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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, 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: 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. 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