NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed CenturyTel, Inc. (NYSE:CTL) (CenturyTel) as follows:
--Issuer Default Rating (IDR) 'BBB';
--Senior unsecured debt 'BBB';
--Commercial paper 'F2'.
The ratings have been removed from Rating Watch Negative. The Rating Outlook is now Stable. Fitch has also assigned a 'BBB' rating to CenturyTel's proposed offering of $500 million of senior unsecured notes due 2017.
The company intends to use the proceeds from the offering, combined with proceeds from additional debt offerings, including a draw on its credit facility, to finance the acquisition of Madison River Communications Corp. (Madison River). The total consideration for Madison River, including debt, is $830 million. Madison River is expected to have approximately $515 million in net indebtedness at the close of the transaction. The transaction is expected to be completed in the second quarter of 2007.
The affirmations of the ratings follows a review of CenturyTel's proposed acquisition of Madison River and the company's expected financial policies following the close of the transaction. Fitch expects leverage to approximate 2.6 times (x) at year-end 2007, in line with pro forma net debt to EBITDA for the latest twelve months ended Sept. 30, 2006. Fitch expects leverage to decline modestly in 2008. Fitch notes that its expectations for CenturyTel's leverage are within the 'BBB' rating category, but toward the lower end.
Following the close of the transaction, Fitch expects CenturyTel to reduce debt in 2007 and 2008, the pace of which will be moderated by the completion of the $1 billion stock repurchase program announced in February 2006. Approximately $300 million remained to be repurchased in 2007 under the authorization, which expires at the end of June 2007. In 2006, CenturyTel repaid approximately $500 million in borrowings related to the initial portion of the repurchase program. The remaining $300 million to be repurchased in 2007 is expected to be completed using free cash flows.
CenturyTel's existing ratings are supported by its generally lower exposure to competition in the rural local-exchange market, the relatively high EBITDA margins generated by its rural local-exchange carrier (RLEC) business, strong free cash flow and minimal dividend payout as a percentage of free cash flow. These factors are balanced against its dependence on wireline service revenues, which are facing increasing competition, and the unknown effect of potential reforms to the universal service funding (USF) program and intercarrier compensation (ICC) regime.
CenturyTel's liquidity is solid, with an undrawn $750 million revolving credit facility which expires in December 2011. At yearend 2006, the company had a cash balance of approximately $26 million and during 2006 generated $497 million of free cash flow. The principal financial covenants in the credit facility limit debt-to-EBITDA for the past four quarters to no more than 4.0x and EBITDA-to-interest plus preferred dividends (with the terms as defined in the agreement to no less than 1.5x).
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
