Business Wire – Tue Apr 21 12:09:00 CDT 2009
Fitch Affirms Windstream's IDR at 'BB+'; Outlook Stable
CHICAGO (BUSINESS WIRE) --
Fitch Ratings has affirmed Windstream Corporation's (Windstream) ratings as follows:
--Long-term Issuer Default Rating (IDR) at 'BB+';
--Secured credit facility at 'BBB-';
--Senior unsecured notes at 'BB+'.
Subsidiary ratings, as listed at the end of the release, have been affirmed. The Rating Outlook is Stable.
The affirmation of Windstream's ratings and the Stable Outlook incorporate expectations for the company to generate strong operating and free cash flows, to maintain relatively stable credit-protection metrics and to have access to ample liquidity. Fitch believes the company's 2009 gross debt-to-EBITDA ratio could slightly exceed 3.4 times (x) and be moderately higher than historical levels, but on a net debt-to-EBITDA basis should remain within the company's 3.2x to 3.4x historical range. Fitch's somewhat higher expectations for gross leverage relative to historical levels are the result of an increase in non-cash pension cost of approximately $90 million in 2009.
Windstream enters into 2009 with a relatively strong liquidity position, with $297 million in cash on the balance sheet at the end of 2008, compared to $72 million at the end of 2007, and approximately $343 million available on its revolver. Liquidity will also be supported by free cash flow, which Fitch estimates will be in the $250 million to $300 million range, as derived from the company's guidance for capital spending of $290 million to $320 million, pre-dividend cash flow from $685 million to $755 million and dividend payout ratio in the 58% to 64% range. In 2009, as in 2008, cash flow is again expected to benefit from an accelerated depreciation provision incorporated in federal stimulus legislation. In the longer term, Windstream's dividend payout ratio as a percentage of its net free cash flow is expect to approach its 70%-75% target range.
In 2008, Windstream repurchased $200 million of common stock under its two-year $400 million stock-repurchase program initiated in February 2008, and had been using excess free cash flows to complete repurchases. However, no repurchases occurred in the second half of the year as the company changed focus in light of the financial market downturn and began building cash on the balance sheet in an effort to preserve liquidity. The stock-repurchase plan expires at the end of 2009, and on its fourth quarter 2008 earnings call, the company declined to firmly commit to its completion by the end of 2009. Given current expectations for free cash flow and its current liquidity position, Fitch believes the completion of the repurchase program through the use of free cash flow to be manageable.
For 2009, Fitch expects the weak economy as well as wireless substitution and competition from cable multiple system operators (MSOs) to cause access lines to decline at a similar rate as in 2008, which was 5.2%. Overall, in Fitch's view, the company's rural footprint provides it with modestly lower exposure to competition than the urban-based regional Bell operating companies (RBOCs). At the end of 2008, cable telephony reached approximately 60% of Windstream's access lines, and a moderate increase is expected in 2009. To mitigate competitive pressures, Windstream is growing revenue from new services, including the continued deployment of high-speed data services, and by including in its bundle satellite-provided video services through an agreement with DISH Network.
Windstream is expected to face modest pressure on its Universal Service Fund (USF) receipts in 2009 due to access line losses and other factors. In the longer term, Windstream could be affected by reforms to the USF program as well as intercarrier compensation.
Fitch believes that Windstream is likely to continue to evaluate potential acquisitions, which would be a use of cash flow. Consolidation would be a long-term positive factor for rural local exchange carriers in Fitch's view, but does carry execution and financing risks.
At Dec. 31, 2008, Windstream had approximately $5.4 billion in outstanding debt and $297 million in cash and short-term investments. Windstream's credit facilities currently consist of a $500 million five-year revolving credit facility ($150 million outstanding at year-end 2008) and $1.662 billion in term credit facilities. The term credit facilities are composed of a term loan A facility of $283 million outstanding that matures in July 2011, and a term loan B facility of $1.379 billion outstanding that matures in July 2013. The company does not face any significant maturities until 2011 when the term loan A matures and the revolving credit facility expires. During 2009 and 2010, there are approximately $24 million in maturities annually.
The credit facilities are secured by assets in a portion of Windstream's regulated wireline business, as well as by the assets of its unregulated businesses. Regulated subsidiaries that required the approval of the transaction, or approval of a grant of a guarantee, by state regulators did not provide a guarantee to the senior secured credit facilities. As of Dec. 31, 2008, guarantor subsidiaries held 44%, or approximately $3.5 billion, of Windstream's total assets. 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.
Fitch has also affirmed the following ratings:
Valor Telecommunications Enterprises, LLC and Valor Telecommunications Enterprises Finance
--Senior notes 'BBB-'.
Windstream Georgia Communications
Windstream Holdings of the Midwest
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