Fitch Assigns Cablevision S.A. IDR of 'B+'; Outlook Stable

BUENOS AIRES, Argentina & CHICAGO--(BUSINESS WIRE)--Fitch Ratings assigns Cablevision's S.A. (CAVI) long-term foreign and local currency Issuer Default Ratings (IDRs) of 'B+'. Fitch has also assigned a 'B+' rating to the senior unsecured notes and a Recovery Rating (RR) of 'RR4', which indicates average recovery prospects in the event of default. The Rating Outlook is Stable.

CAVI ratings are supported by its strong business position, sound cash generation, moderate leverage, and operating margins consistent with industry averages. The ratings are tempered by currency mismatch between cash flow generation and indebtedness, strong correlation with the performance of the local economy, growing inflation and moderate regulatory risk.

The ratings incorporate CAVI's solid operating performance as the largest multiple systems operator (MSO) in Argentina following the successful consolidation of Multicanal S.A. and Teledigital, which were acquired in late 2006. CAVI's solid business position is derived from the stability of its basic subscriber base, the diversification of the company's revenue-generating unit (RGU) base, the ability to develop a high-quality and capacity network and its capability to maintain satisfactory margins despite a double-digit inflation. CAVI should continue to diversify its revenue subscriber base as digital and broadband subscriber's growth results following the networks expected upgrade. CAVI offers bundled services, mostly video and internet and has plans to conservatively move towards triple play service offering.

CAVI's ability to grow its EBITDA and free cash flow will be determined by its success of increasing the penetration of digital services, such as on-demand services, digital video recorder and high definition-television. In addition, Fitch believes that CAVI's competitive position will be further enhanced with the roll-out of voice-over-internet protocol (VoIP) telephony service starting in 2009. Although no meaningful effect on CAVI's revenues and cash flow is anticipated from telephony services, in the medium term the trend toward a bundled service offering would allow the company to retain subscribers, capture a higher ARPU from its existing subscriber base while having effective control over its network and subscribers.

CAVI has been able to adequately manage programming costs after increasing its economy of scale, and is now in a better position to cope with costs increases going forward. Operating margins have been in the range of 35%-33% over the last 5 years, consistent with industry averages. Argentine double digit inflation remains a challenge as the company tries to increase revenues at a higher rate than its costs. Still, the company should benefit from the synergies coming from the integration of Cablevision, Multicanal and its subsidiaries. Synergies may arise from expected lower churn, increased network efficiency, cost reduction and a triple-play services platform.

Positive free cash flow generation is expected, despite an aggressive capital expenditure program of approximately US$600 million for the next four years. CAVI generated US$ 55 million of free cash flow during 2007 compared to US$ 92 million during 2006, applying an increasing portion of its cash flow from operations to capital expenditures. After leveraging its growth through acquisitions, the company plans to increase it network bi-directional capabilities and widen its transmission capacity over the next 4 years in order to boost organic growth.

CAVI's financial profile should continue to improve over the medium term, as the company continues to use free cash flow to pay debt. As of March 2008, CAVI had approximately US$ 795 million of debt and notes outstanding (30% in pesos with its shareholders) a reduction of approximately US$ 60 million when compared with year end 2006. The notes, which are the result of the debt restructuring process of Cablevision and Multicanal, are long term with an outstanding amount of US$535 million as of March 2008. Peak levels of debt at year-end 2006 resulted from the acquisition of Multicanal and Teledigital, funded with a 3-year Seller Note of US$ 235 million (due in September 2009). Debt maturities are manageable given current expectations of business performance and increase over time until 2016; US$18 million in 2009 excluding the seller note. The seller note is expected to be refinanced by the current shareholders should the capital markets not become available.

For the last 12 months ended March 31, 2008 credit-protection measures of total debt to EBITDA and EBITDA to interest expense remained consistent with the rating category at 2.7 times (x) and 3.9(x), respectively. Fitch foresees a continued improvement in those credit metrics in the medium term with leverage metrics falling below 2.0 x.

Cablevision is the largest MSO in Argentina serving 3.0 million pay TV basic subscribers in Argentina including a market-leading presence in 4 of the top 5 designated market areas and 160 thousand basic subscribers in Uruguay and Paraguay (jointly 5% of subscribers). The company offers Internet services, serving more than 770 thousand internet subscribers (90% cable modem). For year-end 2007, the company had revenues of US$ 838.4 million and EBITDA of US$276.9 million. Cablevision is indirectly controlled by the Argentine media group Clarin (60%) and 40% by Fintech Advisory Inc.

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