MetroNet Holdings LLC Assigned 'B-' Rating, Outlook Stable; First-Lien Debt Rated 'B', Second-Lien Debt Rated 'CCC'

  • MetroNet Holdings LLC (MetroNet) plans to raise $380 million of new debt to refinance existing debt and fund investment in newer markets resulting in consolidated leverage of about 15x in fiscal 2019.
  • We are assigning a 'B-' issuer credit rating and stable outlook to MetroNet Holdings LLC to reflect the elevated leverage and cash flow deficits associated with entering new markets, while also factoring in a track record of successful execution.
  • We are also assigning a 'B' issue-level rating and '2' recovery rating to the proposed secured first-lien credit facilities reflecting value from earnings in mature markets and fiber assets in developing markets. At the same time, we are assigning a 'CCC' issue-level rating and '6' recovery rating to the second-lien to reflect expectations for minimal recovery.
  • The stable outlook reflects our belief that MetroNet will be able to significantly reduce leverage through earnings growth over the next year as the company expands into new markets and increases its broadband penetration but that upside is limited by ongoing investment requirements.
NEW YORK (S&P Global Ratings) Sept. 12, 2019--S&P Global Ratings today took 
the rating actions listed above. The ratings on MetroNet reflect an aggressive 
financial policy resulting in elevated pro forma leverage of about 15x in 
fiscal 2019 (fiscal year end is Sept. 30) as well as execution risk associated 
with entering over a dozen new markets. The ratings also reflect intense 
competition from larger players (including incumbent cable providers), limited 
geographic diversity, and its small scale. However, we also consider 
Metronet's targeted expansion approach focusing on markets with favorable 
demographics, cost efficient fiber connectivity, and no other 
fiber-to-the-home (FTTH) competition. The company has proven successful in 
several mature markets providing a credible path to deleveraging over time due 
to EBITDA growth from market expansion, increased broadband penetration and 
favorable industry trends stemming from the rising demand for bandwidth. 

The stable outlook reflects our expectation that MetroNet will be able to 
significantly reduce leverage to the 9.5x area through earnings growth over 
the next 12 months as the company develops new markets and increases its 
broadband penetration.

We could lower the rating if aggressive competition or execution missteps 
resulted in an inability to increase penetration, such that the company could 
not sufficiently increase EBITDA and organically reduce leverage, leading us 
to assess the capital structure as unsustainable.

Although unlikely in the near term, we could raise the rating if leverage 
improved to below 6.5x and we believed it would be sustained at that level. 
This would also be predicated on positive free operating cash flow (FOCF) 
generation, reflecting successful execution of the company's development 
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