S&P Raises tw telecom (TWTC) Ratings to 'BB'; Outlook Stable
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Standard & Poor's Ratings Services today said it raised its ratings on Littleton, Colo.-based telecommunications service provider tw telecom Inc. (Nasdaq: TWTC), including raising the corporate credit rating to 'BB' from 'BB-'. The outlook is stable.
At the same time, we raised the senior secured debt rating to 'BBB-' from 'BB+' and the senior unsecured debt rating to 'BB-' from 'B+'. The recovery ratings on these classes of debt are unchanged.
We removed all ratings from CreditWatch, where we had placed them with positive implications on Nov. 26, 2013.
"The upgrade is based on the application of our revised corporate ratings criteria, in particular our assessment of TW Telecom's management and governance as 'strong', which allows for a positive adjustment of one notch to our initial analytical outcome, or 'anchor', for speculative-grade rated companies," said Standard & Poor's credit analyst Allyn Arden.
We base our management and governance assessment mainly on our positive view of TW Telecom's strategic positioning, specifically its track record of product innovation, which has led to consistent performance compared with its peer group of competitive local exchange carriers (CLECs) and other wireline telecommunication providers.
The ratings on TW Telecom reflect a "fair" business risk profile and a "significant" financial risk profile. The business risk assessment incorporates our view of competitive threats from larger incumbent telecom companies that have much higher market shares and greater pricing power. TW Telecom competes with AT&T and Verizon nationally, as well as with CenturyLink Inc. and other CLECs in certain markets. Positive business risk factors include the fact that TW Telecom directly owns most of its customer connections (or has entered into long-term IRUs), rather than leasing them from its larger incumbent telecom rivals, and the revenue stability afforded by its multiyear customer contracts.
The rating outlook is stable and reflects our expectation that the company will continue to increase revenue in the mid-to-high single-digits percent area over the next year. We expect EBITDA growth will be only modest in 2014, as revenue growth is largely offset by increased expenses related to new products and services. As such, we believe that leverage will remain in the mid-to-high-2x area in 2014 including our adjustments.
Although unlikely over the next year or so, we could raise the ratings if the company can reduce leverage to below 2x on a sustained basis or increase the FOCF to debt ratio over 15%.
We could lower the ratings if business conditions deteriorate, resulting in higher churn and pricing pressure that cause ongoing FOCF deficits, or if the company pursues an even more aggressive financial policy that results in leverage rising to 3.5x or higher or FOCF to debt of less than 5% on a sustained basis.
At the same time, we raised the senior secured debt rating to 'BBB-' from 'BB+' and the senior unsecured debt rating to 'BB-' from 'B+'. The recovery ratings on these classes of debt are unchanged.
We removed all ratings from CreditWatch, where we had placed them with positive implications on Nov. 26, 2013.
"The upgrade is based on the application of our revised corporate ratings criteria, in particular our assessment of TW Telecom's management and governance as 'strong', which allows for a positive adjustment of one notch to our initial analytical outcome, or 'anchor', for speculative-grade rated companies," said Standard & Poor's credit analyst Allyn Arden.
We base our management and governance assessment mainly on our positive view of TW Telecom's strategic positioning, specifically its track record of product innovation, which has led to consistent performance compared with its peer group of competitive local exchange carriers (CLECs) and other wireline telecommunication providers.
The ratings on TW Telecom reflect a "fair" business risk profile and a "significant" financial risk profile. The business risk assessment incorporates our view of competitive threats from larger incumbent telecom companies that have much higher market shares and greater pricing power. TW Telecom competes with AT&T and Verizon nationally, as well as with CenturyLink Inc. and other CLECs in certain markets. Positive business risk factors include the fact that TW Telecom directly owns most of its customer connections (or has entered into long-term IRUs), rather than leasing them from its larger incumbent telecom rivals, and the revenue stability afforded by its multiyear customer contracts.
The rating outlook is stable and reflects our expectation that the company will continue to increase revenue in the mid-to-high single-digits percent area over the next year. We expect EBITDA growth will be only modest in 2014, as revenue growth is largely offset by increased expenses related to new products and services. As such, we believe that leverage will remain in the mid-to-high-2x area in 2014 including our adjustments.
Although unlikely over the next year or so, we could raise the ratings if the company can reduce leverage to below 2x on a sustained basis or increase the FOCF to debt ratio over 15%.
We could lower the ratings if business conditions deteriorate, resulting in higher churn and pricing pressure that cause ongoing FOCF deficits, or if the company pursues an even more aggressive financial policy that results in leverage rising to 3.5x or higher or FOCF to debt of less than 5% on a sustained basis.
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