Windstream credit rating faces possible cut after spate of acquisitions adds to debt load

Monday, November 30, 2009

Windstream credit rating faces possible downgrade

CHICAGO — The credit rating of phone company Windstream Corp. faces a possible downgrade after announcing a slate of acquisitions in recent months that would increase its debt levels, a credit ratings agency said Monday.

Fitch Ratings placed Windstream and its subsidiaries on “Rating Watch Negative,” regarding its long-term issuer default, secured credit facility, senior unsecured notes and other debt. The credit rating evaluates a company’s ability to repay debt and is a factor in determining how high an interest rate the company pays on its debt.

Windstream is buying Iowa Telecommunications Services Inc. for $1.1 billion in cash, stock and debt. It also is purchasing Nuvox Inc. for $643 million and just acquired D&E Communications Inc. and Lexcom Inc.

Following these acquisitions, Windstream’s net debt will be more than its historical trend of 3.2 to 3.4 times operating cash flow before it books any savings by consolidating operations.

Windstream will assume $598 million of debt in buying Iowa Telecom. But the acquisition also should generate $35 million in savings from combining operations and lower capital expenses. Iowa Telecom also generated operating cash flow of $130 million after adjusting for its purchase of Sherburne Tele Systems Inc., for the 12 months ended Sept. 30.

In September, Windstream raised $400 million in unsecured debt to help finance the D&E and Lexcom transactions. It also extended the maturities on $1.6 billion of debt. These changes resulted in higher fees and interest rates.

However, Fitch noted that Windstream’s cash position is strong, with $290 million in cash and $492 million available on a revolving credit line.

The company is expected to generate free cash flow of $300 million to $350 million this year. Capital spending should come in a shade below that, at $290 million to $320 million.

Shares of Windstream, based in Little Rock, Ark., slid 20 cents to close at $9.92.

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