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Rating Action:

Moody's assigns a B1 CFR to CSC Holdings, LLC and withdraws all ratings at Cablevision Systems Corporation; outlook is stable

24 Mar 2020

New York, March 24, 2020 -- Moody's Investors Service, ("Moody's") assigned a B1 corporate family rating (CFR), B1-PD probability of default rating (PDR), and SGL-1 speculative grade liquidity (SGL) rating to CSC Holdings, LLC (CSC Holdings). Moody's has also withdrawn all ratings, and the stable outlook at Cablevision Systems Corporation (Cablevision), following the debt repayment and debt push-down of all outstanding debt issued at Cablevision Systems Corporation in Q4 2019. Additionally, Moody's affirmed all instrument ratings at CSC Holdings and Neptune Finco Corp. CSC Holdings' outlook is stable.

Assignments:

..Issuer: CSC Holdings, LLC

.... Probability of Default Rating, Assigned B1-PD

.... Corporate Family Rating, Assigned B1

.... Speculative Grade Liquidity Rating, Assigned SGL-1

Outlook Actions:

..Issuer: Cablevision Systems Corporation

....Outlook, Changed To Rating Withdrawn From Stable

..Issuer: CSC Holdings, LLC

....Outlook, Remains Stable

..Issuer: Neptune Finco Corp.

....Outlook, None

Affirmations:

..Issuer: CSC Holdings, LLC

....Senior Secured Bank Credit Facility, Affirmed Ba3 (LGD3)

....Senior Unsecured Regular Bond/Debenture, Affirmed B3 (LGD5)

....Gtd Senior Unsecured Regular Bond/Debenture, Affirmed Ba3 (LGD3)

..Issuer: Neptune Finco Corp.

....Senior Secured Bank Credit Facility, Affirmed Ba3 (LGD3)

....Senior Unsecured Regular Bond/Debenture, Affirmed B3 (LGD5)

....Gtd Senior Unsecured Regular Bond/Debenture, Affirmed Ba3 (LGD3)

Withdrawals:

..Issuer: Cablevision Systems Corporation

.... Probability of Default Rating, Withdrawn , previously rated B1-PD

.... Speculative Grade Liquidity Rating, Withdrawn , previously rated SGL-1

.... Corporate Family Rating, Withdrawn , previously rated B1

....Senior Unsecured Regular Bond/Debenture, Withdrawn , previously rated B3 (LGD6)

RATINGS RATIONALE

CSC Holdings' B1 CFR is supported by its large size (near $10 billion in revenue) and somewhat diversified footprint with a strong market position in its Optimum footprint which has very favorable market dynamics. This strength is reflected in very high, industry leading operating metrics including investment grade like EBITDA per homes passed (EPH) and the Triple Play Equivalent (TPE) ratio. The company has an upgraded network that produces superior network speeds that helps it compete with in-market peers and attract and retain residential and commercial customers, particularly broadband which helps to offset weakness in video and telephony. Residential broadband's strong revenue growth (over 10%) and profitability supports high margins in the broader business (near 43%), and is a significant contributor to the company's free cash flow (near $1.3 billion). We expect this strength to continue, supported by network investments. The company also has very good liquidity. CSC Holdings' B1 CFR is constrained by a less than conservative financial policy that tolerates high leverage (near 5.6x, Moody's adjusted as of 31 December 2019) and substantial stock buybacks sized near free cash flow. Additionally, CSC Holdings' video and voice businesses are declining, driving down the company's market share (the Triple Play Equivalent ratio).

Moody's currently rates CSC Holdings' senior secured bank debt facilities Ba3 (LGD3), one notch above the B1 CFR. The secured debt has a stock pledge and is guaranteed by the operating subsidiaries of the Company. Bank lenders benefit from junior capital provided by the senior unsecured bonds at CSC Holdings (which have no guarantee). We rate the senior unsecured guaranteed notes at CSC Holdings Ba3 (LGD3), pari pasu with the senior secured creditors with the benefit of the same guarantee from the restricted subsidiaries (as the credit facility creditors) and our view that the stock pledge for secured lenders provides no additional lift/benefit as the equity collateral would likely be worthless in bankruptcy. Also, Moody's rates CSC Holdings' senior unsecured notes B3 (LGD5), two notches below the B1 CFR given the subordination in the company's capital structure. The instrument ratings reflect the probability of default of the company, as reflected in the B1-PD Probability of Default Rating, an average expected family recovery rate of 50% at default given the mix of secured and unsecured debt in the capital structure, and the particular instruments' ranking in the capital structure. 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.

