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Investing.com -- S&P Global has upgraded the credit rating of CommScope Holding (NASDAQ: COMM ) Co. Inc. to 'CCC+' from ' CCC (WA: CCCP )' and removed the company from CreditWatch, where it was placed with positive implications on December 23, 2024. The change in credit rating follows the company's improved maturity profile and metrics.

The upgrade came after CommScope received proceeds from the divestiture of OWN/DAS, which it utilized to repay its secured notes due in 2026. Consequently, CommScope's nearest debt maturity is now scheduled for 2027. S&P Global also anticipates that the company will witness an uptick in end-customer demand across all its segments, leading to an enhancement in its credit metrics over the next year.

The ratings agency has also elevated its issue-level rating on CommScope's secured debt to 'B-' from 'CCC+' and its unsecured debt to 'CCC' from 'CCC-'. The recovery ratings on the company's secured and unsecured debts remain unchanged at '2' and '5', respectively. In addition, S&P Global assigned a 'B-' issue-level rating and a '2' recovery rating to CommScope's new $3.15 billion secured term loan due in 2029 and $1 billion secured notes due in 2031.

The stable outlook is based on the expectation of reduced default risk over the next 12 months owing to the company's recent debt paydown and refinancing, along with improving credit metrics.

CommScope's revenue growth and improving EBITDA margins are expected to reduce its leverage in 2025. The company's business operations across all its segments were affected for the first three quarters of 2024. However, with the market demand for datacom products rising in the fourth quarter of 2024, CommScope is expected to see improved demand across all its segments in 2025.

CommScope's Connectivity and Cable Solutions (CCS) segment is expected to witness a significant rise in its revenue in 2025 due to robust datacom demand and rising demand from telecom customers as their inventory normalizes. The company's Access Network Solutions (ANS) business is also likely to benefit from increased revenue due to anticipated network updates in 2025. The Network Intelligent Cellular and Security Solutions (NICS) segment of CommScope is expected to see a strong increase in its revenue amid normalizing inventory levels in 2025. Given these factors, the company's organic revenue is expected to grow by almost 20% in 2025.

CommScope's EBITDA margins are also expected to improve, supported by the roll off of one-time costs and increased operating leverage, to the 19%-21% range in 2025. With the expected strong revenue and EBITDA expansion, the company's leverage is expected to reduce to the low-9x area in 2025.

S&P Global could lower its rating on CommScope if it anticipates an elevated risk of default on its mandatory debt obligations or believes it will undertake a distressed exchange over the next 12 months due to a worse-than-expected operating performance on weak end-customer demand, a disruption to its business operations, or elevated macroeconomic or market-specific volatility.

Conversely, an upgrade could occur if CommScope can sustain its leverage below the 8x area, generate reported FOCF of more than $200 million, and demonstrates a path toward refinancing its 2027 debt maturities and addressing its 2027 preferred equity. This could happen if the company's end-customer demand improves significantly and the roll off of one-time costs supports an improvement in its EBITDA and FOCF generation.

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