July 13, 2012 / 8:59 PM / 7 years ago

TEXT-S&P cuts Broadview Networks rating to 'CC'

Overview
     -- U.S. wireline operator Broadview Networks has announced that it has 
reached a debt restructuring agreement with holders of about two-thirds of the 
aggregate principal amount of its secured notes.
     -- To facilitate this process, it plans to reorganize through a 
prepackaged Chapter 11 bankruptcy filing.
     -- We are lowering our corporate credit and secured notes ratings on the 
company to 'CC' and 'C', respectively. The outlook is negative;
     -- The negative outlook reflects that we consider the company's debt 
restructuring tantamount to default and when it files for bankruptcy, we will 
lower all ratings to 'D'. 

Rating Action
On July 13, 2012, Standard & Poor's Ratings Services lowered its ratings on 
Broadview Networks Holdings Inc. following its debt restructuring agreement 
with the majority of its noteholders. We lowered the corporate credit rating 
to 'CC' from 'CCC-'. The outlook is negative.

At the same time, we lowered our rating on the secured notes to 'C' from 'CC'. 
The recovery rating on the notes remains a '5', indicating modest (10%-30%) 
recovery prospects in the event of a payment default. 

We will lower the corporate credit and secured note ratings to 'D' upon the 
earliest of 1) the company's bankruptcy filing or, alternatively, completion 
of an out-of-court debt restructuring; 2) the Aug. 1, 2012 revolving credit 
facility expiration, if Broadview either defaults on the revolver borrowings 
due, or extends their maturity; or 3) the Sept. 1, 2012 notes maturity, if 
Broadview has not already filed for bankruptcy or otherwise restructured.

Rationale
Broadview announced that it has reached a debt restructuring agreement with 
holders of about two-thirds of the aggregate principal amount of its secured 
notes, subject to regulatory approvals. Under terms of the restructuring 
agreement, it will exchange its existing $300 million of secured notes 
maturing in September 2012 for a $150 million five-year note issue, and 
noteholders will receive the vast majority of equity in the new organization. 
To facilitate this process, it plans to reorganize through a prepackaged 
Chapter 11 bankruptcy filing. 

Liquidity
Liquidity remains "weak," and the company will only be able to meet its $300 
million notes maturity on Sept. 1, 2012 through a debt restructuring, which we 
consider tantamount to default. The company also has about $14 million 
outstanding under its revolving credit facility, which matures on Aug. 1, 
2012.  

Recovery analysis
See the recovery report on Broadview, to be published separately on 
RatingsDirect following this release.

Outlook
The outlook is negative. We consider the company's debt restructuring 
tantamount to default. We will lower the corporate credit and secured note 
ratings to 'D' upon the earliest of 1) the company's bankruptcy filing or 
completion of an out-of-court debt restructuring; 2) the Aug. 1, 2012 
revolving credit facility expiration, if Broadview either defaults on the 
revolver borrowings due, or extends their maturity; or 3) the Sept. 1, 2012 
note maturity, if Broadview has not already filed for bankruptcy, or otherwise 
restructured. 

Upon the company's emergence from bankruptcy, we will raise the corporate 
credit rating on Broadview. While we will evaluate the company's business plan 
and financial profile as it emerges, we do not anticipate that the corporate 
credit rating would be any higher than 'B', given the significant competitive 
challenges facing the company, our expectations for limited near-term 
cash-generating ability, and leverage, which we estimate, pro forma for the 
restructuring, to be about 3x, before adjusting for the liquidation value of 
preferred stock.  

Related Criteria And Research
How Distressed Exchanges Affect Default Rates And Ratings Performance, Sept. 
26, 2011

Ratings List

Downgraded
                                        To                 From
Broadview Networks Holdings Inc.
 Corporate Credit Rating                CC/Negative/--     CCC-/Negative/--
 Senior Secured                         C                  CC
   Recovery Rating                      5                  5
0 : 0
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