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Rating Action:

Moody's upgrades Cox Enterprises' long-term ratings to Baa2 from Baa3 and short term ratings to P-2 from P-3

22 Jul 2011

Approximately $3 billion of rated debt affected

New York, July 22, 2011 -- Moody's Investors Service upgraded Cox Enterprises, Inc.'s ("Cox") senior unsecured ratings to Baa2 from Baa3, and its short term ratings to P-2 from P-3. CEI's businesses which service its debt on a first priority basis include auto auctions and services (Manheim) and advertising based businesses such as newspapers, TV stations, radio stations, direct mail advertising, and TV sales representation (collectively called the Cox Media Group). Its subordinated priority businesses, which are also private companies, include its separately rated cable systems subsidiary, 100% owned Cox Communications, Inc. (CCI - Baa2 senior unsecured, Prime-2 commercial paper-stable outlook) and its 68% owned AutoTrader.com subsidiary (AT.com - Ba3 Corporate Family Rating-stable outlook). This action concludes the review for possible upgrade initiated on February 11, 2011. The ratings outlook is stable.

The upgrade reflects the improving operating trends at the company's primary recourse businesses, material debt reduction over the last few years, and our expectation that the company will continue to de-lever over the next 18 months through EBITDA growth. While Cox's Manheim continues to experience the delayed impact of the recession driven decline in new car sales on its current volume of used car auction sales, the business has recently seen an improvement in volumes particularly driven by increased dealer vehicles sold and we expect will continue to recover in the near-term. As the company restructure's Manheim, we expect expenses to reduce significantly and contribute to double digit EBITDA growth in the next twelve to eighteen months. Cox's Media group saw a healthy rebound in 2010, with strong growth in its television broadcasting business more than offsetting the secular declines experienced by its newspaper businesses, which also experienced a lower rate of declines as the economy recovers. While the segment will likely be impacted by reduced off-cycle political advertising in 2011, we believe its underlying growth trends remain solid, and expect strength in political ad sales for the coming year to contribute to double digit EBITDA growth in 2012.

The upgrade also reflects the company's financial flexibility and commitment to managing leverage, demonstrated by the continued up-streaming of cash from CCI, its 100% owned cable systems subsidiary and largest business, which it applied to pay down debt and maintain liquidity during the cyclical downturn when its primary recourse businesses were more severely impacted. Cox's restricted group debt-to-EBITDA at the end of the first quarter was about 4.0x (incorporating Moody's adjustments), and we expect leverage to decline and be sustained within the 3.0x-3.5x range in the near term and to decline to under 3.0x over the intermediate-term. Although Cox's standalone leverage is relatively weaker than some of its peers in its ratings category, it is supported by the considerable equity value of its CCI and AutoTrader.com ("AT.com") subsidiaries, which far exceed the debt outstanding at CEI.

The following is a summary of today's rating actions:

Upgrades:

...Senior Unsecured Bank Facility, to Baa2 from Baa3

...Senior Unsecured Regular Bond/Debenture, to Baa2 from Baa3

...Commercial Paper, to P-2 from P-3

RATINGS RATIONALE

CEI's Baa2 senior unsecured rating reflects the company's significant scale, reflected by $14.7 billion in consolidated 2010 revenues and its diverse business portfolio including its primary recourse assets which comprise 32% of total consolidated 2010 revenues. The rating is supported by CEI's financial flexibility, through its ability to up-stream cash if needed from its separately financed cable systems (CCI) and AT.com subsidiaries, and management's commitment to a moderately leveraged balance sheet. The rating also considers the company's exposure to highly cyclical businesses within its restricted group, some of which we believe are challenged by secular pressures, the company's high capital costs needed to fuel Manheim, and moderate acquisition driven event risk. The rating also reflects the residual equity value of its unrestricted CCI and AT.com subsidiaries, which significantly exceeds the company's outstanding debt balances.

The stable rating outlook reflects our expectation that leverage will steadily decline as a result of EBITDA growth over the next twelve months, to comfortably below 3.50x. We believe that management is committed to maintaining credit metrics at levels appropriate with the Baa2 rating level, which is reflected in the company's history of operating within investment-grade constraints.

CEI, CCI, and AT.com are all likely to continue to be participants in industry consolidation trends over the long term, and often we see such consolidation financed with debt when there is adequate financial flexibility. However, as CEI, CCI and AT.com are private, credit-friendly equity capital purchase money is unlikely to be as prevalent to fund acquisitions. If debt-financed acquisitions cause CEI's standalone debt¬-to-EBITDA to reach or exceed 5x or if the company's leverage is sustained above 4.0x, it would pressure credit ratings downward. We see the probability of this occurring as low. A significant narrowing of liquidity, reduced conversion of EBITDA to free cash flow, leveraging up of CCI or spin offs of major subsidiaries could also have negative rating implications.

CEI has stated that it plans to manage its consolidated leverage around 2.5x (based on covenant calculations). If, in conjunction with keeping consolidated leverage low, the company were to sustain restricted group debt-to-EBITDA leverage under 2.5x (including Moody's adjustments), and have strong recovery and EBITDA growth across its primary recourse assets, upward pressure on the rating could occur.

For additional information, please refer to the Credit Opinion to be posted on moodys.com.

The principal methodology used in rating this issuer was Large Global Diversified Media Industry, published in December 2010. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Cox Enterprises, Inc., with its headquarters in Atlanta, Georgia, is a diversified media company with consolidated operations primarily in the cable television systems (CCI), newspaper and direct mail-inserts publishing, television and radio broadcasting stations, automobile auctions services, and online automobile classified (AutoTrader.com) and consumer information websites.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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 relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant 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.

Information sources used to prepare the rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service information, [and] confidential and proprietary Moody's Analytics information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

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.

New York
Neil Begley
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
John Diaz
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service, Inc.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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

Moody's upgrades Cox Enterprises' long-term ratings to Baa2 from Baa3 and short term ratings to P-2 from P-3
No Related Data.
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