these ratings was Communications Infrastructure
Industry published in September 2017. Please see the Rating Methodologies
page on www.moodys.com for a copy of this methodology.
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 credit rating action on the support provider and in relation to
each particular credit 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 credit rating action,
and whose ratings may change as a result of this credit 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.
Neil Mack, CFA
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
John Diaz
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653