UPDATE: S&P Places NTELOS Holding (NTLS) on CreditWatch Negative Amid Expected Wind Down of E. Virginia Ops

(Updated - December 3, 2014 12:13 PM EST)

Standard & Poor's Ratings Services said it placed its ratings on Waynesboro, Va.-based NTELOS Holdings Corp. (Nasdaq: NTLS), including the 'B+' corporate credit rating, on CreditWatch with negative implications.

"The CreditWatch placement follows the company's announcement that it will wind down its operations in the eastern Virginia markets and focus its efforts on western Virginia and West Virginia, where it has a more favorable competitive position," said Standard & Poor's credit analyst Allyn Arden.

As part of the change in strategy, NTELOS is selling its spectrum covering these markets to T-Mobile U.S. for $56 million of cash, although wind-down costs of around $55 million will offset this amount. Additionally, we expect that EBITDA will be about $25 million-$30 million lower in 2015 compared to our original base-case forecast due to intense competitive pressures as well as lost revenue from these markets that is not fully offset by cost reductions.

We view the strategy as potentially positive longer term, in that NTELOS will exit a portion of its footprint that is very competitive and has unfavorable profitability characteristics. However, over the near term we believe that leverage could rise above 5x, depending on NTELOS's ability to monetize other noncore assets, including towers and undeployed spectrum in the western Virginia markets.

We expect to resolve the negative CreditWatch within the next three months with either a rating downgrade or affirmation. We believe downside potential is limited to one notch, and we could lower the rating if we believe that leverage will be over 5x for a sustained period.

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