Fitch Rates Windstream Corporation's Proposed $500MM Debt Offering 'BB+'; Outlook Stable

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CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has assigned a 'BB+' rating to Windstream Corporation's (Windstream)(NYSE: WIN) proposed offering of $500 million of senior unsecured notes due June 2022. Proceeds are expected to be used to redeem Windstream's remaining outstanding $202 million of 2016 notes and to repay borrowings on the credit facility. Assuming the acquisition of PAETEC Holding Corp. (PAETEC) closes, the company will use the credit facility to repurchase PAETEC's $300 million of outstanding 9.5% notes. The Rating Outlook is Stable.

Windstream's ratings incorporate expectations for the company to generate strong operating and free cash flows and to have access to ample liquidity. Moreover, Windstream's revenues are becoming more diversified through additional business and data services revenue as a result of recent acquisitions, and will be further diversified following the expected completion of the Paetec acquisition later this year. These positive factors aid in partly offsetting the effect of competition for consumer voice services on the company's operations, which is Fitch's principal concern. There is some near-term risk regarding the integration of the Paetec acquisition, but in Fitch's view the risk is likely to be modest, owing to the company's experience with acquiring and incorporating small- and medium-sized acquisitions.

The PAETEC transaction will be all-stock, and Windstream will assume approximately $1.4 billion in outstanding notes. PAETEC reached an agreement with its bondholders to waive the change of control provisions in its notes. In connection with the transaction, Windstream obtained certain amendments to its credit facility enabling the company to guarantee the PAETEC notes upon the consummation of the transaction. Fitch estimates that prior to synergies, the acquisition will increase leverage approximately 0.1 times (x) upon closing. Over the last 12 months ended Sept. 30, 2011, Windstream's pro forma leverage was approximately 3.66x, slightly above the upper end of the company's 3.2x to 3.4x historical range. Fitch expects leverage to improve as synergies from acquisitions are realized.

On Sept. 30, 2011, Windstream had $284 million available on its $1.25 billion revolver (due December 2015) and $34 million of cash on its balance sheet. In March 2011, the capacity of Windstream's revolving credit facility was increased to $1.25 billion from $750 million. Principal financial covenants in Windstream's secured credit facilities require a minimum interest coverage ratio of 2.75x and a maximum leverage ratio of 4.5x. The dividend is limited to the sum of excess free cash flow and net cash equity issuance proceeds subject to pro forma leverage of 4.5x or less.

Maturities for the twelve month periods ending Sept. 30, 2012 and 2013 approximate $45 million and $1.26 billion, respectively. Fitch will monitor Windstream's refinancing strategy with respect to the 2013 maturing debt, the bulk of which will occur in July and August of 2013. Fitch expects free cash flow for Windstream to be in the $325 million to $375 million range in 2011. The company may spend slightly above its capital spending guidance of $570 million to $630 million in 2011 due to demand driven spending on fiber to the cell tower projects.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 12, 2011);

--'Rating Global Telecoms Companies' (Sept. 16, 2010).

Applicable Criteria and Related Research:

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229

Rating Global Telecoms Companies - Sector Credit Factors

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=550205

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CONTACT:

Fitch Ratings
Brian Bertsch, +1-212-908-0549
Media Relations, New York
brian.bertsch@fitchratings.com
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Primary Analyst:
John C. Culver, CFA, +1-312-368-3216
Senior Director
Fitch, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst:
Bill Densmore, +1-312-368-3125
Senior Director
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Committee Chairperson:
Michael Weaver, +1-312-368-3156
Managing Director