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TierPoint, LLC -- Moody's assigns B3 to Tierpoint's new term loan

·15 min read

Rating Action: Moody's assigns B3 to Tierpoint's new term loanGlobal Credit Research - 17 Feb 2021New York, February 17, 2021 -- Moody's Investors Service (Moody's) has assigned a B3 rating to Tierpoint LLC's (Tierpoint) proposed $675 million senior secured term loan B due May 2026. The net proceeds from the proposed term loan issuance will be used to fully refinance the company's existing $677 million senior secured term loan B due May 2024. All other ratings including the company's B3 corporate family rating (CFR) and stable outlook are unchanged.Assignments:..Issuer: TierPoint, LLC....Senior Secured Bank Credit Facility, Assigned B3 (LGD3)RATINGS RATIONALETierPoint's B3 CFR reflects the potential for periods of elevated leverage (Moody's adjusted) associated with organic expansion and M&A given the capital intensity of the company's business model and end markets, historical but now abating cash deficits, modest scale, intensifying competition and significant industry risks. The company's credit profile also reflects the financial policy objectives of the company's consortium of private equity owners. These factors are offset by the company's stable base of contracted recurring revenue, mid-to-high single-digit revenue growth, position as a high quality retail colocation provider in Tier 2 and Tier 3 markets with an emphasis on hybrid IT solutions and its portfolio of advanced cloud and managed services.TierPoint has shown improved financial flexibility and continued steady progress improving bookings, installations and churn trends in 2020 despite a reduction in retail colocation traction with enterprise customers during the Covid-19 pandemic. With Covid-19 pressures likely waning by second half 2021, strengthened colocation bookings growth and a continuation of 2020's mid-teens bookings growth in cloud and managed services will aid Tierpoint's continued EBITDA expansion. Proceeds from preferred equity issuance in April 2020 facilitated meaningful reductions in funded debt. This strengthened balance sheet combined with improved operational execution is now enabling Tierpoint to deliver sustained revenue and EBITDA growth. Such growth is predicated on continued sales force productivity increases following several years of focused investment in direct and channel-based sales efforts, as well as from improved service and delivery, customer outreach and operational efficiencies.TierPoint participates in a rapidly evolving segment of the telecommunications industry that favors operators with large scale. TierPoint's organic and historical M&A growth strategy, as well as its differentiated focus serving mid-size enterprise customers in Tier 2 and Tier 3 markets, facilitates improved scale. Combined with a broadening product portfolio, including less capital intensive growth in its advanced cloud and managed services operations, the company has the potential to strengthen its value proposition and competitive position over the long term.TierPoint's liquidity is good, supported by $179 million available from its $220 million of total revolver capacity on a pro forma basis reflecting the term loan B refinancing as of September 30, 2020; $36 million of this $220 million of capacity matures in May 2022 with the remainder maturing in April 2025. The company will also have a pro forma cash balance of about $1 million as of September 30, 2020. TierPoint will generate negative free cash flow in 2020 due to mainly success-based growth initiatives, but Moody's anticipates free cash flow to become positive over the next 12 to 18 months as a result of growing EBITDA and lower material capital spending associated with capacity expansions in 2021. Moody's expects any cash shortfalls will be funded with revolver draws.The stable outlook reflects Moody's view that TierPoint will continue growing revenue and EBITDA and that leverage (Moody's adjusted) will remain below 7x over the next 12 to 18 months.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSMoody's could consider a ratings upgrade if the company generated free cash flow equal to at least 5% of debt and leverage were to trend through 5x (both on a sustained and Moody's adjusted basis).Downward rating pressure could develop if bookings growth weakens, churn rises, monthly recurring revenue trends turn negative or if leverage (Moody's adjusted) is sustained above 7x. In addition, if liquidity becomes strained or if capital intensity becomes less success-based, a downgrade is likely.The principal methodology used in these ratings was Communications Infrastructure Industry published in September 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1076924. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.Headquartered in St. Louis, MO, TierPoint, LLC is a provider of data center, managed hosting and cloud services. The company operates 41 data centers in 20 markets, and serves over 3,500 mid-size and larger enterprise customers.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Neil Mack, CFA Vice President - Senior Analyst Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Lenny J. Ajzenman Associate Managing Director Corporate Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 © 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. 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