S&P gives Brightspeed, loans, notes B-

S&P said it assigned B- ratings to Connect Holding II LLC (Brightspeed) and its planned loans and notes.

Apollo Global Management Inc.'s plans to buy Lumen Technologies Inc.'s local exchange carrier assets and associated operations across 20 states in a deal valued at $7.5 billion to close in October, with $4.9 billion of planned first-lien secured debt raised at Brightspeed, which will own the assets.

The first-lien debt will consist of a $600 million revolving credit facility due in 2027, a $1 billion term loan A due in 2029, a $2 billion term loan B due in 2029, and $1.9 billion of senior notes due in 2029. The 3 recovery rating indicates meaningful (50%-70%; rounded estimate: 65%) recovery in default.

“The ratings on Brightspeed reflect our expectation for high leverage and negative FOCF due to substantial network investments over the next couple of years. We expect the transaction will result in elevated pro forma adjusted debt to EBITDA of about 7x in 2022, rising to the mid-8x area in 2023 due to substantial capital spending requirements, lower earnings because of secular industry declines for legacy voice and data, and negative FOCF,” S&P said in a press release.

The rating on Embarq Corp.’s $1.4 billion of 7.995% senior unsecured notes due in 2036 remains on CreditWatch, where it was placed with negative implications on March 1. “We expect to rate this debt CCC, two notches below the issuer-credit rating when the acquisition closes since it will be structurally junior in the Brightspeed capital structure,” the agency said.

The outlook is negative.

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