Reuters logo
Fitch Affirms Cablevision's IDR at 'B+'; Outlook Revised to Stable
April 14, 2017 / 6:51 PM / 8 months ago

Fitch Affirms Cablevision's IDR at 'B+'; Outlook Revised to Stable

(The following statement was released by the rating agency) CHICAGO, April 14 (Fitch) Fitch Ratings has affirmed the 'B+' Issuer Default Rating (IDR) assigned to Cablevision Systems Corp. (CVC) and its wholly owned subsidiary CSC Holdings, LLC (CSCH). In addition, Fitch has affirmed specific issue ratings as listed at the end of this release. The Rating Outlook for CVC and CSCH's ratings has been revised to Stable from Negative. As of Dec. 31, 2016, CVC had approximately $16 billion of debt outstanding on a consolidated basis. Fitch revised the Outlook to Stable based on the company's improving credit profile following Altice N.V.'s (Altice) acquisition of CVC (Altice Transaction) in June 2016. CVC has demonstrated meaningful progress in achieving its initial synergy target, resulting in EBITDA growth and leverage reduction to within Fitch's expectations for the current rating. Fitch acknowledges Altice's announcement of an IPO of a minority interest in Altice USA (CVC and Suddenlink Communications) and views it as neutral to the rating. We believe that an IPO of Altice USA is positive in the sense that it provides an opportunity for the company to utilize equity as an additional currency in the future, potentially to fund M&A transactions. Fitch treats Altice's M&A strategy as an event risk, and would evaluate the potential impact of any future acquisitions on CVC's credit profile at the time of the announcement. KEY RATING DRIVERS EBITDA Margin Expansion Within the first two quarters since the acquisition closed, CVC has realized annualized cost synergies of approximately 50% or $450 million of its stated mid-term target of $900 million. These synergies mainly contributed to EBITDA margins expanding 570bps to 33.4% for the year ended Dec. 31, 2016 versus 27.7% the prior year. EBITDA totalled $2.2 billion as of the LTM ended Dec. 31, 2016. Although the company has been successful thus far, CVC will need to demonstrate it can continue to manage the restructuring process and limit disruption to the company's overall operations. EBITDA Growth Driving Leverage Reduction EBITDA growth from cost synergy realization resulted in leverage declining to 7.3x at year-end 2016, faster than Fitch's previous expectations. Fitch expects EBITDA growth to continue to be the main driver of any near-term delevering, and expects leverage to decline to approximately the mid-6x range by the end of 2017. Altice is targeting net leverage between 5x and 5.5x for CVC and Suddenlink. Leverage initially increased to 8.6x as of June 30, 2016 versus 5.4x at year-end 2015 as a result of the $6 billion of incremental debt to fund the Altice Transaction. Intense Competitive Environment Video and voice subscriber declines are largely attributed to intense competition and evolving media consumption patterns. Verizon Communications Inc. (Verizon) has been a source of significant competition for CVC, as Verizon's fiber network passes a meaningful portion of CVC's footprint. Additionally, CVC faces competition from Frontier Communications Corp. (Frontier) in its Connecticut footprint and from emerging OTT providers such as Netflix and Amazon.com, Inc.'s "Prime". Promotional package offerings from Verizon and Frontier will continue to pressure CVC's ability to maintain its current subscriber base and ARPU growth. However, network investments may position CVC to compete more effectively against its competitors. KEY ASSUMPTIONS Fitch's key assumptions within the rating case for CVC include: --Revenue growth in the low single digits, reflecting the maturity and high penetration rate of the company's services; --EBITDA margins in the mid- to upper-30% range by 2018, aided by cost synergy realization; --Deleveraging is achieved mainly through EBITDA growth versus debt repayment. CVC's gross leverage declines to the mid-6x range by the end of 2017. RATING SENSITIVITIES Future developments that may, individually or collectively, lead to a positive rating action include: --Sustained reduction of leverage to below 5.5x; --Clear indications that pricing and cost reduction initiatives are producing desired revenue growth acceleration and ARPU growth such that EBITDA margins approach the low- to-mid-30% range; --CVC demonstrating that its operating profile will not materially decline in the face of competition from other cable operators and against OTT providers in the evolving media landscape. Negative ratings actions would likely coincide with: --If the company does not present a credible deleveraging plan and leverage remains above 6.5x for longer than 18 to 24 months following the close of the Altice transaction; --The company is unable to sustain FCF margins in the mid-single digits; --EBITDA margins remain weak compared to peer group or as a result of CVC's inability to realize synergies. LIQUIDITY Fitch considers CVC's liquidity position and overall financial flexibility to be adequate given the current rating. Liquidity is supported by cash on hand totalling $217 million as of Dec. 31, 2016 and $2 billion of available borrowing capacity from CSCH's $2.3 billion revolving facility. Revolver capacity totalling $2.28 billion expires in November 2021 and the remaining $20 million of revolving capacity expires in October 2020. The credit agreement includes a financial covenant that limits net senior secured leverage to no more than 5x. The financial covenant is only tested if there are outstanding borrowings under the revolver. Per the credit agreement, CSCH and its restricted subsidiaries will be required to use 50% of excess cash flow to prepay outstanding term loans if net senior secured leverage is higher than 4.5x. Pro forma for March 2017 refinancing activity and excluding $1.3 billion of monetized indebtedness outstanding at Dec. 31, 2016, Fitch estimates principal amounts of $423 million and $1.6 billion will mature in 2017 and 2018, respectively. Approximately $556 million matures in 2019. Outside of minimal annual term-loan amortization payments, Fitch expects the company to refinance upcoming maturities in the near term. FULL LIST OF RATING ACTIONS Fitch has affirmed the following ratings: Cablevision Systems Corp. (CVC) --IDR at 'B+'; --Senior unsecured notes at 'B-/RR6'. CSC Holdings, LLC (CSCH) --IDR at 'B+'; --Senior secured credit facility at 'BB+/RR1'; --Senior guaranteed notes at 'BB/RR2'; --Senior unsecured notes at 'B+/RR4'. Fitch also has assigned a 'BB+/RR1' issue rating to CSCH's new $3 billion senior secured term loan due 2025. Contact: Primary Analyst Connie McKay Associate Director +1-312-368-3148 Fitch Ratings, Inc. 70 W. Madison Street Chicago, IL 60602 Secondary Analyst David Peterson Senior Director +1-312-368-3177 Committee Chairperson John Culver, CFA Senior Director +1-312-368-3216 Media Relations: Alyssa Castelli, New York, Tel: +1 (212) 908 0540, Email: alyssa.castelli@fitchratings.com. Summary of Financial Statement Adjustments - Financial statement adjustments that depart materially from those contained in the published financial statements of the relevant rated entity or obligor are disclosed below: -- No material adjustments have been made that have not been disclosed in public filings of this issuer. Additional information is available on www.fitchratings.com Applicable Criteria Criteria for Rating Non-Financial Corporates (pub. 10 Mar 2017) here Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers (pub. 21 Nov 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below