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Announcement:

Moody's rates Sidera Networks credit facility B2

Global Credit Research - 14 Dec 2010

Approximately $310 million in debt affected

New York, December 14, 2010 -- Moody's Investors Service assigned B2 ratings to the $25 million add-on Term Loan B and $6.25 million incremental revolving credit facility of Sidera Networks, Inc. (Sidera). Both the additional term loan and incremental revolver are being issued as amendments to the existing secured credit facilities under the accordion feature of the original facility. The revolver, which now totals $50 million, is due August 2015 and the term loan is due August 2016. Both the term loan and revolver are rated B2, in line with the company's B2 Corporate Family Rating (CFR).

Net proceeds from the term loan and a very modest drawdown of the revolver (Moody's estimates about $2.0 million), together with almost $30 million of equity capital, will be used to acquire Long Island Fiber Exchange, Inc. ("LIFE"), a facilities based fiber optic service provider on Long Island and Westchester.

Moody's has taken the following rating actions:

Assignments:

..Issuer: Sidera Networks, Inc.

....Corporate Family Rating, B2

....Probability of Default Rating, B3

....$6.25 Million Senior Secured Revolving Credit Facility due 2015, Assigned B2 (LGD3-34%)

....$25 Million Senior Secured Term Loan due 2016, Assigned B2 (LGD3-34%)

RATINGS RATIONALE

Sidera's B2 corporate family rating reflects the company's small scale, the highly competitive environment in which it operates and the inherent capital intensity of the business. The acquisition of LIFE broadens Sidera's NY Metro presence as the LIFE and Sidera networks are contiguous with minimal overlap. Although the acquisition price is about 9x EBITDA, Sidera's leverage ratio will remain unchanged as the private equity partners are contributing about $30 million of common equity towards the $58 million cash purchase price.

Sidera's ratings are supported by growing demand for the company's high bandwidth services and the stability of its contracted, recurring revenues. However, revenue growth has slowed in recent quarters following the company's separation from its former cable parent. Management attributes the weak top line growth to a loss of sales traction and is implementing a more focused sales organization with experienced sales leadership.

Moody's is concerned about the high capital expenditures needed to drive revenue growth and the company's stated intention to remain acquisitive. Without profitable growth, the company's leverage and coverage metrics are unlikely to improve as its cash flow profile does not offer the opportunity to deleverage by repaying debt. Recent sales weakness combined with high leverage may pressure the company's credit metrics going forward, though to date the company has maintained relatively constant EBITDA levels.

The outlook remains stable based on Moody's expectation that the company, with adequate liquidity to fund growth, will be able to capitalize on favorable near-term wholesale bandwidth capacity demand trends as it improves its sales organization.

Moody's believes that the company has good liquidity, as the company is expected to be very modestly free cash flow positive for FY 2011, with essentially full access to its $50 million revolver. Additionally, Moody's notes that over 90% of the company's capital expenditures are success-based or growth driven, which reduces the risk of building ahead of demand.

The ratings for the debt instruments reflect both the overall probability of default for Sidera, to which Moody's has assigned a B3 PDR, and a below-average mean family loss given default assessment of 35% (or an above-average mean family recovery estimate of 65%), in line with Moody's LGD Methodology and typical treatment for an all-first-lien senior secured debt capital structure.

Sidera's ratings could come under pressure if adjusted leverage fails to trend below 4.5x on a sustainable basis, which may result from additional debt-funded acquisitions or if heightened competition or churn or poor sales execution threaten the company's sales or earnings growth. Ratings could also come under pressure if the company's liquidity profile deteriorates.

A rating upgrade is not likely at this time. Howerver, upward rating pressure could build if the company significantly diversifies its revenue base either geographically or through acquisitions that do not weaken the company's credit metrics. Additionally, if the company's free cash flow-to-total debt ratio exceeds 10% on a sustainable basis, an upgrade may be considered.

The last rating action for Sidera Networks, Inc. (formerly RCN Corp.) was on November 9, 2010, when Moody's assigned ratings to a new $45 million Term Loan C and a $25 million incremental revolving credit facility.

The principal methodologies used in this rating were Moody's Global Telecommunications Industry Methodology published in December 2007 and Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009.

RCN Corporation (dba Sidera Networks) is a US-based broadband infrastructure provider. The company's fiber network serves wireless providers, carriers, and enterprise customers in the Northeast, mid-Atlantic, and Chicago.

Corporate Profile

Headquartered in Herndon, VA, Sidera Networks, Inc. is a US-based broadband infrastructure provider. The company's fiber network serves wireless providers, carriers, and enterprise customers in the Northeastern and mid-Atlantic regions of the United States, and Chicago. As of December 31, 2009, the company has access to and/or owns approximately 10,000 fiber route miles and 335,000 fiber strand miles.

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

New York
Alexandra S. Parker
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's rates Sidera Networks credit facility B2
No Related Data.
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