Ratings service Standard & Poor’s sees the pending Windstream-NuVox merger as a mixed bag.
For NuVoX, the deal is a good move, the New York-based agency said when it placed NuVox on CreditWatch positive.
“NuVox’s ratings will benefit from the higher credit quality of Windstream, whose ratings, while on CreditWatch with negative implications, are likely to remain higher than NuVox’s current ‘B’ corporate credit rating,” said credit analyst Catherine Cosentino.
To be sure, NuVox looks to be the major beneficiary of the acquisition. The South Carolina-based CLEC will still target its SMB base while contributing a much-needed business services focus to Windstream.
But that doesn’t mean Windstream is in the clear. The rural incumbent now is so financially leveraged that adding NuVox “creates an incrementally weaker overall business risk profile,” said Allyn Arden, an analyst for S&P, in a press release.
Arden was referring to Windstream’s agreement to assume $180 million of NuVox’s debt. But, in addition, the carrier is giving up much of its liquidity to buy NuVoX, leaning on its revolving credit to help finance the deal.
Further, S&P fears Windstream may be shouldering too much at once because it also recently acquired Lexcom and D&E Communications. Integrating all three companies at once could prove distracting, S&P said. As a result, the agency put the service provider on CreditWatch with negative implications.
S&P said its analysts will keep an eye on Windstream’s operating trends and debt reduction efforts before it takes action again. A ratings downgrade, if any, should be limited to one notch, the firm noted. Similarly, if Windstream refinances NuVox’s debt, S&P will withdraw its ratings on the CLEC.