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Rating Action:

Moody's Rates Charter Communications' CCO Holdings' Bonds B2, Upgrades CCO 2nd Lien Debt to Ba3

04 Jan 2011

Outlook Revised to Positive and Other Ratings Affirmed

New York, January 04, 2011 -- Moody's Investors Service assigned a B2 (LGD5-81%) rating to the proposed $750 million issuance of new senior unsecured notes due 2019 by CCO Holdings, LLC ("CCO Holdings"), an indirect intermediate holding company of Charter Communications, Inc. ("Charter" or the company) and Ba3-rated CCH II, LLC (the legal entity where the fundamental benchmark Corporate Family Rating, or CFR, is housed). Moody's also raised its ratings for the senior secured second lien notes of subsidiary Charter Communications Operating, LLC ("CCO") to Ba3 (LGD4-54%) from B1 (LGD4-60%). All other ratings were affirmed, including the Ba3 CFR and Ba3 Probability of Default Rating (PDR). LGD point estimates have been revised to reflect the proforma capital structure assuming successful completion of the pending transactions, as expected. The rating outlook was also revised to positive from stable.

The following summary lists Moody's current ratings and today's actions for Charter's rated subsidiaries:

..Issuer: CCH II, LLC (CCH II)

....Corporate Family Rating, affirmed Ba3

....Probability of Default Rating, affirmed Ba3

....Speculative Grade Liquidity Rating, SGL-1

....$1,766 Million of 13.5% Sr Unsec Nts due 2016, affirmed B2 (LGD6-93%)

..Issuer: CCO Holdings, LLC (CCO Holdings)

....$750 Million of NEW Sr Unsec Nts due 2019, assigned B2 (LGD5-81%)

....$1,000 Million of 7.25% Sr Unsec Nts due 2017, affirmed B2 (to LGD5-81% from LGD5-82%)

....$900 Million of 7.875% Sr Unsec Nts due 2018, affirmed B2 (to LGD5-81% from LGD5-82%)

....$700 Million of 8.125% Sr Unsec Nts due 2020, affirmed B2 (to LGD5-81% from LGD5-82%)

....$350 Million Sr Sec 1st Lien (but CCO stock only; hence, effectively 3rd Lien) Credit Facility due 2014, affirmed B1 (to LGD4-65% from LGD5-71%)

..Issuer: Charter Communications Operating, LLC (CCO)

....$1,100 Million of 8% Sr Sec 2nd Lien (CCO assets) Nts due 2012, upgraded to Ba3 (LGD4-54%) from B1 (LGD4-60%)

....$546 Million of 10.875% Sr Sec 2nd Lien (CCO assets) Nts due 2014, upgraded to Ba3 (LGD4-54%) from B1 (LGD4-60%)

....$1,300 Million (approximately $387 Million proforma drawn for all pending transactions) Sr Sec 1st Lien (CCO assets) Revolving Credit Facility due 2015*, affirmed Ba1 (to LGD2-20% from LGD2-23%)

....$199 Million Sr Sec 1st Lien (CCO assets) Non-Revolving Credit Facility due 2013, affirmed Ba1 (to LGD2-20% from LGD2-23%)

....$3,001 Million Sr Sec 1st Lien (CCO assets) Term Loan C due 2016, affirmed Ba1 (to LGD2-20% from LGD2-23%)

....$3,337 Million (approximately $1,554 Million proforma outstanding for all pending transactions) Sr Sec 1st Lien (CCO assets) Term Loan B-1 due 2014, affirmed Ba1 (to LGD2-20% from LGD2-23%)

....$500 Million (approximately $408 Million proforma outstanding for all pending transactions) Sr Sec 1st Lien (CCO assets) Term Loan B-2 due 2014, affirmed Ba1 (to LGD2-20% from LGD2-23%)

* due Dec. 2013 if CCO still has more than $1 billion of debt maturing between Jan. and Apr. 2014

RATINGS RATIONALE

Proceeds from the proposed new senior unsecured bond offering will be used to repay an approximately equivalent amount of the senior secured first lien CCO B Term Loans, plus associated transaction fees. "While the impact of the pending transaction is largely neutral on a stand-alone basis, the cumulative effect of recent refinancing activities has solidified the financial health of the company and thereby enhanced the prospect of further operational, financial and rating improvements in future periods," noted Russell Solomon, Moody's Senior Vice President and lead analyst for the company. "We continue to see prudent fiscal management via extension and smoothing of debt maturities at economically attractive rates, with the concerted re-balancing of capital between the main operating and holding companies since the company emerged from bankruptcy in November 2009 as the primary impetus for instrument-specific rating upgrades to date."

