To effect the transaction, Windstream will place its fiber and copper transmission facilities (aerial and underground), central office buildings, conduits, poles and other qualifying assets into the REIT. Windstream will then enter into a long-term master lease agreement with the REIT to lease the facilities back under a triple-net lease structure, with an initial payment of
In the long term, Fitch believes the transaction improves Windstream's credit profile, based on prospects for improved free cash flow (FCF) and the potential for higher capital investment. In addition, immediately after the transaction, Fitch estimates Windstream's debt leverage will fall from approximately 3.8x to 3.3x, although this benefit will be partly offset by the rise in lease adjusted leverage resulting from the master lease payment.
Following the close of the transaction,
The debt reduction will be accomplished by an exchange, as well as debt repayment through the use of proceeds from a tax-basis distribution to be received by
The company has received a private letter ruling from the
A positive rating action could occur if:
--Revenues and EBITDA stabilize or demonstrate a return to growth on a sustained basis;
--Debt leverage becomes sustainable in a range moderately lower than Fitch's previous sensitivity (of 3.2x-3.5x on a gross basis) owing to the effect of the master lease payment on adjusted debt-to-EBITDAR. Due to the material nature of the master lease payment, Fitch will use its total adjusted debt-to-operating EBITDAR leverage metric when examining Windstream's capital structure and leverage profile.
A negative rating action could occur if:
--Competitive and business conditions are such that the company no longer makes progress toward revenue and EBITDA stability;
--Debt leverage is expected to approach 4.0x or higher for a sustained period.
Additional information is available at 'www.fitchratings.com'.
--'Corporate Rating Methodology' (
--'Rating Telecom Companies - Sector Credit Factors' (
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage
Rating Telecom Companies
Source: Fitch Ratings
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