Score Motion: Moody’s affirms CCI Purchaser’s B2 CFR on dividend recap announcement; outlook stableGlobal Credit score Analysis – 15 Feb 2022Approximately $2.5 billion of rated securities affectedNew York, February 15, 2022 — Moody’s Buyers Service (Moody’s) affirmed CCI Purchaser, Inc.’s (Client Mobile) present scores, together with its B2 Company Household Score (CFR), and rated the corporate’s proposed prolonged revolver at B1. The score outlook is secure.The score actions comply with the corporate’s announcement immediately that it intends to upsize its first and second lien time period loans by $872 million and $95 million, respectively and lift $85 million in new incremental most well-liked fairness. The proceeds from the proposed refinancing together with $75 million money will probably be used to fund a $1.1 billion dividend cost to the sponsor and pay associated transaction charges and bills. Concurrent with the time period loans upsize and elevating incremental most well-liked fairness, the corporate is extending the maturity of its revolver by a 12 months to December 2026.”The dividend recapitalization is credit score damaging as a result of Client Mobile’s debt-to-EBITDA will enhance considerably, to roughly 8.1x at shut from 5.1x as of LTM 9/2021, together with Moody’s changes. Nevertheless, the score affirmation displays Moody’s expectation for continued earnings development and stable free money flows that present capability to deleverage to round 6x (Moody’s adjusted) by the top of 2023, whereas sustaining good liquidity.” stated Dilara Sukhov, Moody’s lead analyst for Client Mobile.The proposed transaction demonstrates the corporate’s aggressive monetary technique prioritizing shareholder returns. The proposed dividend, which exceeds the sponsor’s preliminary fairness funding on the LBO simply 15 months in the past, comes at a time when income development is slowing, and the corporate is transitioning to a single wi-fi service association mannequin, introducing provider focus danger. Moody’s expects that Client Mobile will proceed to pursue an aggressive monetary technique beneath the non-public fairness possession. Assignments: ..Issuer: CCI Purchaser, Inc. ….Senior Secured Multi Foreign money Revolving Credit score Facility, Assigned B1 (LGD3) Affirmations: ..Issuer: CCI Purchaser, Inc. …. Chance of Default Score, Affirmed B2-PD…. Company Household Score, Affirmed B2….Senior Secured 1st Lien Time period Mortgage, Affirmed B1 (LGD3)….Senior Secured Multi Foreign money Revolving Credit score Facility, Affirmed B1 (LGD3)….Senior Secured 2nd Lien Tern Mortgage, Affirmed Caa1 (LGD6 from LGD5) Outlook Actions: ..Issuer: CCI Purchaser, Inc. ….Outlook, Stays Steady RATINGS RATIONALE Client Mobile’s B2 CFR displays the corporate’s area of interest place in an intensely aggressive Cell Digital Community Operator (MVNO) market, excessive leverage stemming from its aggressive monetary insurance policies, in addition to provider and channel companions focus. Intense competitors by giant scale cable firms and different resellers of wi-fi companies pursuant to MVNO agreements are tempering Client Mobile income and subscriber development to mid-single digits from its high- to mid- teen development price over the previous three years. The corporate’s historic month-to-month churn price of 1.5%-1.8% is decrease than that of post-paid operators however excessive relative to different wi-fi carriers. There’s a danger that churn will enhance as some subscribers migrate to different value-oriented MVNOs.However, the corporate’s credit score profile continues to garner assist from its recurring income mannequin and stable free money circulation on rising income and enticing EBITA margins within the 15%-17% vary (Moody’s adjusted). The corporate’s credit score profile additional advantages from its excessive model consciousness amongst its goal market, popularity for good customer support that generates buyer loyalty and extremely variable value construction (practically 90% of prices are variable). As an MVNO, Client Mobile doesn’t personal or function its personal wi-fi community given its wholesale association with carriers who personal and keep the infrastructure. Subsequently, the corporate’s capital spending could be very low, beneath 1% of service income. Along with good margins, enterprise mannequin helps significant free money circulation, projected to be round $100 million in 2022, earlier than the dividend payout.The corporate’s plan to transition to an unique partnership with AT&T Inc. (AT&T, Baa2 secure) over the following two years heightens provider focus danger. This danger is mitigated by a long run (7 years) non-cancellable nature of the association, with a three-year renewal choice at Client Mobile’s choice. There’s some execution danger within the firm’s capacity to seamlessly shift one third of its present subscribers to AT&T community. This might additionally trigger increased churn charges in the course of the transition, just like the 3G-migration associated churn in 2021.Client Mobile depends on a partnership with AARP (American Affiliation of Retired Individuals) in reaching its buyer demographic and with Goal Company (Goal, A2 secure) for retail distribution of its telephones and companies; nonetheless, its dependence on such preparations is significant and introduces danger. Client Mobile has sturdy multiyear relationships with each companions but the partnerships usually are not unique and could be disruptive for Client Mobile ought to the companions finally determine to discontinue the connection. This month Client Mobile launched a partnership with Walmart Inc (Walmart, Aa2 secure), with a launch in 500 shops and potential for enlargement to extra shops in mid-2022. Whereas constructive from a development potential and diversification perspective, the association with Walmart could be very latest and neither unique nor non-cancellable.Client Mobile has good liquidity, supported by the corporate’s undrawn revolver, lack of funded debt maturities till 2027, minimal capex necessities and stable free money circulation. Even after accounting for the elevated curiosity expense associated to the next debt burden, Moody’s expects the corporate to generate at the very least $100 million of free money circulation over the following 12 months, which comfortably meets its fundamental money obligations consisting of $20 million time period mortgage amortization and $7 million capex. As well as, the corporate can have an undrawn $100 million revolving credit score facility due December 2026 and over $70 million of money on the steadiness sheet at shut. The primary and second lien time period loans are covenant lite whereas the proposed prolonged revolver accommodates a springing most first lien leverage ratio of 8.35x that’s examined when the