non recentissimo
Announcement:
Moody's says Windstream's dividend cut will not impact its ratings or negative outlook
Global Credit Research - 03 Aug 2017
New York, August 03, 2017 -- Moody's Investors Service, ("Moody's") said that Windstream Services, LLC's ("Windstream") announcement of a shift in capital allocation does not impact its B1 corporate family rating or negative outlook. Windstream plans to eliminate its common dividend and implement a $90 million share repurchase program that expires in early 2019. Windstream intends to use the modest net cash savings to reduce debt, which is a credit positive development. However, absent a change in EBITDA trajectory in the second half of 2017, Windstream's leverage is likely to exceed Moody's limit of 5.25x (Moody's adjusted) for Windstream's B1 rating over the next few quarters. Moody's forecasts Windstream's leverage to be around 5.2x (Moody's adjusted) at year end 2017. Second quarter results showed a sequential stabilization of pro forma EBTIDA, which, when combined with forecasted merger synergies, could represent the first steps toward a return to growth.
Windstream's B1 corporate family rating reflects its scale as a national wireline operator with a stable, predictable base of recurring revenues, offset by high leverage, a declining top line and margin pressure. Moody's believes that Windstream faces a continued erosion of EBITDA and cash flows as a result of prior underinvestment. Moody's expects Windstream's pro-forma EBITDA to decline in the low single digit percentage range for the next several years, although some of this impact could be offset by merger synergies and greater investment into the consumer segment. Moody's views Windstream as having limited leverage tolerance due to its low asset coverage following the 2015 sale and leaseback transaction of its outside plant and real estate assets to Communications Sales and Leasing, Inc. ("CSAL" dba Uniti Group).
Moody's believes Windstream will maintain good liquidity over the next twelve months with $24 million of cash on hand at 6/30/17 and $500 million available on its $1.25 billion revolver. Windstream has been prudent and proactive in redeeming and refinancing near-term maturities and has no material maturities before 2020.
Moody's could downgrade Windstream's ratings if leverage were to be sustained above 5.25x (Moody's adjusted) or free cash flow is negative, on a sustained basis. Additionally, the ratings would face downward pressure if capital investment is reduced below the level sufficient to improve the company's competitive position or cost structure. Moody's could upgrade Windstream's ratings if leverage were to be sustained below 4.5x (Moody's adjusted) and free cash flow to debt were in the mid-single digits percentage range.
Windstream Services, LLC. (formerly known as Windstream Corporation) is a pure-play wireline operator headquartered in Little Rock, AR that provides telecommunications services in 48 states. For the last twelve months ended June 30, 2017 Windstream generated $6.1 billion in revenues.
This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on
www.moodys.com for the most updated credit rating action information and rating history.
Mark Stodden
Senior Vice President
