US B2B fibreco Zayo has reportedly completed its US$400m incremental term loan to help fund its planned C$465m (US$323.88m) acquisition of Canadian operator Manitoba Telecom Services’ Allstream unit.
US B2B fibreco Zayo (NYSE:ZAYO) has reportedly completed its US$400m incremental term loan to help fund its planned C$465m (US$323.88m) acquisition of Canadian operator Manitoba Telecom Services’ (TSX:MBT) Allstream unit.
While the rate for the senior secured loan, a new tranche under Zayo’s existing credit agreement, was not disclosed, it was issued with a 99 cents on the dollar original issue discount, according to a Leveraged Finance News report.
A Zayo spokesperson was not immediately able to comment.
Moody’s on Monday assigned a Ba2 rating to the new loan, which is expected to be ranked pari passu with the company’s existing senior secured debt.
The ratings agency anticipates that Zayo’s leverage will remain between 4.5x and 5x over the next 12 to 18 months as recent debt increases should be offset by higher EBITDA from acquisitions and organic growth.
Boulder-based Zayo announced last November that it had agreed to buy Allstream, which operates a 30,000km national fibre network and provides bandwidth and telecoms services to business and public sector customers, in an all-cash deal.
At the time, Zayo, which provides fibre and bandwidth connectivity, co-location and cloud services, said in its own statement that Allstream generates some C$600m in revenue and C$100m in EBITDA.
Moody’s said the B2 corporate family rating it has assigned Zayo reflects the company’s relatively high leverage and aggressive financial policy involving frequent debt-financed acquisitions.
“Zayo’s business model requires heavy capital investment and is susceptible to customer churn, both of which pressure free cash flow,” the agency said. “And, in addition to increasing its credit risk, Zayo’s serial debt-financed acquisition activity has also led to poor visibility into the company’s organic growth and steady state cost structure.”
However, Moody’s believes these credit weaknesses are offset by factors such as the company’s strong revenue growth, valuable fibre optic network assets and management’s ability to execute a high number of large and small acquisitions, achieving or surpassing expected merger benefits.
Zayo said the main of the Allstream deal is to add infrastructure assets to its core business, noting that the target has more than 9,000 route kilometres of fibre network in Canada’s top five metropolitan markets, and a 20,000 route kilometre long-haul fibre network connecting all major Canadian markets and ten US network access points. It also operates co-location space in Toronto, Montreal and Vancouver.
Zayo, which has a market cap of US$6.03bn, reported revenue of US$366.8m for the three months ended 30 September 2015, adjusted EBITDA of US$215.4m and total liabilities of US$4.92bn.
