Fitch Upgrades Mediacom's IDR to 'B+'; Rates Subsidiary Debt

CHICAGO--(BUSINESS WIRE)--Fitch Ratings has upgraded the Issuer Default Rating (IDR) for Mediacom Communications Corporation (Mediacom) and its wholly owned subsidiaries Mediacom LLC (LLC) and Mediacom Broadband LLC (Broadband) to 'B+' from 'B'. Additionally, Fitch has assigned a 'BB+/RR1' rating to the $250 million senior secured incremental term loan (Term Loan E) entered into by the operating subsidiaries (listed at the end of this release) of LLC. Fitch has also assigned a 'BB+/RR1' rating to the $600 million incremental term loan (Term Loan F) entered into by the operating subsidiaries (listed at the end of this release) of Broadband. The ratings assigned to specific debt issues have also been upgraded and are listed at the end of this release. The Rating Outlook is Stable. Approximately $3.4 billion of debt outstanding as of March 31, 2010 is affected by Fitch's actions.

The upgrade reflects the continued strengthening of Mediacom's credit profile and Fitch's view that after generating nearly $100 million of free cash flow during the latest 12-month (LTM) period ended March 31, 2010, the company is soundly positioned to generate sustainable free cash flow during the ratings horizon. An operating profile characterized by modest revenue growth, stable EBITDA margins and declining capital intensity combined with minimal scheduled debt reduction is expected to lead to increased levels of free cash flow generation, lower leverage to below 6 times (x) and improve overall financial flexibility.

Overall, Fitch's ratings for Mediacom incorporate the company's relatively stable operating profile considering the competitive operating environment in addition to weak housing and high unemployment trends. While Mediacom's service penetration levels and ARPU profile continue to trail industry leaders as well as comparable rural orientated cable operators, Fitch acknowledges potential growth and operating profile enhancements that can be captured by increasing service penetration levels. The ratings are also supported by Mediacom's strong liquidity position and favorable scheduled maturity profile. After giving effect to the new term loans, Mediacom has an aggregate of $734.5 million of revolving credit commitments with no outstanding balance. The company will have available borrowing capacity, net of $19.5 million of letters of credit totaling $715 million. Ample borrowing capacity from Mediacom's subsidiary credit facilities coupled with Fitch's expectation that Mediacom will continue to generate positive free cash flow provide Mediacom sufficient financial flexibility to satisfy the company's liquidity requirements, which include $17 million of scheduled amortization during the balance of 2010, $26 million of amortization during 2011 through 2014.

Rating concerns center on the company's high leverage relative to its peer group and other larger cable MSOs, the company's ability to maintain its competitive position relative to the threat posed by the direct broadcast satellite (DBS) operators and the limited fiber-to-the-node build by Qwest Communications International, Inc. (Qwest), maintaining an appropriate balance between subscriber unit growth, promotional discounting and generating free cash flow and growing retail revenues beyond the company's core 'Triple Play' service offering. Fitch points out that event risks, related to how Mediacom intends to use borrowing capacity existing on the company's revolvers and free cash flow generation, are elevated within Mediacom's overall credit profile.

From Fitch's perspective, the new financing is a modest positive for Mediacom's overall liquidity position and will not have a material effect on the company's overall capital structure or credit profile. Mediacom's leverage, pro forma for the new financing, increases nominally to 6.24 times (x) from 6.16x as of March 31, 2010. The larger impact will be to Mediacom's maturity schedule and availability under its subsidiary revolving credit facilities. As of March 31, 2010, Mediacom had aggregate revolver commitments totaling $830.3 million with $494.5 million available to borrow. All commitments as of March 31, 2010 were scheduled to expire by December 2012. After giving effect to the new financings, the company has an aggregate of $734.5 million of revolving credit commitments with no outstanding balance. The company will have available borrowing capacity, net of $19.5 million of letters of credit totaling $715 million. Again after giving effect to the new financing, Mediacom has staggered its revolving credit facility commitments with $79 million expiring on September 2011, $430.3 million on December 2012, and $225.2 million expiring Deccember 2014.