CSC Holdings has very good liquidity, reflected in its SGL-1 liquidity rating. Strength is supported by strong operating cash flow and covenant-lite loans. The company also benefits from a favorable maturity profile with no maturities in 2020 and limited maturities in 2021, with only about 4% of its obligations or approximately $1 billion coming due.

The stable outlook reflects our expectation that the company will generate more than $10.5 billion in revenues over the next 12-18 months, about $4.4-$4.6 billion in EBITDA on margins near mid 40% range. We expect free cash flows to average at least $1.5 billion, after capital expenditures of up to $1.4 billion (about 13.5% of revenue). We project leverage (total debt/EBITDA) to fall to near 5x by 2021, on adjusted debt of approximately $23.6 billion. FCF/debt will rise above 6.5%, and interest coverage (EBITDA-CAPEX/ interest) will be greater than 2.2x. (Note: values and ratios above are Moody's adjusted). Our projections also assume the company's market share will be approximately 35%, measured using our Triple-Play-Equivalent ratio, and EBITDA per homes passed will be above $500. Key assumptions include a rise in broadband subscribers of approximately 1.5%, and video subscribers losses accelerating to near 4%. We expect the company to use all available free cash flow to repurchase stock. Our outlook assumes the company maintains its very good liquidity profile.

Implications of the coronavirus

The rapid and widening spread of coronavirus, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive shock that is unprecedented in many sectors. We expect credit quality will continue to deteriorate, especially for those companies in vulnerable sectors sensitive to consumer demand and sentiment. The pandemic has resulted in millions of people throughout the US relying on their broadband connections to work from home. Millions of other workers in sectors most exposed to the shock could face reduced pay or job losses and may be looking to lower monthly expenses. Lower-rated issuers are most vulnerable to these unprecedented operating conditions. Moody's will take rating actions as warranted to reflect the breadth and severity of the shock, and the broad deterioration in credit quality that it has triggered.

With that said, we believe the cable sector has less exposure than many others, with the expectation that the demand for voice, video and data are unlikely to fall. In fact, we expect greater demand across residential, commercial, governmental, and mobile carriers. Video viewership and engagement is rising sharply, with subscribers spending extraordinary time watching TV for news and entertainment comfort. We also believe cable will see a significant rise in viewership for entertainment programming, and movies with a complete shutdown of US cinemas.

This sharp rise in attention to the news and developments related to the virus, shift in consumption of entertainment / movie content, as well as the strong interest in the presidential election, will help offset the negative impact from disruptions in sports programming, particularly playoffs, finals and tournaments which is most avidly watched on TV and draws the highest ad rates. We think the shift in content consumption, with less/limited sports programming but intense interest in news and entertainment, will be a net benefit to cable operators.

As a result of the data demands, broadband demand is accelerating with increased, more evenly distributed usage driven by remote workers, and a dramatic shift to online commerce and communications. Any negative implications — disruptions to direct selling, on-premise installations and service, certain programming (sports and new production / content), and operations (component supply chains, construction / network upgrades) will likely be only a partial offset.

CSC Holdings' governance presents a moderate risk to the credit profile. In particular, financial policy is less than conservative, tolerating moderately high leverage (5.6x, Moody's adjusted, at the end of the last quarter ended December, and higher in past years) that is currently slightly above management's target leverage ratio of between 4.5x-5.0x (reported, net of cash and collateralized obligations). The company also plans substantial shareholder distributions that will absorb most free cash flow. We expect Altice USA to repurchase stock of up to $1.7 billion (reflected as dividends at the CSC holding level), but not more than free cash flow.

Moody's would consider an upgrade if:

• Leverage (Moody's adjusted Debt/EBITDA) was sustained below 5.0x, and

• Free cash flow to debt (Moody's adjusted) was sustained above 5.0%

An upgrade would also be considered or contingent on larger scale or more diversified revenue, a stable subscriber base, or more conservative financial policy.

Moody's would consider a downgrade if:

• Leverage (Moody's adjusted Debt/EBITDA) is sustained above 6.25x (Moody's adjusted), or

• Free cash flow to debt (Moody's adjusted) is sustained below 3%

A downgrade could also be considered if the scale of the company declined, liquidity deteriorated, there was a material and unfavorable change in operating performance, or the company adopted a more aggressive financial policy.

Headquartered in Long Island City, New York, CSC Holdings, LLC passes 8.8 million homes in 21 states, serving approximately 4.9 million residential and business customers and 9.8 million subscribers. The company is wholly owned by Altice USA, a public company majority owned and controlled by Patrick Drahi. Revenue for 2019 was approximately $9.8 billion.

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.

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.

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

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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