S&P: West Corp. Proposed $700 Million Incremental Term Loan B-1 Rated 'B' (Recovery Rating: 3)

S&P Global Ratings today assigned its 'B' issue-level rating and '3' recovery rating to Omaha, Neb.-based enterprise technology services provider West Corp.'s proposed $700 million first-lien term loan B-1 due 2024. The '3' recovery rating indicates our expectation of meaningful (50%-70%; rounded estimate: 60%) recovery for secured lenders in the event of a payment default. We expect the company will use the net proceeds from term loan B-1 and about $9 million of existing cash to redeem $343 million outstanding of its 4.75% secured notes, fund the $335 million purchase of the public relations (Public Relations Solutions) and webcasting and web hosting (Digital Media Services) products and services within Nasdaq's Corporate Solutions business as well as pay fees and expenses associated with the transactions.

We view the acquisition favorably in that it complements West Corp.'s existing web hosting and webcasting product portfolio in enterprise communications, expands its solution offerings with investor relation and public relation tools, and furthers the company's continued partnership with Nasdaq. In addition, the acquisition expands and diversifies the company's customer base while creating more cross-selling opportunities. We expect that relatively stable revenues of the acquired businesses will only slightly offset declines in the company's larger audio conferencing segment.

The 'B' corporate credit rating and stable outlook on West Corp. are unaffected. We expect the acquisition of the Nasdaq assets will be leverage neutral at around 6.4x, which is below our 7x downgrade threshold for the 'B' rating. In addition, the redemption of the secured notes is mostly debt for debt, keeping the repayment of the notes leverage neutral. We expect the deal to close in the second quarter of 2018.

RECOVERY ANALYSISKey analytical factors

Our simulated default scenario contemplates a default in 2021, stemming from increased competition, excess capacity and pricing erosion in the industry, client contract losses, and financial pressure from debt-financed acquisitions. We have valued the company on a going-concern basis using a 5.5x multiple of our projected emergence EBITDA. The 5.5x valuation multiple is on the lower end of the 5x-7x range we typically ascribe to telecom companies, but in line with that for other audio conferencing companies. Simulated default assumptionsSimulated year of default: 2021EBITDA at emergence: about $444 millionEBITDA multiple: 5.5xSimplified waterfallNet enterprise value (after 5% administrative costs): Approximately $2.3 billionValuation split (obligors/nonobligors): 75%/25%Net value available to creditors: Approximately $2.1 billion-----------------------------------------------------Senior secured debt: Approximately $3.57 billion--Recovery expectations: 50%-70% (rounded estimate: 60%)Senior unsecured debt and pari passu claims: Approximately $2.66 billion--Recovery expectations: 0%-10% (rounded estimate: 5%)All debt amounts include six months of prepetition interest.
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