CommScope (COMM) Ratings Placed on CreditWatch Negative by S&P (TEL)

Standard & Poor's Ratings Services said it placed its 'BB-' corporate credit ratings on Hickory, N.C.-based CommScope Inc. (Nasdaq: COMM) and CommScope Holding Co. Inc. (the holding company of CommScope Inc.) on CreditWatch with negative implications. We also placed our issue-level ratings on the company's senior secured term loans, unsecured notes, and unsecured paid-in-kind toggle notes on CreditWatch negative.

"The CreditWatch listing follows CommScope's announcement on Jan. 28, 2015 that it will acquire networking solutions assets from TE Connectivity (NYSE: TEL) for $3 billion," said Standard & Poor's credit analyst Christian Frank.

The transaction could result in leverage above 5x in 2015 depending on EBITDA levels (which will likely decline following a very strong 2014), the amount of debt used to fund the transaction, the likely realization of potential cost saving opportunities, and the company's plans for allocation of cash flow for debt repayment, acquisitions, and shareholder returns. The transaction would roughly double the scale of the company, provide entry to certain wireline telecommunications markets, and enhance its positions in the enterprise and wireless infrastructure markets.

The ratings reflect CommScope's tolerance for financial risk and its exposure to cyclical investment spending by wireless carriers, enterprise IT organizations, and broadband providers, partly offset by its leading positions in several market segments. Adjusted leverage was 3.2x as of Sept. 30, 2014.

For the full corporate credit rating rationale, see our summary analysis on CommScope, published April 16, 2014, on RatingsDirect.

We will monitor developments related to the proposed acquisition and resolve the CreditWatch listing when more information regarding the transaction and financing becomes available. Any downgrade of the company is likely to be limited to one notch; we will reassess our recovery and issue-level ratings given the expected increase in priority debt as part of the transaction financing. Our review will also focus on expected operating performance, financial policies, and growth strategies.

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