S&P may lift ITC DeltaCom

Standard & Poor's said the B corporate credit rating on ITC DeltaCom Inc. remains on CreditWatch with positive implications.

Ratings were placed on CreditWatch on Oct. 5, following ITC DeltaCom's announcement that it had agreed to be acquired Earthlink Inc. for $516 million, including the assumption of $325 million of ITC DeltaCom's debt. The transaction closed on Dec. 8.

Since then Earthlink also announced a definitive merger agreement with One Communications Corp.

Based on Earthlink's public financials and preliminary information, estimated pro forma leverage for the three companies is about mid-2x area before synergies, substantially lower than ITC DeltaCom's leverage of 4.1x at the end of the third quarter of 2010.

Earthlink also has a large cash balance of about $237 million, pro forma, post close of the transactions, and generates healthy levels of net free cash flow, the agency noted.

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