Fitch Rates Level 3 Financing Secured Credit Facility 'BB/RR1'
Fitch Ratings has assigned a 'BB/RR1' rating to Level 3 Financing, Inc.'s proposed $1.415 billion senior secured credit facility. The facility is expected to include a minimum of $300 million tranche maturing in February 2016 and up to a $1.1 billion tranche maturing while August 2019.
Wholly owned subsidiary of Level 3 Communications
Level 3 Financing is a wholly owned subsidiary of Level 3 Communications, Inc.. The Issuer Default Rating for both LVLT and Level 3 Financing is 'B' with a Positive Rating Outlook. The terms of the new credit facility are expected to be substantially similar to the existing term loan B II and the term loan B III. Proceeds of the new term loan are expected to be used to refinance the company's outstanding $1.4 billion term loan A, which is scheduled to mature while 2014. LVLT had roughly $8.5 billion of debt outstanding on June 30, 2012.
The new credit facilities addresses the refinancing risk associated with the company's $1.4 billion of scheduled maturities while 2014. Outside of the extension of the company's maturity profile and improved liquidity, LVLT's credit profile has not substantially changed.
Fitch believes that LVLT's liquidity position is adequate given the rating and is primarily supported by cash carried on its balance sheet, which as of June 30, 2012 totaled in broad outline $733 million. The company does not maintain a revolver and relies on capital market access to replenish cash reserves, which when combined with the lack of positive free cash flow generation limits the company's financial flexibility in Fitch's opinion. LVLT does not have any significant maturities scheduled while 2012 and Fitch believes LVLT's pro forma cash position is sufficient to address 2013 maturities which total roughly $172 million during funding anticipated free cash flow deficits while 2012. Considering the successful execution of the proposed credit facilities, LVLT's then and there scheduled maturity is not until 2015 when in broad outline $775 million of debt is scheduled to mature.
Overall, Fitch's ratings incorporate LVLT's highly levered balance sheet, its weaker competitive position and lack of scale relative to larger and better capitalized market participants. The ratings for LVLT reflect the company's strong metropolitan network facilities position relative to alternative carriers, as so then as the diversity of its customer base and service offering, and a relatively stable pricing environment for a significant portion of LVLT's service portfolio.
Based largely on LVLT's strategy to invest in metropolitan facilities and carry more communications traffic on its network, the company derives strong operating leverage from its cost structure and network, enabling it to enhance margins and rapidly increase cash flows once revenue growth returns. Additionally, Fitch expects that the company can furthermore strengthen its operating leverage as it continues to migrate its revenue mix to more margin rich data services and away from lower margin voice services.
Additional information is available at 'www.fitchratings.com'. The ratings above were unsolicited and have been provided by Fitch as a service to investors.