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Rating Action:

Moody's assigns Ba1 to Charter's new senior secured notes

15 Oct 2019

New York, October 15, 2019 -- Moody's Investors Service ("Moody's") assigned a Ba1 to Charter Communications, Inc.'s (Charter, Ba2 stable) new 30-year senior secured notes (maturing 2050) issued at Charter Communications Operating, LLC (CCO). Charter also upsized the recently issued 4.75% senior unsecured notes (maturing in 2030), at CCO Holdings, LLC (CCO Holdings), with a $500 million fungible add-on. In addition, Charter is also repricing its revolver and term loans, lowering the rate by 25 bps (Revolver and Term Loan A to LIBOR + 1.25%, from LIBOR + 1.50%, and term loan B to LIBOR + 1.75% from LIBOR + 2.00%). In addition, Charter is extending the maturity of its revolver, term loan A, and term loan B to 2025, 2025, and 2027, respectively. Moody's expects the key terms and conditions of the new note offerings and the amended credit facility to be materially the same as the existing indentures and previous credit facility. All existing ratings, including the Ba2 Corporate Family Rating and all instrument ratings, are unaffected by the issuance and refinancing. The outlook is unchanged at stable.

Assignments:

..Issuer: Charter Communications Operating, LLC

....Senior Secured Term Loan A4, Assigned Ba1 (LGD3)

....Senior Secured Term Loan B1, Assigned Ba1 (LGD3)

....Senior Secured Term Loan B2, Assigned Ba1 (LGD3)

....Senior Secured Revolving Credit Facility, Assigned Ba1 (LGD3)

....Gtd Senior Secured Notes, Assigned Ba1 (LGD3)

RATINGS RATIONALE

The senior secured notes issued by CCO are secured on a first lien basis and are guaranteed by all of Charter's subsidiaries and CCO Holdings. The senior unsecured notes issued by CCO Holdings are structurally subordinated to all debt and other liabilities of CCO Holdings' subsidiaries and have no guarantees.

Moody's views the transaction as credit neutral. The proceeds from the note offerings will be used for potential share repurchase, debt repayment, general corporate purposes, and to pay transaction fees and expenses. Any incremental leverage (net of repayment) will be balanced with additional liquidity, lower interest expense, and a more favorable maturity profile. Additionally, we don't expect the transaction to materially change the proportional mix of secured and unsecured debt, or the resultant creditor claim priorities in the capital structure.

Charter's credit profile is supported by the Company's substantial scale and dominant share of the US market which is protected by a superior, high-speed network. Charter is the second largest cable company in the United States with national reach, servicing over 50 million subscribers in 41 states. It is provides video, data, voice, and wireless services, which produce over $44 billion in revenue. Broadband demand drives growth and profitability, providing an operating hedge to weakness in video while solid free cash flows are more than sufficient to cover debt maturities and other corporate transactions.

The Ba2 corporate family rating is constrained by a financial policy that tolerates high absolute debt levels and elevated financial leverage near 4.6x (Moody's adjusted, as of Last Twelve Months Ended June 30, 2019, before this transaction). Charter's financial policy remains a key driver of the credit profile as management has stated that it would like to keep management calculated net debt-to-EBITDA in the 4.0-4.5x range. Charter is also challenged by declining video services with intense competition from new streaming entrants causing subscriber losses. Lower video penetration is likely to continue for the foreseeable future. Charter has also just begun offering mobile wireless services through its MVNO with Verizon Communications Inc., making it a true quad-player. While we anticipate this service to add scale, diversify revenues, increase subscribers and help reduce churn / increase retention, we also expect wireless start-up costs to be a burden on profits and cash flows with steady-state economics that are less favorable than the existing cable model.

The SGL-2 liquidity rating reflects very good liquidity with positive free cash flow, an undrawn $4.75 billion revolver facility, ample covenant cushion, and a favorable maturity profile. Alternate liquidity is largely unavailable with a mostly secured capital structure.

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 are rated Ba1 (LGD3), one notch above the Ba2 CFR. Bank lenders benefit from junior capital provided by the senior unsecured bonds at CCO Holdings (which have no guarantees). The senior unsecured notes at CCO Holdings are the most junior claims and are rated B1 (LGD5), with contractual and structural subordination to all other obligations. The instrument ratings reflect the probability of default of the company, as reflected in the Ba2-PD (Probability of Default Rating) and a balanced mix of secured and unsecured credit, which we expect will result in an average rate of recovery (of approximately 50%) in a distressed scenario. Estimated lease rejection claims and trade payables are unrated, and do not affect the instrument level ratings given their insignificance to the total quantum of obligations. In an actual default scenario, the instrument-level ratings could change based on the potential outcomes (e.g. bankruptcy versus liquidation) and a detailed analysis of valuation relative to claim-by-claim asset coverage and recoveries.

The stable outlook reflects our expectation that debt, revenues, and EBITDA will average close to $72-73 billion, $47-48 billion, and $16-17 billion, respectively over the next 12-18 months. We project EBITDA margins in mid 30% range will produce free cash flows near $5 billion. Key assumptions include capex to revenue near 15% and average borrowing costs of approximately 5.5%. We expect video subscribers to fall by low single digit percent, and data subscribers to rise by mid-single digit percent. We assume ramping the mobile wireless business will be a net cost of $500 million to $1 billion (over the next 2 years, averaged). We expect key credit metrics to remain stable or improve, with leverage projected to fall comfortably inside our tolerances, and free cash flow to debt to rise to mid to high single digit percent. We expect liquidity to remain very good, with no material changes in scale or diversity, financial policies, market position, capital structure, business model or key performance measures other than the assumptions made.

Moody's would consider an upgrade with continued improvements in both financial and operating metrics and a commitment to a better credit profile. Specifically, Moody's could upgrade the CFR if:

• Leverage (Moody's adjusted debt/EBITDA) is sustained below 4.0x, and

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

Moody's would likely downgrade ratings if another sizeable debt funded acquisition, ongoing basic subscriber losses, declining penetration rates, and/or a reversion to more aggressive financial policies contributed to expectations for:

• Leverage (Moody's adjusted debt/EBITDA) is sustained above 4.5x, or

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

The principal methodology used in these ratings was Pay TV published in December 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Charter is the second largest cable operator in the United States and a leading broadband communications services company providing video, Internet and voice services to approximately 28.7 million residential and small and medium business customers at June 30, 2019. Charter Communications, Inc. maintains its headquarters in Stamford, Connecticut. Revenue for the last twelve months ended June 30, 2019 were approximately $44.7 billion.

REGULATORY DISCLOSURES

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.

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.

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.
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