Centennial Communications is able to achieve near-term cash demand relief largely through a new credit facility that will allow the company to reduce its amortization payments by approximately $80 million through fiscal 2005. Moody's Investors Service has assigned a B2 rating to this new credit, which includes a $150 million, six-year revolver and a $600 million, seven-year term loan. Credit Suisse First Boston and Lehman Brothers are leading the bank deal (LMW, 1/19).
But Moody's is concerned that Centennial has chosen to refinance its 13% paid-in-kind mezzanine debt held by its majority shareholder, Welsh, Carson, Anderson & Stowe , with senior cash pay debt. While Centennial's overall refinancing package does give the company a degree of short-term financial relief, some of the relief is getting consumed by the cash pay coupon, noted Marcus Jones , Moody's v.p. and senior analyst.
The credit facility is drastically reduced from the company's previous $1.2 billion loan. In addition, there is covenant relief as well as an expected reduction in the amount outstanding on the loan. Moody's felt that these factors warranted an increase in the bank debt rating, which had been B3 prior to the transaction, explained Jones. Furthermore, Moody's notes that the lenders are well protected by the collateral and guarantee package from all the company's operating subsidiaries.
Standard & Poor's , which assigned the company's bank debt a B- rating, notes that Centennial faces high business risk due to its position as a regional wireless carrier. S&P believes that carriers such as Centennial have a limited ability to offer competitively priced national plans. S&P also expects that the national carriers--such as AT&T Wireless and Verizon Wireless --will continue to aggressively pursue market share at the detriment of the regional carriers.
Centennial does benefit from a solid position in the Puerto Rican wireless market, which offers strong growth prospects. But the company also faces a high degree of financial risk given its fairly aggressive leverage with debt-to-annualized EBITDA of 5.5 times, says S&P. Thomas Fitzpatrick , executive v.p. and cfo, was traveling and could not be reached by press time.