CommScope $2.1B Asset Sale Appears to Increase Net Leverage by 1x, Gross Secured Leverage by 1.5x; May Use Drop-Down to Increase Options for Debt Paydown Using Sale Proceeds

Credit Research: Simran Bal Covenant Analysis: Mitch Oates Relevant Documents: Q2 2024 10-Q 2023 10-K   Key Takeaways   We expect CommScope to use its restricted payment capacity to effectuate the use of $2.1 billion in sales proceeds to help pay off $1.3 billion in unsecured notes due 2025, with the remaining $825 million used to pay down secured debt due in 2026 ratably.   In our opinion, the asset sale to Amphenol will increase CommScope’s net leverage by 1 turn and gross secured leverage by 1.5 turns, on the basis of estimated trailing 12-month figures for the period ended June 30.   Even as this transaction may push CommScope’s maturity wall to 2026, the company still faces 2026 and 2027 maturities. Although Octus identifies short- and medium-term tailwinds that could support refinancing efforts for 2026 secured maturities including AI infrastructure buildouts and BEAD program funding, the company may need to look at more creative options to help reduce unsecured maturities, including a potential uptiering transaction. Absent discounted debt redemptions, CommScope’s $2.1 billion asset sale transaction would increase net leverage by one turn and gross secured leverage by 1.5x, according to estimates by Octus. CommScope’s capital structure has traded up[...]