Moody’s upgrades Pacnet

Moody’s Investors Service said it upgraded Pacnet Ltd.’s corporate family and senior secured note ratings to Ba3 from B3 following the completion of its acquisition by Telstra Corp. Ltd.

The outlook is stable.

This concludes a review for upgrade that began in December 2014, Moody’s said.

Telstra said it expects to complete the acquisition of Pacnet’s U.S. assets soon and has indicated that the U.S. approval does not impact operations or the agreed purchase price, the agency said.

Telstra also announced separately that it will redeem all of Pacnet’s $350 million 9% senior secured notes due 2018. The redemption will be completed May 16, Moody’s said.

Telstra’s acquisition will materially improve Pacnet’s liquidity position, which supports an upgrade in its fundamental credit quality to B2, the agency said.

But Pacnet remains a small player in the international submarine cable industry, which is characterized by overcapacity and declining pricing trends, Moody’s said.

Once Pacnet redeems its outstanding notes and repays all of its bank debt, the company will be debt-free, compared to adjusted leverage of about 4x historically, the agency said.

Telstra also is expected to provide financial support to Pacnet in a distressed situation, Moody’s said, and this is reflected in the two-notch uplift.

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