The B2 rating for the new CCO Holdings senior unsecured notes reflect their structural and effective subordination to the reduced but still sizeable amount of secured debt claims residing at CCO. While Moody's Loss Given Default (LGD) Methodology affords the prospect that B1 ratings may have been appropriate for this debt class based on the aforementioned shift in capital mix, the rating agency affirmed the existing pari-passu instrument ratings and assigned equivalent B2 ratings to this new debt as the implied expected loss rates fall at the cusp of B1 and B2. Moreover, the B2 rating was deemed to more appropriately reflect the relative perceived risk of these claims in the context of all others in the company's consolidated waterfall of liabilities. Because of this effective override, however, ratings for the senior unsecured debt of CCO Holdings could be raised if the transaction is meaningfully upsized and/or in conjunction with future follow-on offerings of a similar nature wherein holding company debt is issued to permanently repay senior-ranking operating company debt.

The rating upgrades of the CCO second lien debt ($1.65 billion in aggregate), to Ba3 from B1, follow recent upgrades of the CCO first lien debt (to Ba1 from Ba2) in September 2010 and reflect ongoing application of Moody's Loss Given Default (LGD) Methodology. Specifically, the upgrades incorporate the anticipated like-amount pay-down of CCO term debt in short order with the net proceeds from the new CCO Holdings bond offering. The net effect of these changes in capital mix for the consolidated company is now a smaller amount of effectively senior secured debt of CCO (i.e.; the first lien debt, proforma for its pay-down, causing estimated loss rates for the same to decline to 20% from 23%, albeit still hold at LGD2 overall) and a larger amount of junior-ranking senior unsecured debt at intermediate holding company CCO Holdings. This, in turn, affords modestly higher recovery prospects and more debt cushion for senior secured second and third lien creditors, as reflected in higher instrument ratings fro second lien debt holders and improved LGD point estimates for both second and third lien debt holders (to 54% and 65% for the second and third lien notes, respectively, from 60% and 71% previously).

The positive outlook reflects the company's steadily improving financial profile (of which the debt maturity profile remains an important component) and expectations that enhanced financial flexibility will afford the company greater opportunity to make incremental infrastructure and other investments that will ultimately generate better returns and facilitate further balance sheet strengthening over time. Moreover, such improvements should be of a sufficient magnitude to warrant consideration of prospective positive change(s) in the company's fundamental benchmark ratings (i.e.; CFR, PDR) over the next 12-to-18 months.

The Ba3 CFR continues to broadly reflect the company's moderately high financial risk, as evidenced by debt-to-EBITDA leverage of approximately 5.2x, albeit declining, and a highly competitive operating environment for increasingly mature core product offerings. The rating is supported, however, by the company's large size, expectations of continued operational improvements and ancillary growth opportunities, and meaningful perceived underlying asset value associated with its sizeable (albeit still shrinking) 5+ million customer base.

The SGL-1 rating reflects our expectation that Charter will maintain a robust liquidity profile over the next twelve months. With healthy projected annual free cash flow of $500 million or more (with some variability afforded for additional capital investments), significant availability under existing revolving lines of credit and very modest near-term debt amortization requirements, the company's liquidity position continues to be best characterized as "very good."

The last rating action was on September 20, 2010 when Moody's assigned a B2 rating to CCO Holdings' then-proposed senior unsecured bond offering ($750 million initially, and subsequently increased to $1 billion), raised CCO's senior secured first lien bank debt ratings to Ba1 from Ba2, and affirmed Charter's Ba3 CFR and Ba3 PDR, among other ratings. Additional information can be found on www.moodys.com, including a December 22, 2010 Analysis entitled "Charter Communications, Inc. -- From Bankruptcy to Investment Grade?"

The principal methodologies used in this rating were Moody's Global Cable Television Industry Methodology 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.

Charter Communications, Inc. is one of the largest domestic cable multiple system operators serving approximately 4.7 million basic subscribers (5.2 million customers in total, incorporating both video and non-video, residential and commercial customers) and generating annual revenues approximating $7 billion. The company maintains its headquarters in St. Louis, Missouri.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of maintaining 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 for further information.

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.

New York
Russell Solomon
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Alexandra S. Parker
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Rates Charter Communications' CCO Holdings' Bonds B2, Upgrades CCO 2nd Lien Debt to Ba3
No Related Data.
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