revolver is greater than 35% drawn.The secure outlook displays Moody’s expectation that Client Mobile will delever to round 6x by the top of 2023, and generate at the very least mid-single digit % annual income development over the following 12-18 months. It additionally incorporates Moody’s expectations the corporate will keep superb liquidity and apply free money flows to paydown debt along with necessary debt amortization.The instrument scores replicate the chance of default of the corporate, as mirrored within the B2-PD Chance of Default Score, a mean anticipated household restoration price of fifty% at default given the combination of first and second lien secured debt within the capital construction, and the actual devices’ rating within the capital construction. The primary lien senior secured credit score amenities are rated B1 and replicate loss absorption in a misery situation from the second lien time period mortgage. The score on the proposed upsized $395 million of second lien time period mortgage is Caa1, reflecting its junior place within the capital construction.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe scores may very well be upgraded if Client Mobile maintains leverage under 5x and free money circulation to debt above 10% (each Moody’s adjusted), whereas committing to a extra conservative monetary coverage, with good liquidity. An improve may also be thought of if the corporate considerably reduces its provider focus danger and is more likely to maintain subscriber and income development at the very least within the excessive single digit % price.Moody’s would contemplate a downgrade ought to working efficiency or market share weaken materially, resulting in slower than anticipated subscriber and income development. Moreover, weaker than anticipated earnings or an aggressive use of economic leverage such that adjusted debt / EBITDA is sustained above 7x and free money circulation to debt under 5% (each Moody’s adjusted) might stress the score. A deterioration of liquidity might additionally result in a downgrade.The principal methodology utilized in these scores was Enterprise and Client Providers printed in November 2021 and accessible at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1287897. Alternatively, please see the Score Methodologies web page on www.moodys.com for a duplicate of this technique.CCI Purchaser, Inc. is a holding firm for Client Mobile Integrated, a nationwide cell digital community operator that gives postpaid wi-fi companies. The corporate targets customers over 50 by way of its strategy to advertising and marketing, gadget choices, and decrease information utilization plans. The corporate is majority owned by non-public fairness agency GTCR. GAAP income for the final twelve months ended September 30, 2021 was about $1.45 billion.REGULATORY DISCLOSURESFor additional specification of Moody’s key score assumptions and sensitivity evaluation, see the sections Methodology Assumptions and Sensitivity to Assumptions within the disclosure kind. Moody’s Score Symbols and Definitions will be discovered at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For scores issued on a program, collection, class/class of debt or safety this announcement offers sure regulatory disclosures in relation to every score of a subsequently issued bond or be aware of the identical collection, class/class of debt, safety or pursuant to a program for which the scores are derived completely from present scores in accordance with Moody’s score practices. For scores issued on a assist supplier, this announcement offers sure regulatory disclosures in relation to the credit standing motion on the assist supplier and in relation to every specific credit standing motion for securities that derive their credit score scores from the assist supplier’s credit standing. For provisional scores, this announcement offers sure regulatory disclosures in relation to the provisional score assigned, and in relation to a definitive score which may be assigned subsequent to the ultimate issuance of the debt, in every case the place the transaction construction and phrases haven’t modified previous to the project of the definitive score in a fashion that may have affected the score. For additional info please see the scores tab on the issuer/entity web page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit score assist from the first entity(ies) of this credit standing motion, and whose scores could change because of this credit standing motion, the related regulatory disclosures will probably be these of the guarantor entity. Exceptions to this strategy exist for the next disclosures, if relevant to jurisdiction: Ancillary Providers, Disclosure to rated entity, Disclosure from rated entity.The scores have been disclosed to the rated entity or its designated agent(s) and issued with no modification ensuing from that disclosure.These scores are solicited. Please consult with Moody’s Coverage for Designating and Assigning Unsolicited Credit score Scores accessible on its web site www.moodys.com.Regulatory disclosures contained on this press launch apply to the credit standing and, if relevant, the associated score outlook or score evaluation.Moody’s normal rules for assessing environmental, social and governance (ESG) dangers in our credit score evaluation will be discovered at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.At the least one ESG consideration was materials to the credit standing motion(s) introduced and described above.The World Scale Credit score Score on this Credit score Score Announcement was issued by certainly one of Moody’s associates exterior the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Important 60322, Germany, in accordance with Artwork.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit score Score Businesses. Additional info on the EU endorsement standing and on the Moody’s workplace that issued the credit standing is out there on www.moodys.com.The World Scale Credit score Score on this Credit score Score Announcement was issued by certainly one of Moody’s associates exterior the UK and is endorsed by Moody’s Buyers Service Restricted, One Canada Sq., Canary Wharf, London E14 5FA beneath the regulation relevant to credit standing companies within the UK. Additional info on the UK endorsement standing and on the Moody’s workplace that issued the credit standing is out there on www.moodys.com.REFERENCES/CITATIONS CCI Purchaser’s announcement, Bloomberg, 15-Feb-2022Please see www.moodys.com for any updates on adjustments to the lead score analyst and to the Moody’s authorized entity that has issued the score.Please see the scores tab on the issuer/entity web page on www.moodys.com for extra regulatory disclosures for every credit standing. 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