S&P Affirms Ratings, Outlook on Windstream (WIN) Amid EarthLink Acquisition

November 8, 2016 10:43 AM EST

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S&P Global Ratings today said it affirmed its 'B+' corporate credit rating on Windstream Holdings Inc. The outlook is stable.

At the same time, we affirmed our 'BB' issue-level rating on the senior secured debt at Windstream Services LLC. The '1' recovery rating on this debt indicates our expectation for very high (90%-100%) recovery of principal in the event of a payment default.

We also affirmed the 'B+' issue level rating the company's senior unsecured debt. The recovery rating on this debt is '4', which indicates our expectation for average (30%-50%, at the lower half of the range) recovery of principal in the event of a payment default.

"The rating affirmation reflects our view that, despite the modest improvement in leverage pro forma the acquisition, we view the combined business less favorably given EarthLink's competitive local exchange carrier (CLEC) and declining consumer dial-up Internet business," said S&P Global Ratings credit analyst Scott Tan.

Additionally, EarthLink's adjusted EBITDA margins are very low, in the low-20% area.

The rating outlook is stable and reflects our expectation that leverage for the combined business will remain around 5x with modest levels of discretionary cash flow over the next 12 months despite our expectation for revenue declines and some margin pressure.

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