Moody's assigns Cogent Caa1, notes B2

Moody's Investors Service said it assigned a Caa1 corporate family rating and a Caa1 probability of default rating to Cogent Communications, LLC, along with a B2 (LGD 2, 24%) rating to its proposed $150 million senior secured notes due 2018.

The proceeds will be used for general corporate purposes, including network expansion or returning capital to equity holders via share repurchase or dividends.

The rating reflects the senior secured status of the notes and subsidiary guarantees.

The 2018 notes are rated two notches higher than the company's corporate family rating due to the loss protection afforded by the company's existing unsecured convertible notes and considerable operating and capital leases which Moody's said it considers unsecured debt.

The loss protection offered by the convertible notes is likely to disappear in 2014, the agency noted, when holders are able to put the debt back to the company, at which time the rating on the 2018 notes would converge towards the company's corporate family rating.

The ratings reflect its high leverage, small scale and the highly competitive environment in which it operates, as well as the capital intensity of the industry, Moody's said.

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