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Global Credit Research - 15 Mar 2011
Ratings assigned to $600 million of debt
New York, March 15, 2011 -- Moody's Investors Service assigned Harron Communications, LP ("Harron")
a B2 Corporate Family Rating (CFR) and B3 Probability of Default Rating
(PDR), along with B2 (LGD-3, 35%) instrument
ratings at the company's operating subsidiaries (the borrowing group
as listed below) on the new $600 million senior secured credit
facilities. The proposed $100 million Revolver due 2016,
$200 million Term Loan A due 2016 and $300 million Term
Loan B due 2017 will be used to refinance the company's existing credit
facilities (approximately $448 million outstandings as of 12/31/10),
redeem approximately $54 million in preferred equity, and
fund related fees and expenses. The debt will be issued by the
borrowing group and guaranteed on a joint and several basis, with
additional guarantees provided by Harron (Holdco). The outlook
A summary of today's rating actions are listed below:
Issuer: Harron Communications, LP
..Corporate Family Rating, Assigned B2
..Probability of Default Rating, Assigned B3
Issuers: MetroCast Cablevision of New Hampshire, LLC;
Gans Communications, LP; MetroCast Communications of Connecticut,
LLC; and MetroCast Communications of Mississippi, LLC
...New $100 million Senior Secured Revolver
due 2016, Assigned B2 (LGD-3, 35%)
...New $200 million Senior Secured Term Loan
A due 2016, Assigned B2 (LGD-3, 35%)
...New $300 million Senior Secured Term Loan
B due 2017, Assigned B2 (LGD-3, 35%)
.Outlook, Assigned Stable
Harron's B2 Corporate Family Rating (CFR) reflects its comparably
small scale and high pro forma debt-to-EBITDA leverage of
approximately 6.3x (including Moody's standard adjustments as well
as 100% debt attribution to preferred shares not held by Harron),
improving to approximately 5.5x by the end of 2011 as a result
of growing EBITDA and debt reduction from free cash flow. Leverage
and lack of scale make the company vulnerable to business risk if competition
were to increase. Moody's expects Harron's interest
coverage to be above 2.5x over the next 18 months (defined as EBITDA
less capex / interest expense) with free cash flow to debt in the mid-single
digit range, which is consistent with ratings in the B2 and B1 rating
Ratings are supported by Harron's good historical operating performance,
evidenced by the company's improved operating margins, year-over-year
top-line revenue and EBITDA growth, and Moody's expectation
of steady operating performance over the rating horizon. The company's
success can be attributed partially to benign competition in most of Harron's
non-urban markets, with primary competition coming from DBS
providers. Ratings are also supported by the Harron family's
longstanding track record of buying and growing cable systems (since the
mid-1960's) and Moody's expectation that the family
will continue to grow the business while maintaining or improving its
B2 rating profile. Moody's expects the Harron family and
management will look to increase its ownership to 100% through
the repurchase of Boston Ventures' remaining 25% equity interest
which is permissible under the terms of the company's credit facility
so long as total leverage remains below 4.75x (as defined,
or approximately 5.2x including Moody's standard adjustments).
The stable outlook reflects Moody's expectation that the Company will
pay down debt balances reducing debt-to-EBITDA leverage
ratios below 5.75x (including Moody's standard adjustments,
with 100% debt attribution to preferred shares not held by Harron
affiliates) by the end of 2011 and maintaining free cash flow-to-debt
ratios of 5% - 7%, excluding the planned buyback
of Boston Ventures equity interests. We anticipate that revenues
will continue to grow over the next 18-to-24 months with
most of the increase coming from ARPU gains given only modest subscriber
growth. Also incorporated in Moody's stable outlook is our expectation
that EBITDA margins after management fees will remain consistent over
the rating horizon and that liquidity will remain adequate.
The B2 CFR reflects the company's good operating performance and
financial metrics, but is constrained by the debt-like attributes
of Harron's remaining preferred shares held by Boston Ventures (representing
25% of the equity value) which can be put to the company as early
as September 2011. As a result, ratings are not likely to
be upgraded until debt-to-EBITDA ratios are reduced sufficiently
to compensate for the added leverage resulting from the exercise of the
25% equity put. We believe the company is motivated to increase
its ownership to 100% and that Boston Ventures is interested in
cashing out six years after making its initial investment.
There would be downward pressure on ratings if increased competition or
deteriorating operating performance were to result in debt-to-EBITDA
ratios (including Moody's standard adjustments, with 100%
debt attribution to preferred shares not held by Harron affiliates) exceeding
6.75x. A rating downgrade would also be considered if the
company were no longer generating modest levels of free cash flow resulting
in free cash flow-to-debt remaining below 2%.
The principal methodologies used in this rating were the Global Cable
Television Industry published in July 2009 and Loss Given Default for
Speculative-Grade Non-Financial Companies in the U.S.,
Canada and EMEA published in June 2009.
Harron Communications, L.P. is a holding company housing
the cable operating assets of Gans Communications, LP, MetroCast
Cablevision of New Hampshire, MetroCast Communications of Connecticut,
LLC, and MetroCast Communications of Mississippi, LLC.
Headquartered in Frazer, PA, the company's cable operating
companies serve approximately 181,000 video subscribers and 217,000
customers across New Hampshire/Maine, Connecticut, Maryland/Virginia,
Mississippi/Alabama, Pennsylvania, and South Carolina.
The Harron family and management own 75% of common equity interests
of the company with Boston Ventures Partnership VI holding the remaining
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service information, and confidential and proprietary Moody's
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
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Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's Assigns B2 CFR and Instrument Ratings to Harron's New Credit Facilities
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