CommScope Holding Co. Inc.

The stable outlook reflects our view that while first-half 2019 performance fell well below our expectations, credit metrics will improve in 2020. We think management will take necessary steps to lower spending and address sale execution issues and that cable operators' network spending will return to normal levels in 2020 as customer-specific issues precluding normal spending subside. We could lower the rating if leverage remains above 6x. This could occur if lower cable operator spending in the first half of 2019 represents a permanent stepdown rather than a pause, which we think is unlikely due to increasing demand for broadband internet access to support increasing data traffic, or if a macroeconomic downturn causes cable operators to maintain low spending longer

...Weak first-half 2019 results should be temporary as cost management and debt repayment bring leverage down to the mid-5x area in 2020. CommScope Holding Co. Inc. reported weak first-quarter results from ARRIS International PLC and issued weak guidance for the combined company in the second quarter due to reduced capital spending by certain large North American network operators, a channel inventory drawdown, and the impact of transitioning production out of China due to tariffs. We think this will result in leverage peaking above 7x. We expect that a rebound in legacy ARRIS revenues combined with realization of merger cost synergies and roughly $1.2 billion of debt repayment will reduce leverage to the mid-5x area in 2020. Customers' cyclical investment spending and large customers can make operating results volatile.Investment spending by CommScope's cable and wireless customers can vary depending on new technology rollouts and macroeconomic changes. Large customers can also change their...

Full Report