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Rating Action:

Moody's assigns B1 rating to Charter's New Senior Unsecured Notes; Outlook is stable

13 Jan 2022

New York, January 13, 2022 -- Moody's Investors Service ("Moody's") assigned a B1 rating to new Senior Unsecured Notes due 2032, to be issued at Charter Communications, Inc.'s (Charter or the Company) wholly owned subsidiaries CCO Holdings, LLC and CCO Holdings Capital Corp. Charter's Ba2 Corporate Family Rating (CFR), Ba2-PD Probability of Default Rating (PDR), and all instrument ratings are unaffected by the proposed Transaction. The stable outlook and SGL-1 speculative grade liquidity are unchanged.

Assignments:

..Issuer: CCO Holdings, LLC

....Senior Unsecured Regular Bond/Debenture, Assigned B1 (LGD5)

Moody's expects the terms and conditions of the newly issued obligation to be materially the same as existing obligations of the same class. Charter intends to use the net proceeds from the financing for general corporate purposes, share repurchases, to repay certain indebtedness, and to pay related fees and expenses. We believe any incremental leverage (net of repayment) will not materially change the credit profile or the proportional mix of secured and unsecured debt, or the resultant creditor claim priorities in the capital structure.

RATINGS RATIONALE

Charter's credit profile is supported by its substantial scale and share of the US broadband market, protected by a superior, high-speed network with limited competitive overlap. Charter is the second largest cable company in the United States, serving approximately 31.9 million residential and commercial customers across 41 states, generating approximately $51.1 billion in revenue (Q3 2021 LTM). Strong and sustained broadband demand drives growth and profitability, providing an operating hedge to the secular decline in video and wireline voice services. The business model is also highly predictable, with a largely recurring revenue base. Liquidity is very good, supported by free cash flows which were close to $7.9 billion (Moody's adjusted, Q3 2021 LTM), providing significant financial flexibility.

The credit profile is constrained by governance risk, including a financial policy that targets a net leverage ratio of 4.0-4.5x, managed near the top end of the range (near 4.7x on Moody's adjusted gross debt basis Q3 2021 LTM), despite the ability to de-lever with most free cash flow used for share repurchases. The Company generally raises debt to maintain pace with EBITDA growth, driving already high absolute debt levels (over $90 billion, Moody's adjusted at Q3 2021), ever higher. However, Moody's expects maturity ladders will continue to be managed prudently. Charter is exposed to secular pressure in its wireline voice and video services which are losing customers due to competition and changes in media consumption, driving penetration rates lower. We also view broadband wireless technology, specifically terrestrial 5G, as a potential threat to a portion of the Company's wireline broadband business over the medium term. To manage the risk, and participate in the opportunity, Charter is ramping its own wireless services as a mobile virtual network operator (MVNO). While the wireless service has experienced rapid growth and is driving the top-line, steady-state economics at scale will be less favorable than its existing cable business model (including data, video and voice combined).

The SGL-1 liquidity rating reflects very good liquidity with strong free cash flow, a partially drawn $4.75 billion revolving credit facility, and only incurrence-based financial covenants. Alternate liquidity is limited with a largely secured capital structure.

Moody's rates the senior secured 1st lien credit facilities and senior secured 1st lien notes at Charter Communications Operating, LLC, Time Warner Cable LLC, and Time Warner Cable Enterprises LLC Ba1 (LGD3), one notch above the Ba2 CFR. Secured lenders benefit from junior capital provided by the senior unsecured notes issued at CCO Holdings, LLC and CCO Holdings Capital Corp. (which have no guarantees), the most junior claims and rated B1 (LGD5), with contractual and structural subordination to all other obligations. Instrument ratings reflect the Ba2-PD probability of default rating with a mix of secured and unsecured debt, which we expect will result in an average rate of recovery of approximately 50% in a distressed scenario.

The stable outlook reflects our expectation that debt will rise to over $100 billion and revenues and EBITDA will range between $56-$57 billion and $22-23 billion, respectively by the end of 2022. We project EBITDA margins approaching 40%, producing free cash flows of between $7-$8 billion annually. Key assumptions include capex to revenue averaging near 15%, and average borrowing costs of approximately 5%. We expect video and voice subscribers to fall by low to mid-single digit percent on a long-term secular basis, and data subscribers to rise by low to mid-single digit percent. We expect leverage to remain in the mid to high 4x range (Moody's adjusted gross debt/EBITDA), and free cash flow to debt to be sustained in the high single-digit percent range. We expect liquidity to remain very good.

Note: all figures are Moody's adjusted, over the next 12-18 months unless otherwise noted.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Moody's could consider an upgrade if:

• Leverage (Moody's adjusted debt/EBITDA) is sustained below 4.25x, and

• Free cash flow-to-debt (Moody's adjusted) is sustained above 5%

An upgrade could also be conditional on maintaining very good liquidity, a more conservative financial policy, and stable operating performance.

Moody's could consider a downgrade if:

• Leverage (Moody's adjusted debt/EBITDA) is sustained above 4.75x, or

• Free cash flow-to-debt (Moody's adjusted) is sustained below low single digit percent

We could also consider a negative rating action if liquidity deteriorated, financial policy implied higher credit risk, or there were unfavorable and sustained trends in operating performance or the business model.

The principal methodology used in these ratings was Pay TV published in October 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1287901. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Charter Communications, Inc., headquartered in Stamford, Connecticut, provides video, data, phone, and wireless services. Across its footprint, which spans 41 states, Charter serves 31.9 million residential and commercial customers under the Spectrum brand, making it the second-largest U.S. cable operator. Revenue for the last twelve months ended 30 Sept 2021 was approximately $51.1 billion. Charter is a public company. The largest shareholders are Liberty Broadband Corporation and Advance/Newhouse Partnership.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 credit rating action on the support provider and in relation to each particular credit 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 credit rating action, and whose ratings may change as a result of this credit 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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, 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 issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

Jason Cuomo
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Lenny J. Ajzenman
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
© 2022 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody’s Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $5,000,000. MCO and Moody’s Investors Service also maintain policies and procedures to address the independence of Moody’s Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody’s Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”

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