TelePacific Downgraded on Growth Forecast

By Josh Long

Citing some metrics that have not met its expectations, credit-ratings agency Moody’s Investors Service on Tuesday said it has changed its outlook of TelePacific to a “stable” from a “positive.”

Moody’s, which ranks the creditworthiness of borrowers, said the change reflects its view that TelePacific “has not reduced leverage or improved its cash flow profile as previously expected.”

The credit-ratings agency affirmed other previous ratings on TelePacific, the Los Angeles-based based competitive local exchange carrier that Moody’s said has increased capital spending in order to restore growth.

“Moody’s expects organic revenue growth in the low-single-digit percentage range with stable to slightly higher margins, which will lead to modest EBITDA growth,” the credit-ratings agency said.

“The company’s investment in Ethernet over Copper … will expand its broadband footprint and service capabilities but will also result in negative free cash flow for 2012,” Moody’s added.

In spite of the negative free cash flow, Moody’s believes TelePacific will have sufficient liquidity over the next year to 18 months.

Moody’s said some acquisitions by TelePacific have resulted in both pros and cons.

“With recent acquisitions, TelePacific has been able to strengthen its market position and asset base, increase high speed data offerings and reduce its dependency on ILECs for last-mile access,” Moody’s said. “However, leverage has increased as a result of these debt funded acquisitions and integration risks have risen. Additional capital expenditure will be needed to grow these new capital intensive business ventures which will delay the company’s transition to positive free cash flow.”