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Rating Action:

Moody's assigns a B1 rating to Charter's CCO Holdings new 10-year, senior unsecured notes due 2030; all other ratings unchanged, outlook is stable

03 Feb 2020

New York, February 03, 2020 -- Moody's Investors Service, ("Moody's") assigned a B1 rating to Charter Communications, Inc.'s (Charter, Ba2 stable) senior unsecured notes due 2030, issued at CCO Holdings, LLC (CCOH) and CCO Holdings Capital Corp. The proceeds of the notes will be used to repay existing debt, fund potential share repurchases, pay related transaction fees and expenses, and for general corporate purposes. All existing ratings, including the Ba2 Corporate Family Rating and all instrument ratings, are unaffected by the issuance and refinancing. The outlook is stable.

The notes will be general unsecured obligations of the issuer, effectively subordinated in right of payment to any future secured debt of the Issuers, to the extent of the value of the assets securing such debt, equal in right of payment to existing senior notes and any future unsubordinated, unsecured debt of the Issuers, senior in right of payment to any future subordinated debt of the Issuers; and structurally subordinated to all debt and other liabilities (including trade payables) of CCO Holdings' subsidiaries, including indebtedness under the Credit Agreement, the CCO Notes and the Existing Time Warner Cable LLC ("TWC") Notes. The Notes will not be guaranteed.

Moody's views the transaction as credit neutral. Moody's expects the proceeds from the note offerings will be used repay future maturities and fund potential share repurchases. We believe any incremental leverage (net of repayment) will not materially change the credit profile. Additionally, we don't expect the transaction (regardless of use) to materially change the proportional mix of secured and unsecured debt, or the resultant creditor claim priorities in the capital structure.

Assignments:

..Issuer: CCO Holdings, LLC

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

RATINGS RATIONALE

Charter's credit profile is supported by the Company's substantial scale and 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, serving over 29 million customers across 41 states. It provides video, data, voice, and mobile wireless services, which produce over $45 billion in revenue principally from over 50 million primary service units (PSU's). Broadband demand drives growth and profitability, providing an operating hedge to weakness in video and voice services while solid free cash flows support good financial flexibility. The credit profile is constrained by a financial policy that tolerates high absolute debt levels and elevated financial leverage. 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 voice and video services which is experiencing secular decline from intense competition. 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 senior secured credit facilities and senior secured 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. Secured lenders benefit from junior capital provided by the senior unsecured bonds at CCO Holdings, Inc. The senior unsecured notes at CCO Holdings, Inc. are the most junior claims and are rated B1 (LGD5), and are subordinated to the secured obligations of its subsidiaries. The instrument ratings reflect the probability of default of the company, as reflected in the Ba2-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. 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.

The stable outlook reflects our expectation that debt, revenues, and EBITDA will near $76 billion, $47-48 billion, and $17-18 billion, respectively by the end of 2020 (all Moody's adjusted). We project EBITDA margins in mid-30% range will produce free cash flows of more near $4.5 billion. Key assumptions include capex to revenue near 15% and average borrowing costs of near 5.5%. We expect video PSU's to fall by low single digit percent, and data PSU's to rise by mid-single digit percent. We assume ramping the mobile wireless business will be a net cash cost of over $1 billion (over the next 12 to 18 months). We expect key credit metrics to remain stable or improve, with leverage projected to fall within our tolerances, and free cash flow to debt to improve, approaching 6% by 2020. We expect liquidity to remain good.

Charter is a public company. The largest shareholders are Liberty Broadband Corporation and Advance/Newhouse, and institutional investors. The Company has 13 directors on its Board, including the CEO, with the majority of the members deemed independent. Management has maintained a 4.0-4.5x net debt leverage target, despite the capacity to delever further with a more conservative financial policy. Leverage, which is currently near 4.5x (Moody's adjusted, 2019 year-end), will remain relatively unchanged with any improvement over the next 12-18 month likely to be marginal, driven principally by modest EBITDA growth. Based on historical patterns, we don't expect Charter to voluntarily or materially reduce debt with free cash flow, but assume maturities will be refinanced/rolled over with excess cash flow used for share repurchases and other corporation transactions.

The SGL-2 liquidity rating reflects good liquidity with positive free cash flow, a largely undrawn $4.75 billion revolver facility, and only incurrence-based financial covenants. Alternate liquidity is constrained with a largely secured capital structure.

Moody's would consider an upgrade 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%

An upgrade would also be conditional on a high level of confidence that further deterioration in the voice and video business, and or losses in mobile services will not materially change the credit profile of the business.

Moody's would consider a downgrade if:

• 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

We would also consider a negative rating action if further deterioration in the voice and video services, and or losses in mobile services materially and unfavorably changed the credit profile of the Company.

Charter Communications, Inc., headquartered in Stamford, Connecticut, provides video, data, phone, and wireless services to approximately 52.2 million U.S. homes and businesses, penetrating approximately 35% (Moody's calculation of the triple-play-equivalent) of homes passed in its footprint. Across this footprint, Charter serves approximately 27.3 million residential and 2.0 million commercial customers under the Spectrum brand, making it the second-largest U.S. cable company behind only Comcast Corporation (Comcast, A3 stable). Revenue in 2019 was approximately $45.8 billion.

The principal methodology used in this rating 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.

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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CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND/OR ITS CREDIT RATINGS AFFILIATES ARE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY'S (COLLECTIVELY, "PUBLICATIONS") MAY INCLUDE SUCH  CURRENT OPINIONS. MOODY'S INVESTORS SERVICE DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE MOODY'S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY'S INVESTORS SERVICE CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS ("ASSESSMENTS"), AND  OTHER OPINIONS INCLUDED IN MOODY'S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY'S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY'S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND  PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND  PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY'S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES  ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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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 $2,700,000. 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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MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

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