Moody’s confirms TDS’ Ba1 rating, changes outlook to stable

Investing.com -- Moody’s Ratings has confirmed Telephone and Data Systems, Inc.’s (TDS) Ba1 Corporate Family Rating, concluding its review for downgrade that began on May 29, 2024. The rating agency changed the outlook to stable.

The confirmation reflects TDS’s high-quality asset base following the sale of Array Digital Infrastructure’s wireless operations to T-Mobile US (NASDAQ:TMUS), Inc. Moody’s cited the company’s conservative financial policies, lower financial leverage post-sale, resilient business model, and strong liquidity profile as key factors in the decision.

Moody’s projects TDS’s total debt-to-EBITDA ratio to be approximately 2.2x by year-end 2025, a significant improvement from 3.6x for the period ending March 31, 2025.

The rating agency also confirmed Array Digital Infrastructure’s Ba2 senior unsecured ratings. TDS owns and controls 83% of Array. TDS’s SGL-1 Speculative Grade Liquidity Rating remains unchanged, reflecting very good liquidity.

Post-sale, TDS will retain three business segments: a telecom division with 1.8 million passings across 31 states; a wireless tower portfolio of over 4,400 towers (making it the fifth-largest tower operator in the U.S.); and minority interests in wireless partnerships with Verizon (NYSE:VZ) and AT&T (NYSE:T) that generate approximately $150 million in annual cash distributions to Array.

Moody’s expects these businesses to grow at a compound annual rate of about 3%, generating around $1.3 billion in revenue and more than $600 million in EBITDA. The company’s consolidated cash balances are projected to exceed $2 billion by 2026.

Credit constraints noted by Moody’s include TDS’s smaller scale compared to national telecom, cable, and tower peers, and execution risk related to its fiber expansion strategy, which aims to increase passings to over 2.3 million with at least 80% served by fiber within five years.

TDS’s liquidity is supported by an expected $2.5 billion in cash and full availability under its $400 million revolving credit facility expiring in April 2026. Array maintains its own undrawn $300 million revolving credit facility with the same expiration date.

The Ba3 rating on TDS’s cumulative redeemable perpetual preferred stock is two notches below the CFR, reflecting its junior position in the capital structure.

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