U.S. TelePacific Holdings Corp. 'B' Rating Placed On CreditWatch Positive On Acquisition By Pensare

Special purpose acquisition company Pensare Acquisition Corp. announced that 
it entered into an agreement to acquire Los Angeles-based competitive local 
exchange carrier U.S. TelePacific Holdings Corp. (d/b/a TPx Communications) in 
a cash and stock transaction valued at about $1.1 billion. 
  • Pensare plans to use proceeds from a proposed private investment in public equity (PIPE) offering to reduce TelePacific's debt.
  • We are placing all of our ratings on TelePacific, including the 'B' issuer credit rating, on CreditWatch with positive implications.
  • The CreditWatch placement reflects the potential for a one-notch upgrade depending on the extent of debt repayment and leverage reduction to the 4x area on a sustained basis. We expect to resolve the CreditWatch placement when the transaction closes and debt has been repaid.
NEW YORK (S&P Global Ratings) Feb. 5, 2019--S&P Global Ratings today took the 
rating actions listed above. The CreditWatch placement follows the 
announcement that Pensare will acquire TelePacific in a cash and stock 
transaction, pursuant to which TelePacific will become a publicly traded 
company. While we do not anticipate meaningful business benefits from the 
transaction, given that Pensare is a shell company whose sole purpose is to 
acquire telecommunications assets, we expect that proceeds from a proposed 
private placement will be used to reduce TelePacific's debt. Even if the PIPE 
is unsuccessful, we expect that about $297 million of TelePacific's preferred 
equity will convert to common stock or be repaid with cash.  

We treat the preferred instrument as debt in our adjusted leverage 
calculations. As a result, we estimate pro forma 2019 leverage would be in the 
low-to-mid-4x area compared to the high-6x area currently. A successful PIPE 
transaction would enable additional leverage reduction if proceeds are used to 
repay debt.  

We will resolve the CreditWatch listing when the transaction closes, when we 
should have additional clarity on the success of the PIPE and likely debt 
repayment. An upgrade, if any, would be limited to one notch and also depend 
on TelePacific reducing leverage to the 4x area on a sustained basis. 
Accordingly, a key ratings factor will be longer-term financial policy 
considerations, including future acquisitions. In addition to the preferred 
equity conversion, we believe the company would need to repay at least $70 
million of debt in 2019 to meet our upgrade threshold.

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