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Rating Action:

Moody's affirms WOW's B2 CFR and Caa1 on senior unsecured, assigns Caa1 to senior subordinated

11 Jul 2012

Approximately $3.1 billion of debt rated

New York, July 11, 2012 -- Moody's Investors Service affirmed the B2 corporate family rating (CFR) of WideOpenWest Finance, LLC (WOW), the B1 rating on the first lien credit facility, and the Caa1 rating on the senior unsecured bonds based on revisions to the proposed debt funding for its acquisition of Knology, Inc. (Knology, B1 CFR). Moody's also assigned a Caa1 rating to the proposed senior subordinated bonds. The transaction as currently proposed consists of a a $200 million first lien revolver (expected draw of about $50 million at close compared to previous expectations for it to be undrawn), a $1,920 million first lien term loan (no change), $700 million of senior unsecured bonds ($1020 million previously), and newly proposed $320 million senior subordinated notes.

WideOpenWest Finance, LLC

... Affirmed B2 Corporate Family Rating

... Affirmed B2 Probability of Default Rating

....Senior Subordinated Bonds, Assigned Caa1, LGD6, 94%

....Senior Unsecured Bonds, Affirmed Caa1, LGD adjusted to LGD5, 82% from LGD5, 86%

... $200 million First Lien Revolver, Affirmed B1, LGD3, 32%

... $1,920 million First Lien Term Loan, Affirmed B1, LGD3, 32%

Outlook, Stable

RATINGS RATIONALE

Moody's now expects modestly negative cash flow in 2013 due to higher interest rates than the deal as originally proposed, and the B2 CFR is weakly positioned. However, the $200 million revolver provides good liquidity to manage through the integration and to fund costs to acheive synergies. Moody's expects modestly positive free cash flow in 2014 (less than 3% of debt) as the company benefits from cost savings and accelerated growth of the combined entity's commercial business. Additional benefits of the proposed merger include greater scale and diversity.

Junior capital from the senior subordinated bonds results in a modest improvement to the LGD rate on the senior unsecured bonds, but the subordinated bonds represent only about 10% of the proposed debt capital structure and are therefore not sufficient to give ratings uplift to the senior unsecured bonds. The higher LGD rate on the senior subordinated bonds indicates Moody's opinion that these bondholders would likely experience a greater loss in the event of a default than senior unsecured noteholders.

The transaction will increase leverage to approximately 7 times debt-to-EBITDA compared to current WOW leverage in the low to mid 6 times range. Moody's expectation that leverage will remain above 6 times debt-to-EBITDA and that WOW will generate minimal free cash flow over the next two years given the heavy debt load and substantial capital expenditures drives its B2 CFR. WOW faces the challenge of operating in an intensely competitive environment and executing on both its combination with Knology and a billing system conversion, all with a highly leveraged credit profile. The maturity of the core video product limits growth potential, but Moody's expects the high speed data product and the commercial business will facilitate EBITDA expansion, supported by a high quality network in most of the company's footprint. Declining capital intensity as a percentage of revenues, continued EBITDA growth, and cost reductions create the potential for increasing free cash flow and lower leverage after the next two years, but we expect acquisitions, shareholder distributions, or some combination of these to keep leverage around 6 times debt-to-EBITDA and free cash flow below 5% of debt.

The stable outlook incorporates expectations for leverage to fall below 7 times debt-to-EBITDA over the next 18 months and for maintenance of good liquidity. The stable outlook also assumes successful conversion of WOW's billing system and smooth integration of the two companies.

Sustained debt-to-EBITDA above 7 times, whether due to weak performance, acquisitions, or incremental sponsor dividends could pressure the company's ratings downward. Evidence of challenges with either the integration or the billing system conversion, such as erosion of subscribers or significant margin deterioration, could also have negative ratings implications. Deterioration of the liquidity profile or expectations for sustained negative free cash flow could also result in a negative rating action.

Avista's aggressive fiscal policy including capital distributions and high leverage, and the magnitude of improvement in credit metrics required to sustain a higher rating impede upward ratings momentum over the next few years, and a positive action is highly unlikely without a commitment to a stronger fiscal policy. We would consider a positive rating action based on expectations for sustained leverage around 5 times debt-to-EBITDA range and free cash flow to debt in the mid to high single digits, as well as evidence of ability to maintain or improve its competitive position.

As "overbuilders," both Knology and WOW historically built or acquired networks in regions overlapping that of larger incumbent cable operators and attempt to differentiate with high quality product offerings and efficient but localized customer service.

The principal methodology used in rating WOW was the Global Cable Television Industry Methodology published in July 2009. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

With its headquarters in Englewood, Colorado, WideOpenWest Finance, LLC (WOW) is a competitive broadband provider offering cable TV (approximately 468,000 subscribers), high speed Internet services (442,000) and telephony (261,000) to residential and commercial customers in Illinois, Michigan, Ohio and Indiana. Its revenue for the twelve months through March 31, 2012, was approximately $627 million. Avista Capital Partners owns the company.

With its headquarters in West Point, Georgia, Knology, Inc. (Knology) provides video, voice, data, and communications services to residential and business customers in the southeastern and midwestern United States. As of December 31, 2011, it served approximately 257,000 video, 262,000 high speed data, and 277,000 telephone subscribers. Knology generated revenue of approximately $523 million for the twelve months through March 31, 2012.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant 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 relevant 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 relevant 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.

Information sources used to prepare the 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 considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a 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 the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's 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 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.

Karen Berckmann
Asst Vice President - Analyst
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

Moody's affirms WOW's B2 CFR and Caa1 on senior unsecured, assigns Caa1 to senior subordinated
No Related Data.
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