Fitch Rates CSC Holdings Term Loan 'BB+', Unsecured Notes 'BB'; Outlook Stable

CHICAGO--(BUSINESS WIRE)--Fitch Ratings has assigned a 'BB+' rating to CSC Holdings LLC's (CSCH) proposed $600 million secured term loan and a 'BB' rating to the company's issuance of $1 billion senior notes due 2021. Fitch expects the proceeds from the offering along with existing cash will be used to refinance existing bank debt and to fund a tender offer for its senior notes maturing during 2012, 2014 and 2015. CSCH is a wholly owned subsidiary of Cablevision Systems Corporation (CVC; IDR 'BB-'). CVC had approximately $10.6 billion of consolidated debt outstanding as of Sept. 30, 2011.

From Fitch's perspective, the issuance is a modest positive for CVC's credit profile as the transaction lengthens the company's maturity profile. Fitch estimates that scheduled maturities total approximately $616 million, $858 million and $1 billion during 2012, 2013, and 2014 respectively.

Fitch considers CVC's liquidity position and overall financial flexibility to be strong. The company's liquidity position is supported by cash on hand and available borrowing capacity from CSCH's $1.4 billion revolver. Approximately $1.2 billion of the company's revolver commitment is due to expire March 2015. As of Sept. 30, 2011, approximately $1.3 billion of borrowing capacity remained on CSCH's revolver.

Fitch believes CVC has the financial flexibility and capacity within the current rating category to accommodate its capital allocation strategy. This is due to management's focus, in large part, turning to enhancing shareholder returns. However, Fitch does not expect CVC to increase leverage to support its share repurchase program. CVC shareholder returns amounted to approximately $609 million during the first nine months of 2011, representing over 138% of cash flow before dividends.

From Fitch's perspective, the focus on shareholder returns will continue during the ratings horizon as CVC is well positioned to continue generating material amounts of free cash flow (after consideration of the AMC Network spin-off). Free cash flow generation from continuing operations (defined as cash flow from operations less capital expenditures and dividends) amounted to approximately $319 million during the first nine months of 2011, which is in line with free cash flow generation during the same period last year. Fitch expects that CVC's free cash flow generation will exceed 12% of revenues by year-end 2013. In Fitch's opinion, the anticipated free cash flow generation positions the company to return capital to shareholders while addressing scheduled amortization from CSCH's credit facility and maintaining its leverage target.

Overall, Fitch's ratings incorporate the solid operating profile and competitive strength of CVC's core cable business. In Fitch's opinion, the operating profile of CVC's cable segment is an industry leader and has proven to be resilient to persistent competitive pressures and weak housing and employment markets. CVC's cable business consistently produces industry leading service penetration levels, average revenue per unit (ARPU), ARPU growth rates, and operating margins in an increasingly competitive operating environment.

Outside of the company adopting a more aggressive financial or acquisition strategy which is expected to remain a key rating consideration, the weakening of CVC's competitive position presents the greatest concern within the company's credit profile. The competitive pressure associated with the service overlap among the different telecommunications service providers, while intense, is not expected to materially change during the ratings horizon. Innovative service offerings such as the company's deployment of a WI-FI broadband wireless network, the introduction of a remote storage digital video recorder service, and the emergence of video over IP applications enhance the company's competitive position. These factors have translated into sustainable strong operating performance and free cash flow growth.

The Stable Rating Outlook reflects Fitch's expectation that the company's operating profile will remain relatively consistent during the near term recognizing competitive pressures and weak economic conditions. Additionally, the ratings recognize that ARPU, revenue and EBITDA growth rates will slow relative to historical growth rates. Further, the Stable Outlook considers the company accommodating non-core acquisitions, and investments in a credit neutral manner and the absence of other leveraging transactions.

Positive rating actions would likely coincide with further strengthening of the company's credit profile and reduction of leverage to levels approaching 4 times (x). Meanwhile, CVC would need to demonstrate that its operating profile will not materially decline in the face of competition and the poor housing and employment environment. CVC is currently operating within its stated leverage target of between 4x and 5x. Fitch does not expect positive rating actions over the current ratings horizon, outside of event-driven rating actions.

Negative ratings actions would likely coincide with discretional decisions of CVC management. Changes include, but are not limited to, the adoption of a more aggressive financial policy that increases leverage greater than 6x without a clear path to reduce leverage to levels reflective of the current ratings. In addition, a weakening of the company's operating profile as evidenced by sustained operating margin compression, accelerating basic subscriber losses and service ARPU erosion would also likely lead to negative rating actions.

Additional information is available at 'www.fitchratings.com'. The issuer did not participate in the rating process, or provide additional information, beyond the issuer's available public disclosure.

The ratings above were unsolicited and have been provided by Fitch as a service to investors.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 12, 2011);

--'Rating Global Telecoms Companies' (Sept. 16, 2010).

Applicable Criteria and Related Research:

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229

Rating Global Telecoms Companies - Sector Credit Factors

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=550205

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