Moody's Lifts LT CCR on Mitel (MITL) to 'B+'; Notes Early Success of Aastra Integration

Standard & Poor's Ratings Services today said it raised its long-term corporate credit rating on Ottawa-based Mitel Corp. (NYSE: MTL), to 'B+' from 'B'. The outlook is positive.

In tandem with this upgrade, Standard & Poor's raised its issue-level rating on Mitel's US$355 million first-lien term loan to 'BB-' from 'B+'. The '2' recovery rating on the loan is unchanged, and indicates our expectation of substantial (70%-90%) recovery for lenders in the event of default.

"The upgrade reflects our view that Mitel is achieving early success integrating Aastra Technologies Ltd., thereby reducing integration risk and bolstering the case that the company's synergy targets will be realized," said Standard & Poor's credit analyst David Fisher.

Our assessment of Mitel's business risk profile as vulnerable reflects the company's history of volatile operating results; still-small scale relative to its larger competitors; and the inherent riskiness of the communications products industry in which it operates. The industry is characterized by cyclicality and rapid technological change that is causing heightened competition. These risks are somewhat offset, in our opinion, by the company's healthy market positions in premise and cloud-based telephony/unified communications solutions, and Mitel's good geographic and customer diversity.

We believe market conditions in the hardware-based IP telephony market remain challenging due to weak macroeconomic growth, the commoditization of certain communication products, and a shift toward software-based and hosted communication solutions that is attracting new competitors, including large pure-play software vendors such as Microsoft Corp., as well as hosted communication service providers. These conditions, among others, have resulted in recent revenue declines at most communications solutions providers, including Mitel.

The positive outlook reflects our expectation that Mitel will continue to successfully integrate Aastra within the coming year, which should drive a sustainable improvement in earnings, strengthen the company's market position, and alleviate integration and execution risk.

We could raise the ratings if Mitel successfully integrates Aastra during the next 12 months and achieves its near-term synergy targets, while maintaining adjusted debt to EBITDA (pro forma for acquisitions) of 3x or below.

We could revise the outlook back to stable if the company experiences greater-than-expected integration challenges; sustained revenue erosion (on a pro forma basis) above the low-single-digit level; or the competitive environment becomes significantly more challenging.

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