The merger of Deutsche Telekom's T-Mobile with MetroPCS Communications is a modest credit positive for CLOs, Standard & Poor's said in a short note released this morning.
The companies announced the deal yesterday and hope to make T-Mobile a stronger wireless competitor.
In terms of CLO exposure, S&P reported that MetroPCS is in 331 deals and is the 26th ranked obligor.
The agency currently rates Deutsche Telekom, an investment-grade company, 'BBB+' while the junk-rated MetroPCS' rating is 'B+' (on CreditWatch positive).
Meanwhile, Moody's Investors Service's rating of Deutsche Telekom is 'Baa1' and MetroPCS is 'B1'
The merger, which is restructured as a recapitalization, will give MetroPCS’s shareholders a 26% state in the combined company and $1.5 billion in cash. Deutsche Telekom shareholders will have a 74% stake in the combined company, which will continue to do business under the T-Mobile name.
MetroPCS will declare a one-for-two reverse stock split and pay its shareholders $1.5 billion in cash and acquire all of T-Mobile’s capital stock by issuing 74% of its stock to Deutsche Telekom on a pro-forma basis.
Deutsche Telekom agreed to roll existing intercompany debt into $15 billion of new unsecured notes of the combined company, provide the combined firm with a $500 million unsecured revolver and offer a $5.5 billion backstop commitment for certain MetroPCS third-party financing transactions.
MetroPCS had $4.73 billion in total long-term debt as of June 30, according to a July 26 regulatory filing. This included $2.5 billion in outstanding credit facility debt, $1 billion in 7.875% senior notes, $1 billion in 6.625% senior notes, and $310.5 million in capital lease obligations.
MetroPCS reported revenues of $2.56 billion for the six months ended June 30.
In yesterday's announcement, the firms said that the combined company is expected to have 42.5 million subscribers, $24.8 billion in revenue, $6.3 billion of adjusted Ebitda, $4.2 billion in capital expenditures and $2.1 billion in free cash flow for 2012