Integra Telecom Planning to Raise $260 Million in New Debt

By Josh Long

Integra Telecom Holdings, a wholly owned subsidiary of Integra Telecom Inc., plans to sell $260 million in senior unsecured notes.

Integra intends to use the proceeds to repay an existing term loan, according to Standard & Poors, a credit rating agency that upgraded Integra Telecom to a B from a B- on Tuesday. Integra also plans to enter a $60 million secured revolved facility due 2015 to replace an existing facility and extend the maturity by one year, according to S&P.

Our upgrade reflects recent improvements in customer churn that have helped stabilize operating metrics and led to a slightly higher view of the companys business risk profile, which we still review as vulnerable,” said S&Ps credit analyst Michael Senno.

The upgrade also reflects an improved view of liquidity given that there will be no financial maintenance covenants following the proposed refinancing, and no near-term debt maturities,” added S&P, which considers a B rating to be more vulnerable to adverse business, financial and economic conditions but currently has the capacity to meet financial commitments.”

Meanwhile, S&Ps peer, Moodys Investors Service, has downgraded Integras Corporate Family Rating to B3 from B2 and the Probability of Default Rating to B3 from B2. Credit rating agencies like S&P and Moodys measure a companys credit risk, including the likelihood that a company will default on its obligations.

Integras B3 corporate family rating reflects the Companys weakened financial metrics, primarily high leverage and post capex interest coverage, the challenge of repositioning its product portfolio and network to provide more data-centric products to its customers and expanding the reach of its fiber network,” Moody’s stated.

“Moodys views the companys product repositioning and upmarket move as strategically appropriate to meet the growing competition from cable operators and incumbent telcos targeting small and medium sized business customers (SMBs),” added Moodys, which considers obligations rated B to be speculative” and subject to high credit risk.” However, to implement these initiatives, Integra will increase capital spending and hire more salespeople over the next two years, thus generating negative free cash flow, as these added costs compound the impact of expected churn of the companys lower end customers.”

Since its founding 15 years ago, Integra Telecom has largely made a name for itself serving small and medium-sized business customers in the western United States. But the Portland, Ore.-based telecommunications provider is focusing on growth this year in the enterprise and wholesale markets, an Integra spokesman told Channel Partners earlier this year.

Integra is one of the largest competitive local exchange carriers in the United States with about $600 million in annual revenues.