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Fitch Affirms Windstream's IDR at 'BB+'; Outlook Stable

^{Published on 2011-02-28 13:05:13 - Market Wire}
 

CHICAGO--([ BUSINESS WIRE ])--Fitch Ratings has affirmed the following ratings of Windstream Corporation (Windstream)(NASDAQ: WIN):

--Long-Term Issuer Default Rating (IDR) at 'BB+';

--$750 million senior secured revolving credit facility due 2013 at 'BBB-';

--$101 million senior secured credit facility, Tranche A due 2011 at 'BBB-';

--$182 million senior secured credit facility, Tranche A2 due 2013 at 'BBB-';

--$287 million senior secured credit facility, Tranche B due 2013 at 'BBB-';

--$1.064 billion senior secured credit facility, Tranche B2 due 2015 at 'BBB-';

--Senior unsecured notes at 'BB+'.

The Rating Outlook is Stable. Other subsidiary ratings were affirmed as listed at the end of the release.

As a result of a tender offer, and the redemption on Feb. 23, 2011 of the remaining notes not tendered, the following ratings were withdrawn:

Valor Telecommunications Enterprises, LLC and Valor Telecommunications Enterprises Finance Corp. (co-issuers)

--IDR 'BB+';

--Senior secured notes 'BBB-'.

Windstream's ratings incorporate expectations for the company to generate strong operating and free cash flows and to have access to ample liquidity. Moreover, Windstream's revenues are becoming more diversified through additional business and data services revenue as a result of recent acquisitions. Acquisitions in 2009 and 2010 have also added scale. These positive factors aid in partly offsetting the effect of competition for consumer voice services on the company's operations, which is Fitch's principal concern. There is some near-term risk regarding the integration of acquisitions completed in late 2010, but in Fitch's view the risk is likely to be modest, owing to the company's experience with acquiring and incorporating small- and medium-sized acquisitions.

Fitch believes the initial effect of the fourth quarter acquisitions of Q-Comm Corporation (Q-Comm) and Hosted Solutions Acquisition, LLC (Hosted Solutions) on Windstream's leverage was modest, and once synergies are realized by the end of 2011, leverage will be within the current expectations for Windstream's 'BB+' IDR. Windstream has also disclosed it will make a $60 million pension contribution in 2011 using stock, rather than cash, to manage overall leverage. Fitch estimates Windstream's 2011 leverage will approximate 3.4 times (x), at the upper end of the company's 3.2x to 3.4x historical range.

Windstream's use of equity to partly fund the Iowa Telecommunications Services, Inc. (Iowa Telecom), NuVox Inc., D&E Communications, Inc., and Q-Comm transactions is a notable mitigant to pressure on the credit profile.

In Fitch's view, the principal operating risks faced by Windstream consist of wireless substitution and competition from cable multiple-system operators (MSOs) offering voice and data services. Fitch believes Windstream's competitive exposure to cable MSOs is lower than that of the urban-based regional Bell operating companies (RBOCs). To mitigate the effects of competition within its customer base for consumer voice service revenues, Windstream is growing revenue from business services, as well as high-speed data services provided to consumers and businesses. The company also provides bundles to residential customers that include satellite-provided video services through an agreement with DISH Network.

On Dec. 31, 2010, Windstream had $590 million available on its revolver and $42 million of cash on its balance sheet. In November 2010, Windstream expanded its revolving credit facility to $750 million from $500 million. Through amendments in 2009 and 2010, the maturity of $182.3 million of the $283 million outstanding on term loan A has been extended from July 2011 to July 2013. The term loan B, which as of Dec. 31, 2010 had a $1.351 billion balance outstanding, now has approximately $1.064 billion maturing in December 2015 rather than in July 2013. In September 2010, Windstream's facilities were amended to allow the company to receive certain broadband stimulus grants, to increase the amount of permitted incremental senior secured debt under the facilities to $1.6 billion from $800 million and to permit the company to extend the term loan B to the extent not previously extended.

Principal financial covenants in the credit facilities require a minimum interest coverage ratio of 2.75x and a maximum leverage ratio of 4.5x. There are limitations on capital spending, and the dividend is limited to the sum of excess free cash flow and net cash equity issuance proceeds subject to pro forma leverage of 4.5x or less.

Maturities in 2011 and 2012 approximate $139 million and $44 million, respectively. In Fitch's view, free cash flow will be sufficient to repay maturing debt in 2011 and 2012. Fitch expects free cash flow for Windstream to be in the $350 million to $450 million range in 2011. Capital spending is expected to rise in 2011 to a range of $520 million to $580 million from $415 million in 2010. The rise is due to factoring in the full-year effect of ongoing spending by companies acquired in 2010, an increase in stimulus-related broadband spending, and the potential for success-based capital in the Hosted Solutions and Q-Comm acquisitions. The company's cash flows are expected to benefit from an increase in bonus depreciation in 2011.

Fitch has affirmed Windstream's subsidiary ratings as follows:

Windstream Georgia Communications

--IDR at 'BB+';

--$30 Million Senior Notes due 2013 at 'BBB-'.

Windstream Holdings of the Midwest

--IDR at 'BB+';

--$100 Million Secured Notes due 2028 at 'BB+'.

The Rating Outlook for all ratings is Stable.

Additional information is available at '[ www.fitchratings.com ]'.

Applicable Criteria and Related Research:

--'Rating Global Telecoms Companies' (Sept. 16, 2010);

--'Corporate Rating Methodology' (Aug. 16, 2010).

Applicable Criteria and Related Research:

Rating Global Telecoms Companies - Sector Credit Factors

[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=550205 ]

Corporate Rating Methodology

[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=546646 ]

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