TEXT-Fitch affirms Mediacom LLC, Mediacom Broadband IDR at 'B+'
Feb 28 - Fitch Ratings has affirmed the 'B+' Issuer Default Ratings (IDRs) assigned to Mediacom LLC (LLC) and Mediacom Broadband LLC (Broadband). Both LLC and Broadband are wholly owned subsidiaries of Mediacom Communications Corporation (Mediacom). The Rating Outlook is Stable. As of Dec. 31, 2012, Mediacom had approximately $3.5 billion of debt outstanding including $1.5 billion at LLC and $1.9 billion at Broadband. A complete list of ratings being affirmed is provided at the end of this release. KEY RATING DRIVERS --High leverage relative to peer group; --Sustainable free cash flow generation expected to reduce debt; --Looming 2015 scheduled maturities elevate refinancing risks; --Ratings accommodate weaker operating metrics. Fitch believes that Mediacom's capital structure strategy remains unchanged and focused on debt reduction and extending its maturity profile. Total debt outstanding was approximately $3.5 billion reflecting a modest 2.8% reduction when compared with year-end 2011 debt levels. Year-end 2012 leverage was 5.6x and 5.5x for LLC and Broadband respectively on an LTM basis, which remains outside of management's long-term leverage target of 5x. Fitch believes that improvement of Mediacom's credit protection metrics will be predicated on the amount of debt reduction achieved by the company over the ratings horizon. Absent anticipated debt reduction, leverage by year-end 2013 will not vary significantly from year-end 2012 measures. However, Fitch expects LLC's leverage to drop below 5.4x and Broadband's leverage to approach 5.2x by year-end 2013 based on Fitch's debt reduction assumptions. $153 million of free cash flow (defined as cash flow from operations less capital expenditures and dividends) during the year-ended 2012 which is in line with last year. Based on stable EBITDA margins and capital intensity going forward, Fitch anticipates that both LLC and Broadband's free cash flow generation will approximate 9% of revenues during the ratings horizon. Mediacom's liquidity position is sufficient given the current rating and is primarily supported by expected free cash flow generation and the aggregate available borrowing capacity from subsidiary revolving credit facilities, which totaled approximately $231.4 million as of year-end 2012. LLC's revolver is scheduled to expire in December 2014 while Broadband's revolver will expire in December 2016 (subject to certain exceptions). The combined maturity schedule is favorable during 2013 and 2014 totaling $25 million and $92.25 million respectively. The 2014 maturity includes amounts currently outstanding on LLC's revolver ($67.25 million). However, over $1.3 billion of consolidated debt, representing 38% of total debt, is scheduled to mature during 2015, elevating the refinancing risk inherent in the company's credit profile. The refinancing risk is mitigated somewhat by the company's demonstrated ability to access capital and bank markets. Rating concerns center on the company's high leverage relative to its peer group and other larger cable multiple system operators (MSOs), a comparatively weaker subscriber clustering profile and service penetration rates that lag behind industry leaders, and Medicom's ability to maintain its competitive position relative to the threat posed by the direct broadcast satellite (DBS) operators. Fitch acknowledges potential growth and operating profile enhancements that can be captured by increasing service penetration levels as well as capitalizing on commercial revenue growth potential. Business Services revenues expanded 17.3% and 28.7% at LLC and Broadband respectively during 2012. Business Services revenues constitute 8.4% and 9.3% of LLC's and Broadband's consolidated revenues, which is on par with other cable MSOs. RATING SENSITIVITIES Positive rating actions would be contemplated if leverage declines below 5x, free cash flow generation strengthens, and the company demonstrates progress in closing gaps relative to its industry peers on service penetration rates and strategic bandwidth initiatives. Fitch believes that negative rating actions would likely coincide with a leveraging or shareholder-friendly transaction that increases leverage beyond 6.5x without a clear path to de-leverage, the adoption of a more aggressive financial strategy, or a perceived weakening of Mediacom's competitive position. Fitch has affirmed the following ratings with a Stable Rating Outlook: Mediacom Broadband LLC --IDR at 'B+'; --Senior unsecured 'B/RR5'. Mediacom LLC --IDR at 'B+'; --Senior unsecured at '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 at 'B+'; --Senior secured at 'BB+/RR1'. MCC Georgia, LLC MCC Illinois, LLC MCC Iowa, LLC MCC Missouri, LLC --IDR at 'B+'; --Senior secured at 'BB+/RR1'. Additional information is available at 'www.fitchratings.com'. The ratings above were unsolicited and have been provided by Fitch as a service to investors. The issuer did not participate in the ratings process, or provide additional information, beyond the issuer's available public disclosure. Applicable Criteria and Related Research: --'Corporate Rating Methodology' (Aug. 8, 2012); --'Parent and Subsidiary Rating Linkage (Fitch's Approach to Rating Entities Within a Corporate Group Structure)' (Aug. 8, 2012); --'Rating Telecom Companies' (Aug. 9, 2012). Applicable Criteria and Related Research Corporate Rating Methodology Parent and Subsidiary Rating Linkage Rating Telecom Companies