The proceeds from Term Loan E and Term Loan F were used to refinance existing term loans and to term-out existing revolver borrowings. Concurrent with the new financing, the operating subsidiaries of LLC entered into an amendment to their existing credit facility reducing the size of the revolver commitment to $304.2 million from $400 million while extending the commitment termination date with respect to $225.2 million of revolver commitment to Dec. 31, 2014 from Sept. 30, 2011. The remaining $79 million of revolver commitment is due to expire on Sept. 30, 2011.

Total debt outstanding as of March 31, 2010 declined $10 million relative to year end 2009 to approximately $3.35 billion. Mediacom's improved operating profile, as evidenced by strong EBITDA growth and margin expansion since 2007, while holding debt levels relatively constant and generating positive free cash flow, has strengthened the company's credit profile and credit protection metrics. On an LTM basis, Mediacom's leverage was 6.16x as of March 31, 2010 (6.24x adjusted for the new financing), marking the steady improvement since year-end 2007 when leverage was 6.95x. Going forward Fitch expects that modest improvements to Mediacom's operating profile will likely lead to a continued gradual strengthening of the company's credit profile. Fitch anticipates that Mediacom's leverage will approximate 6.0x by year-end 2010 and improve to 5.7x by the end of 2011 while continuing to generate positive free cash flow during this timeframe.

The Stable Outlook incorporates Fitch's expectation that Mediacom's credit profile will continue to improve, albeit at as slow pace, during the current ratings horizon driven by relatively steady operating metrics, declining capital intensity and modestly growing free cash flow.

Negative rating actions would likely be driven by but not limited to leveraging shareholder-friendly or merger and acquisition activities, or a persistent weakening of the company's operating profile and competitive position.

These rating actions reflect the application of Fitch's current criteria which are available at 'www.fitchratings.com' and specifically include the following reports:

--'Corporate Rating Methodology' (Nov. 24, 2009);

--'U.S. & Canada Telecommunications and Cable Sector - Recovery Rating Methodology' (June 11, 2009

--'Liquidity Considerations for Corporate Issuers' (June 12, 2007).

Fitch has upgraded the following ratings with a Stable Outlook:

Mediacom Communications Corporation

--IDR to 'B+' from 'B'.

Mediacom Broadband LLC

--IDR to 'B+' from 'B';

--Senior unsecured to 'B/RR5' from 'B-/RR5'.

Mediacom LLC

--IDR to 'B+' from 'B';

--Senior unsecured to 'B/RR5' from 'B-/RR5'.

Mediacom Illinois LLC

Mediacom Arizona LLC

Mediacom Indiana LLC

Mediacom California LLC

Mediacom Minnesota LLC

Mediacom Delaware LLC

Mediacom Wisconsin LLC

Mediacom Southeast LLC

Mediacom Iowa LLC

Zylstra Communications Corporation

--IDR to 'B+' from 'B';

--Senior secured to 'BB+/RR1' from 'BB/RR1'.

MCC Georgia, LLC

MCC Illinois, LLC

MCC Iowa, LLC

MCC Missouri, LLC

--IDR to 'B+' from 'B';

--Senior secured to 'BB+/RR1' from 'BB/RR1'.

Fitch has assigned the following new ratings with a Stable Outlook:

Mediacom Illinois LLC

Mediacom Arizona LLC

Mediacom Indiana LLC

Mediacom California LLC

Mediacom Minnesota LLC

Mediacom Delaware LLC

Mediacom Wisconsin LLC

Mediacom Southeast LLC

Mediacom Iowa LLC

Zylstra Communications Corporation

--Senior secured term loan E 'BB+/RR1'.

MCC Georgia, LLC

MCC Illinois, LLC

MCC Iowa, LLC

MCC Missouri, LLC

--Senior secured term loan F 'BB+/RR1'.

Additional information is available at 'www.fitchratings.com'.

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