Moody's rates Connect II notes, loans B2

Moody's Investors Service said it assigned a first-time B3 corporate family rating and a B3-PD probability of default rating to Connect Holding II LLC (Brightspeed). Moody's also gave B2 ratings to the company's planned $1.9 billion of senior secured notes due 2029 and $3.6 billion of senior secured credit facilities.

The notes proceeds, the term loans, together with about $1.2 billion equity contribution and a $1.9 billion unrated Holdco loan will be used to fund the acquisition of local exchange carrier assets from Lumen Technologies by funds affiliated with Apollo Global Management, Inc. from Lumen Technologies, Inc.'s for $7.5 billion. In addition to the purchase price, fees and expenses, the transaction proceeds will fund about $1.5 billion in cash to the balance sheet to prefund upcoming capital expenditures.

As part of the deal, Embarq Corp. will become a subsidiary of Brightspeed, and the Embarq's $1.44 billion of senior unsecured notes, due 2036, will remain outstanding post-acquisition. Moody's slashed Embarq's senior unsecured notes to Caa2 from Ba2 because they will be subordinated to Brightspeed’s secured debt.

“Brightspeed's credit profile is constrained by the company's aggressive growth strategy that Moody's expects will result in several years of negative free cash flows and financial leverage increasing to around 8x by the end of 2023 on a Moody's adjusted basis (including Holdco notes in Moody's debt calculations). Governance considerations are a key driver of today's rating actions,” the agency said in a press release.

The outlooks at Brightspeed and Embarq are stable.

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