New York, August 05, 2016 -- Moody's Investors Service has affirmed the B2 corporate family rating
(CFR) of WideOpenWest Finance, LLC (WOW) and assigned a B1 rating
to WOW's proposed $2.1 billion senior secured term
loan. Moody's also downgraded WOW's existing senior
secured revolving credit facilities to B1 from Ba3 prior. WOW will
use the proceeds from the transaction to repay its existing $1.8
billion term loan, fund the $56 million acquisition of NuLink,
and repay about $160 million of senior subordinated notes.
The repayment of subordinated debt will reduce the structural support
provided to the secured debt and result in a one notch downgrade to B1.
Moody's has also affirmed the company's, Caa1 senior
unsecured and senior subordinated ratings, and B2-PD Probability
of Default Rating. The outlook remains stable.
A summary of today's action follows:
Issuer: WideOpenWest Finance, LLC
..Downgrades:
....Senior Secured Bank Credit Facility,
to B1 from Ba3 (LGD 3)
..Assignments:
....Senior Secured Bank Credit Facility,
B1 (LGD3)
..Affirmations:
.... Probability of Default Rating,
B2-PD
.... Corporate Family Rating, B2
....Senior Subordinated Regular Bond/Debenture,
Caa1 (LGD6)
....Senior Unsecured Regular Bond/Debenture,
Caa1 (LGD5)
..Outlook Actions:
....Outlook, Remains Stable
RATINGS RATIONALE
Pro forma for the transaction, debt/EBITDA for the company remains
unchanged at 6.4x (Moody's adjusted, last twelve months
ended March 31, 2016). The repayment of $160 million
of subordinated debt reduces the debt junior to first lien bondholders,
resulting in a one notch downgrade to the senior secured rating in accordance
with Moody's Loss Given Default (LGD) methodology. Overall,
first lien lenders now comprise a larger portion of the overall debt capital
structure, which is provided less cushion from subordinate bondholders.
From a cash flow perspective, the transaction favorably reduces
annual interest expense by about $25 million. The company's
high coupon rate on its unsecured and subordinated notes, 10.25%
and 13.375% respectively, and elevated capital intensity,
result in weak interest coverage ratios for the company. (EBITDA-Capex)/Interest
Expense for WOW was below 1.0x for the last twelve months ended
March 31, 2016.
WOW's strong base of network assets, scale and profitability support
its B2 corporate family rating (CFR). As a result of management's
focus on cost reduction, margins have expanded to be in line with
the industry average leading to an improvement in both leverage and free
cash flow. We expect gross leverage to continue to fall towards
6x at year end 2016 from 6.5x at year-end 2015 and 7x at
year-end 2014. Free cash flow has also improved but remains
negative due to high capex associated with the company's edge-out
expansion plans and the company's large interest expense.
EBITDA growth for 2015 was in the high single digit range, but revenue
growth has been only modest due to video subscriber loss and competitive
pressure. However, the company has achieved a return to broadband
subscriber growth after a few quarters of weakness.
Moody's would consider an upgrade of WOW's ratings is leverage can
be sustained at around 5 times debt-to-EBITDA, free
cash flow as a percentage of debt improved to the mid to high single digits
and the company maintained or improved its competitive position.
Moody's could downgrade WOW's ratings if liquidity were to
become strained, leverage were sustained above 6.5x (Moody's
adjusted), or WOW suffered a weakening of subscriber trends and/or
competitive position
With its headquarters in Englewood, Colorado, WideOpenWest
Finance, LLC ("WOW") provides residential and commercial video,
high speed data, and telephony services to Midwestern and Southeastern
markets in the United States. The company reported 537,000
video, 722,000 high speed data, and 287,000 phone
subscribers as of March 31, 2016. Avista Capital Partners
owns 60% of the company and Crestview Partners owns 35%,
and its annual revenue is approximately $1.2 billion.
The principal methodology used in these ratings was Global Pay Television
- Cable and Direct-to-Home Satellite Operators published
in April 2013. Please see the Ratings Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides certain regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Mark Stodden
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
John Diaz
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653