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Global Credit Research - 07 Mar 2011
New York, March 07, 2011 -- Moody's Investors Service affirmed Mediacom Communications Corporation's
(Mediacom) B1 Corporate Family Rating (CFR), SGL-1 speculative-grade
liquidity rating, and stable rating outlook, as well as the
debt instrument ratings and stable rating outlook of its operating subsidiaries
Mediacom LLC (LLC) and Mediacom Broadband LLC (Broadband), following
the completion of the privatization of the company led by Rocco Commisso,
the Chairman, CEO and founder. Mediacom funded the approximate
$400 million transaction with drawdowns under its revolving credit
facilities and from existing cash (approximately $142 million of
which $15 million was restricted as of 9/30/10). The transaction
is aggressive and weakens the credit profile as the incremental borrowings
will raise Mediacom's debt-to-EBITDA leverage by approximately
half a turn to an estimated 6.8x (pro forma FY 2010 incorporating
Moody's standard adjustments).
Moody's expects the company will utilize the bulk of its free cash flow
to repay the drawdowns such that leverage falls to a low 6x range within
12-18 months. The leverage weakly positions Mediacom within
the B1 CFR and provides negligible flexibility for further aggressive
use of cash, cash flow and debt over at least the intermediate term,
although the company continues to have very good liquidity. The
leverage position is a departure from Moody's prior expectation for a
6x or lower level by the end of 2011. Moody's is nevertheless maintaining
the B1 CFR as the 12-18 months of additional time the rating agency
expects it will take to reduce leverage to 6x or lower is tolerable within
the rating. An inability or unwillingness to reduce and sustain
debt-to-EBITDA to 6x or lower could result in downward rating
Moody's expects Mediacom will draw down approximately $300 million
under its revolvers in conjunction with the transaction which, along
with the expiration of $79 million of LLC's revolver commitment
on September 30, 2011, will reduce unused capacity under the
existing $734.5 million revolver commitments ($430
million at Broadband and $304 million at LLC). Moody's nevertheless
continues to view the company's liquidity position as very good (SGL-1)
as cash (expected to be over $100 million pro forma for completion
of the transaction in March 2011) and projected free cash flow in excess
of $100 million over the next 12 months comfortably cover the $26
million of required term loan amortization. The bulk of the cash
balance is held at the parent (Mediacom) level and may be available to
support debt at the borrowers, Broadband and LLC. There is
also considerable restricted payment capacity at Broadband and LLC to
permit the company to move cash around within the legal structure.
Mediacom's cushion within the 6.0x maintenance covenants at LLC
and Broadband will decline, but Moody's projects the cushion will
remain in excess of 15%. The expiration of Broadband's revolver
commitment on December 31, 2012 or meaningful deterioration in free
cash flow generation could create liquidity pressure and a downgrade of
the SGL rating. Moody's expects in the B1 CFR that Mediacom will
maintain market access and will not have difficulty refinancing its revolvers.
Mediacom's B1 CFR reflects the company's high pro-forma debt-to-EBITDA
leverage and weaker operating performance relative to higher-rated
cable operators, evidenced by the company's below average revenue
per homes passed. Moody's also believes Mediacom may experience
further challenges from increased competition in future periods.
These risks are somewhat mitigated by the company's strong liquidity profile,
underscored by its free cash flow generation and prospects for further
growth. In Moody's opinion, the company will increase investment
in its digital platform, increase bandwidth and enhance HD-DVR
set-top boxes to drive growth in digital video, broadband
and voice telephony as well as its commercial business. Mediacom's
leverage has declined over the long-term and free cash flow generation
has turned positive and improved, but Moody's believes Mediacom's
leverage would need to continue to transition lower to hold the B1 CFR
if competition intensifies.
The stable rating outlook reflects Moody's expectation that Mediacom will
maintain a good liquidity position, grow revenue and EBITDA in a
low to mid single digit range in 2011 and 2012, and will not experience
a materially weaker rate of subscriber losses. Moody's also expects
in the rating that Mediacom will utilize the bulk of its free cash flow
to repay debt over the next 12-24 months, and will refrain
from any additional leveraging initiatives during that time frame.
The last rating action for Mediacom was on April 15, 2010 when Moody's
assigned Ba3 ratings to LLC's $250 million senior secured Term
Loan E and $225.2 million senior secured revolver due 2014,
as well as Broadband's $600 million senior secured Term Loan F
due 2017, and upgraded Mediacom's speculative-grade liquidity
rating to SGL-1 from SGL-2. Proceeds from the offerings
were used to term out existing revolver borrowings and refinance LLC's
Term Loan A due 2012 and Broadband's Term Loan E due 2016.
Moody's subscribers can find further details on the company's ratings
in the credit opinion published on www.moodys.com.
The principal methodology used in rating Mediacom was Moody's Global Cable
Television Industry Methodology published July 2009, which can be
found at www.moodys.com in the Rating Methodologies sub-directory
under the Research & Ratings tab. Other methodologies and factors
that may have been considered in the process of rating this issuer can
also be found in the Rating Methodologies sub-directory on Moody's
Headquartered in Middletown, New York, Mediacom Communications
Corporation, through its two wholly-owned subsidiaries Mediacom,
LLC and Mediacom Broadband, LLC, is a domestic cable multiple
system operator serving approximately 1.2 million basic video subscribers
in a wide variety of small to mid sized markets. The company generated
approximately $1.5 billion in revenue over the twelve months
John E. Puchalla
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's affirms Mediacom's ratings following privatization
250 Greenwich Street
New York, NY 10007
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