Fitch Ratings has downgraded Williams Communications Group's senior secured credit facility to CCC- from CCC+ with the rating on negative watch. The action is the result of discussions with the bank group regarding the restructuring of debt that could result in default. After announcing the company would not file for bankruptcy, Williams has indicated that Chapter 11 is now under consideration. Deborah Trevino, a Williams' spokeswoman, said the downgrade is a reflection of the announcement and current market conditions, but declined comment on whether there is a timeframe for resolution of the debt-restructuring talks. She noted Williams has been committed to reducing leverage since the third quarter of last year.
Sluggish demand for broadband services has hampered EBITDA, causing slower than anticipated revenue ramp-up. Overbuild of broadband capacity combined with business failures within the broadband transport space have driven down the value of telecom assets pressuring the bank debt. The rating watch will be resolved when discussions with the bank group are completed.
* Moody's Investors Service has lowered the ratings on Broadwing including the senior secured debt from Ba1 to Ba3. This action affects a $900 million revolver and $2.3 billion in term loans. Weakness in the emerging wireline telecom sector will further affect operating growth already fallen short of earlier expectations. A combination of broadband customer bankruptcies, carrier network re-grooming and a protracted economic slowdown has produced what management has called "a perfect storm." Slower than expected market demand for fiber services and persistent broadband pricing pressures leads Moody's to foresee further stress on the company's broadband business in the near future. This is of specific concern, since the broadband business was considered the growth engine in the business model. Broadwing spokesman, Thomas Osha, did not return calls.
* AdvancePCS' $825 million credit facility has been upgraded by Moody's to Ba1 from Ba3 reflecting the company's strong operating performance, a recent $291 million equity offering, a subsequent debt repayment, and a significant improvement in the company's credit profile. The upgrade also reflects positive trends supporting the pharmacy benefit management (PBM) industry. Increased drug utilization and drug spending--expected to grow in the low to mid-teens in the near term--have been boosting industry revenues, while cost containment efforts have been leading plan sponsors to increasingly rely on PBMs for additional services such as mail pharmacy, formulary design and specialty distribution.
There are negative factors to consider as well--a high level of competition in the industry, continued pricing pressure on the core claims processing business, and the company's concentration of revenues among certain plan sponsors.