WOODSTOCK, N.B. — While assigning a stable ratings outlook to rural broadband and Manitoba mobile wireless provider Xplornet today, Moody’s Investors Service provided some details about the buyout transaction announced in February that will see U.S. private equity firm Stonepeak Infrastructure Partners acquire a controlling interest in the company.
As previously reported, Xplornet’s current chairman of the board, Steve Weed and his fund WaveDivision Capital, remain material investors in the company. The transaction is still subject to regulatory approval and is expected to close in the coming months.
According to Moody’s, proceeds from a new, almost $1.3-billion senior secured term loan, together with about $1.1 billion of common equity contribution from Stonepeak, will be used to acquire Xplornet for a little over $2.2 billion and return $50 million of cash to the balance sheet, with the remainder being used to pay fees and expenses. The company is also putting in place a new $150-million senior secured revolving credit facility, which is not expected to be drawn at the close of the financing transaction, Moody’s says. Xplornet’s existing debt of about $845 million will be repaid at close.
In its ratings outlook for the company, Moody’s assigned a B3 corporate family rating (CFR), B3-PD probability of default rating (PDR) and B3 ratings to Xplornet’s proposed new senior secured revolving credit facility and senior secured term loan. When the financing transaction closes and all related debt obligations are repaid, Moody’s will withdraw all the previously existing ratings of the former Xplornet entity and will also withdraw the outlook, Moody’s says.
“Xplornet’s B3 CFR is driven by its elevated leverage from the ownership change and its inability to fund growth from internally generated cash flow, mitigated by its strong growth prospects,” said Peter Adu, a Moody’s vice-president and senior analyst.
According to Moody’s, the national rural broadband and Manitoba wireless company’s rating benefits from strong subscriber and revenue growth as it focuses on a target market of about 2.8 million rural/remote Canadian households that currently do not have high-speed Internet; its leading market position in that market; good liquidity over the next 12 months; a supportive regulatory framework; and limited competition to date from cablecos and telcos in its rural/remote target market.
The stable outlook reflects the company’s expected strong operating performance and good liquidity as leverage declines towards 6.5x through the next 12 to 18 months, Moody’s says.
