Fitch Rates CSC Holdings Senior Secured Credit Facility 'BB+'; Outlook
CHICAGO -- April 22, 2013
Fitch Ratings has assigned a 'BB+' rating to CSC Holdings, LLC's (CSCH) $4.8
billion senior secured credit facility consisting of a $1.5 billion revolver
due 2018, a $959 million Term Loan A due 2018 and a $2.35 billion Term Loan B
Fitch expects the proceeds from the new credit facility will be used to
refinance CSCH's existing senior secured debt. CSCH is a wholly owned
subsidiary of Cablevision Systems Corporation (rated 'BB-' by Fitch). CVC had
approximately $11 billion of consolidated debt outstanding as of Dec. 31,
KEY RATING DRIVERS:
--The terms and conditions of the new credit facility are expected to be
substantially similar to the existing senior secured credit facility.
--The new credit facility will not result in any material improvement of the
company's credit profile but is in line with Cablevision's strategy to extend
its maturity profile.
--Positively the new facilities reduce refinancing risk related to 2016
--Business strategies and investments have weakened Cablevision's credit
The refinancing of CSCH's credit facilities improves overall financial
flexibility and meaningfully reduces the refinancing risk associated with its
2016 scheduled maturities, which totaled approximately $3.3 billion as of
year-end 2012. Beside the extension of the company's maturity profile,
Cablevision's credit profile has not substantially changed.
Fitch considers Cablevision's liquidity position and overall financial
flexibility to be adequate within the current ratings. The company's liquidity
position is supported by cash on hand totaling $365 million as of Dec. 31,
2012 and available borrowing capacity from CSCH's new $1.5 billion revolver
expiring April 2018. Cablevision does not have significant near term scheduled
maturities. Adjusted for the new credit facilities and pro forma for the sale
of Bresnan Broadband Holdings, LLC, Fitch estimates 2013 scheduled maturities
total approximately $32 million, followed by $272 million in 2014, $183
million in 2015 and $685 during 2016.
Fitch believes that Cablevision has sufficient capacity within the current
ratings to accommodate management's decision to increase capital expenditures
and to refrain from increasing prices during 2012. The increased level of
investment, while prudent from a competitive standpoint, will constrain free
cash flow (FCF) generation, pressure EBITDA margin, and limit overall
financial flexibility resulting in a weaker credit profile. However, Fitch
expects the company's operating profile will benefit from price increases
taken during 2013 and anticipates that capital spending and operating margin
will revert to levels closer to historical performance during 2013 and 2014,
which will drive FCF generation and position the company's credit profile more
in line with the current ratings.
These strategic decisions are viewed within the context of the company's
capital allocation strategy, which during 2012 became more balanced as the
company curtailed share repurchases to $188.6 million (versus $555.8 million
during 2011) and maintained a consistent dividend. Additionally Cablevision
elected to use the cash it received from the settlement of litigation with
DISH Network to reduce debt. Cash proceeds the company expects to receive
related to the pending sale of Bresnan Broadband Holdings, LLC presents
further opportunity to reduce debt.
Cablevision's consolidated leverage as of Dec. 31, 2012 swelled to 5.8x based
on Fitch's calculations, weakly positioning the company's credit profile
within the existing ratings. Fitch expects Cablevision's credit profile to
strengthen somewhat during 2013 as the company benefits from price increases
and modest margin improvement. Fitch anticipates leverage will approximate 5x
by year-end 2013 and 4.8x by the end of 2014. The leverage is somewhat more
aggressive than CVC's investment-grade rated cable multiple system operator
peers. Fitch does not anticipate CVC will increase leverage in order to
support its share repurchase program.
Cablevision generated negative $87.6 million of FCF from continuing operations
during 2012. Fitch expects positive FCF generation during 2013, ranging
between 2% and 4% of revenues reflecting modest operating margin gains. Fitch
believes that CVC will maintain an appropriate balance between investing in
its business during 2013 and repurchasing shares. Fitch acknowledges that
CVC's share repurchase authorization represents a significant potential use of
cash; however, the agency believes that the company would continue to reduce
the level of share repurchases should the operating environment materially
change in order to maximize flexibility.
Overall Cablevision's ratings incorporate the solid operating profile and
competitive strength of the company's core cable business. In Fitch's opinion,
the operating profile of Cablevision's cable segment is among industry leaders
and has proven to be resilient to persistent competitive pressures and a weak
economic recovery characterized by continued soft employment markets.
Outside of the company adopting a more aggressive financial or acquisition
strategy, which is expected to remain a key rating consideration, the
weakening of CVC's competitive position presents the greatest concern within
the company's credit profile. The competitive pressure associated with the
service overlap among the different telecommunications service providers,
while intense, is not expected to materially change during the ratings
horizon. Innovative service offerings such as the company's deployment of a
WI-FI broadband wireless network, the introduction of a remote storage digital
video recorder service, and the emergence of video-over-IP applications
enhance the company's competitive position.
Key considerations that can lead to positive rating actions include:
--Further strengthening of the company's credit profile and reduction of
leverage to levels approaching 4x;
--Cablevision demonstrating that its operating profile will not materially
decline in the face of competition and the soft economic recovery.
Negative ratings actions would likely coincide with:
--The company's inability to realize the expected benefits of its operating
strategies and strengthen its operating profile. Specifically, Fitch will be
looking for mid-single-digit ARPU growth, operating margins returning to the
high 30% range and FCF generation in excess of $400 million;
--A management decision to increase leverage greater than 6x to repurchase
shares, fund a large dividend, or fund a non-core investment or acquisition in
the absence of a clear path to de-lever the company to within its current
leverage target will likely spur a negative rating action.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Rating Telecom Companies' (Aug. 9, 2012)
--'Corporate Rating Methodology' (Aug. 8, 2012).
Applicable Criteria and Related Research
Rating Telecom Companies
Corporate Rating Methodology
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David Peterson, +1-312-368-3177
Fitch Ratings, Inc.
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Chicago, IL 60602
Bill Densmore, +1-312-368-3125
Mike Weaver, +1-312-368-3156
Brian Bertsch, +1-212-908-0549
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