Integra Gets Lower Moodys Outlook Based on Slow Progress in Revenue Growth, Other Factors

Citing Integra’s “slow progress in growing revenue and reducing leverage,” Moody’s Investors Service on Monday lowered its outlook of the service provider from positive to stable.

Moody’s, a credit rating business in New York, said Integra will not meet Moody’s prior expectation of leverage falling by the end of the year. Moody’s said it previously anticipated Integra would achieve “modest” growth in EBITDA (earnings before interest, taxes, depreciation and amortization).

“However, revenues have been approximately flat over the past several quarters and Moody’s expects this to persist for the next several quarters,” the credit rating business said.

But Moody’s said it anticipates Integra will maintain decent liquidity over the next year with an undrawn $60 million revolver and $33 million of cash on hand as of March 31, 2014. Integra listed net debt of $769.9 million as of March 31, 2014.

Based in Portland, Ore., Integra provides fiber-based networking, communications and technology solutions to enterprises, SMBs, government agencies, and carriers.

Moody’s said it could upgrade Integra’s ratings if the company generates consistent growth in revenues and positive free cash flow while its debt to EBITDA ratio approaches four times.

In the first quarter of 2014, Integra posted revenues of $143.5 million, a 2 percent decrease from $146.4 million in the fourth quarter of 2013. Most of Integra’s revenue comes from enterprise and wholesale customers, according to its first-quarter earnings materials.

Responding to Moody’s, Integra said it does not provide forward-looking financial guidance but characterized its financial profile as “strong.”  

“In 2013, we generated over $90 million of unlevered free cash flow (EBITDA less capital investment), well in excess of our approximately $55 million of interest expense obligations, and achieved amongst the highest EBITDA margins in our industry,” Jesse Selnick, Integra CFO, said in a written statement. “We ended 2013 with over $100 million of available cash liquidity and produced substantial positive levered free cash flow. This provides substantial capital available for continued network investment and the execution of our strategic plan. Our revenue trajectory in recent periods has been flat and stable with favorable churn levels, something that we view as an accomplishment in a period in which we continue to transform our business to serve larger enterprise and carrier customers and leverage our owned fiber networks.”

In the announcement Monday, Moody’s also affirmed Integra’s existing B3 corporate family rating and B3-PD probability of default rating along with the instrument ratings on the B2 rated senior secured first lien credit facilities and Caa2 rated senior secured second lien credit facilities at Integra Holdings Inc.

Last December, Standard & Poor’s Ratings Services upgraded its corporate and debt credit ratings for Integra, noting that Integra’s operating profitability based on its EBITDA margin was “less volatile” than many peers in the CLEC industry.

“The stable outlook reflects our expectation that the company will sustain leverage below 5x over the next couple of years given stabilized monthly customer churn and gradual EBITDA growth driven by its upmarket sales focus,” S&P stated at the time.

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