S&P Places FairPoint Communications (FRP) on CreditWatch Positive Amid Merger Agreement

S&P Global Ratings said today that it placed its 'B' corporate credit rating on FairPoint Communications Inc. (Nasdaq: FRP) on CreditWatch with positive implications.

At the same time, we placed the 'B' issue-level rating on the company's 8.75% senior secured notes on CreditWatch positive. The '3' recovery rating is unchanged, indicating our expectation for meaningful (50%-70%; at the upper half of the range) recovery of principal in the event of payment default.

We expect that FairPoint's $75 million senior secured revolving credit facility due 2018 and $640 million first-lien term loan due 2019 ($617 million outstanding) will be repaid when the transaction closes because there is a change of control provision in the credit agreement. As a result, we are not placing our ratings on the credit facility and term loan on CreditWatch positive.

"The CreditWatch placement follows FairPoint's announcement that it will be acquired by Consolidated Communications Holdings Inc. for about $1.5 billion in an all-stock transaction, including the assumption of debt. We expect the transaction to close in the middle of 2017," said S&P Global Ratings' credit 5analyst Scott Tan.

Although we expect that FairPoint will refinance its 8.75% senior secured notes, the positive CreditWatch placement is based on our view that some of the notes could be outstanding after transaction closes.

We believe that a one-notch upgrade is likely and expect to resolve the CreditWatch placement when the transaction closes in the mid-2017.

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