July 18 Fitch Ratings has placed the following Cogeco Cable Inc.
(Cogeco) ratings on Rating Watch Negative:
--Issuer Default Rating at 'BBB-';
--Senior secured notes at 'BBB-'.
The actions reflect the definitive agreement reached by Cogeco to acquire
Atlantic Broadband for approximately $1.36 billion. Financing for the
transaction will include a mix of cash, $550 million drawdown on Cogeco CAD750
million revolving facility and a $660 million committed first lien term loan at
The rating action reflects Fitch's need to assess the effect of the transaction
on Cogeco's credit profile, longer-term capital structure and parent/subsidiary
relationship. The transaction requires regulatory approval and is expected to
close before the end of 2012. Current leverage for Cogeco is 1.8x at the end of
the third fiscal quarter for 2012. On a pro forma basis, Cogeco's leverage would
increase to 3.1x.
Fitch believes, pending final review of the transaction, that a downgrade, if
necessary would be limited to one notch. Fitch's longer-term considerations for
Cogeco ratings included leverage that would approximate the mid-2.5x range.
Cogeco currently has good liquidity through its credit facilities, cash
position, and free cash flow (FCF). As of May 31, 2012, Cogeco had no
outstandings on its CAD750 million credit facility due 2016. In February 2012,
Cogeco completed a public debt offering of 10-year 4.93% CAD200 million secured
notes, which were used to repay outstandings under its revolving facility.
Cogeco's next significant maturity of CAD300 million is in June 2014. FCF for
the last 12 months was CAD49 million. As of the end of the third fiscal quarter,
Cogeco had CAD154 million in cash.
WHAT COULD TRIGGER A RATING ACTION
Negative: Future developments that may, individually or collectively, lead to
negative rating include:
--Longer-term capital structure and leverage policies;
--The assessment of the effect of this transaction on Cogeco's credit profile;
Positive: The ratings are on a Rating Watch Negative. As a result, Fitch's
sensitivities do not currently anticipate developments with a material
likelihood, individually or collectively, of leading to a rating upgrade.