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Rating Action:

Moody's assigns a Ba3 rating to CSC Holdings' $1.1 billion guaranteed notes due 2030, and B3 to $625 million unsecured notes due 2030

02 Jun 2020

New York, June 02, 2020 -- Moody's Investors Service ("Moody's") assigns a Ba3 rating to CSC Holdings, LLC's (CSC Holdings) $1.1 billion senior unsecured guaranteed notes due 2030 and a B3 to $625 million unsecured notes due 2030. CSC Holdings' B1 corporate family rating (CFR), B1-PD probability of default rating (PDR), and all instrument ratings are unaffected by the proposed transaction. Liquidity remains very good. The outlook is stable.

The guarantors of the new senior guaranteed notes (that also guarantee the Existing Senior Guaranteed Notes and the Credit Facilities), contributed: (i) approximately 82% of the total assets of the Restricted Group as of March 31, 2020, (ii) approximately 89% of the net revenues and approximately 97% of the Adjusted EBITDA of the Restricted Group for the three months ended March 31, 2020 and (iii) approximately 89% of the net revenues and approximately 96% of the Adjusted EBITDA of the Restricted Group for the year ended December 31, 2019.

Moody's expects the transactions to be leverage neutral, with $1.7631 billion in total proceeds from the offerings, used to repay maturities totaling $1.716 billion (5.375% guaranteed notes due July 2023 and 7.75% unsecured notes due 2025, specifically). Combined with cash on hand, debt proceeds will also be used to pay redemption premiums, interest, and transaction fees and expenses. We believe the net effect of the transaction will not materially change the proportional mix of secured and unsecured debt, or the resultant creditor claim priorities in the capital structure.

Assignments:

..Issuer: CSC Holdings, LLC

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

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

RATINGS RATIONALE

CSC Holdings' B1 CFR is supported by its large size (approximately $10 billion in revenue in 2019) 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 and profitability supports high margins in the broader business, and is a significant contributor to the company's free cash flow. 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 March 2020) and substantial stock buybacks funded principally with most available free cash flow. Additionally, CSC Holdings' video and voice businesses are weakening, evidenced by a decline in the subscriber bases and the company's market share (the Triple Play Equivalent ratio).

Moody's 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-passu 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 (non-guaranteed) 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.

CSC Holdings has very good liquidity, reflected in its SGL-1 liquidity rating. Liquidity is supported by strong operating cash flow, full availability under a $2.475 billion revolving credit facility ($2.297 available net of letters of credit), 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 $1 billion coming due, or less than 4% of its obligations.

The stable outlook reflects our expectation that the company will generate $10.3-$10.8 billion in revenues over the next 12-18 months, about $4.4-$4.6 billion in EBITDA on margins in the low to mid 40% range. We expect free cash flows of least $1.4 billion, after capital expenditures of near $1.3 billion (12%-13% of revenue). We project leverage (total debt/EBITDA) to improve over the next 12-18 months, but remain high with free cash flows used to repurchase stock rather than voluntarily repay debt. FCF/debt will rise to 6%-7%, and interest coverage (EBITDA-CAPEX/ interest) will rise to 2.3-2.4x. (Note: values and ratios above are Moody's adjusted). Our projections also assume the company's market share will fall to 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 at least low single digit percent, and video subscribers losses of at least low single-digit percent. Our outlook assumes the company maintains its very good liquidity profile.

CSC Holdings' governance presents a moderate risk to the credit profile. In particular, financial policy is less than conservative, tolerating moderately high leverage of 5.6x, Moody's adjusted, at the end of the last quarter ended March 31, 2020, and higher in past years). Management's calculation of leverage as of the same date is 5.3x, above its target ratio of between 4.5x-5.0x (calculated based on 3/31/20 L2QA EBITDA and net debt which includes total indebtedness (excluding finance leases , and other obligations, and issued but undrawn letters of credit under the revolving credit facility) minus cash and cash equivalents). The company also plans substantial share repurchases that will absorb all free cash flow. As of March 31, 2020, Altice USA had approximately $4.1 billion of availability remaining under the incremental share repurchase program and expects to complete $1.7 billion in share repurchases in 2020.

Ownership and voting control is also concentrated in Next Alt, a personal holding company of Patrick Drahi, who is the controlling shareholder of Altice USA, owning approximately 40% of the shares and 90.6% of voting stock. This level of control creates governance risk, with Next Alt in control of all matters submitted to stockholders for approval. Mr. Drahi, through Next Alt is able to significantly influence the composition of the Board of Directors and thereby influence policies and operations, including the appointment of management, future issuances of Altice USA common stock or other securities, the payment of dividends, the incurrence or modification of debt, amendments to the certificate of incorporation and bylaws, and entering into extraordinary transactions including acquisitions or the sale of the company (e.g. a change in control). Additionally, as a controlled company, there is no requirement, and the company does not have, a majority of independent directors on its Board of Directors or a nominating and governance committee. We also note Next Alt holds 49.3% of the share capital and 78% of the voting rights of Altice Europe. Our view of the credit risk, and governance structure would turn negative should the controlling shareholder of these formally combined companies use its common ownership to execute (or even contemplate) a related party transaction, beyond normal operating activities (e.g. corporate transactions such as direct or indirect investments or loans, or similar cash or non-cash support regardless of the form or structure) that is unfavorable to CSC Holdings.

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, regions, and markets. The combined credit effects of these developments are unprecedented. Moody's regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety. 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 shut-down of US cinemas. Broadband demand is accelerating with increased, more evenly distributed usage driven by remote workers, and a dramatic shift to online commerce and communications. We also expect lower capital spending and some costs with a higher rate of self-installs. Any negative implications — disruptions to direct selling, slower pace of construction, loss of certain programming (sports and new production / content), weakness in small and medium-sized business, lower advertising sales, higher bad debt expense, and disruptions to operations (component supply chains, construction / network upgrades) will be only a partial offset.

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

Moody's would consider an upgrade if:

• Debt/EBITDA (Moody's adjusted) 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 a stable subscriber base, or more conservative financial policy.

Moody's would consider a downgrade if:

• Debt/EBITDA (Moody's adjusted) is sustained above 6.25x, 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 5 million residential and business customers and 9.7 million primary service units (PSU's). The company is wholly owned by Altice USA, a public company majority owned and controlled by Patrick Drahi. Revenue for the last twelve months ended March 31, 2020 was approximately $9.8 billion.

The principal methodology used in this rating was Pay TV published in December 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1134554. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

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 https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

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.

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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