S&P Upgrades CyrusOne (CONE) to 'BB-'; Outlook is Positive

August 17, 2016 2:20 PM EDT

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S&P Global Ratings today said it raised its corporate credit rating on CyrusOne Inc. (Nasdaq: CONE) to 'BB-' from 'B+'. The outlook is positive.

At the same time, we raised our issue-level rating on the company's unsecured credit facility and senior unsecured notes to 'BB' from 'B+' and revised our recovery rating to '2' from '3'. The '2' recovery rating indicates our expectation for substantial (70%-90%; upper half of the range) recovery for lenders in the event of a payment default.

We removed all ratings from CreditWatch, where we had placed them with positive implications on July 25, 2016.

"The ratings upgrade reflects our increased confidence in the cash flow stability of the business, stemming from the company's improved contract terms, higher revenue backlog, and strong demand for data center services," said S&P Global Ratings credit analyst Rose Askinazi.

CyrusOne's contract lengths have increased in recent quarters, resulting in a weighted average remaining lease term of 4.4 years. In addition, the company has incorporated annual price escalators of 1%-3% in half of its portfolio. Strong leasing activity has increased the company's revenue backlog to $96 million, more than double the amount reported on Dec. 31, 2015. These factors provide a greater degree of visibility into the company's future revenue streams.

The positive outlook reflects our view that debt to EBITDA could improve below 5x over the next 12 months, which could support a higher rating if the company is able to commit to maintaining debt to EBITDA below this level, including its future plans for expansion.

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