Altice USA Inc. #B+# Rating Outlook Revised To Positive On Spin- Debt Ratings Assigned

Stocks and Financial Services Press Releases Thursday January 11, 2018 09:12
NEW YORK--11 Jan--S&P Global Ratings

NEW YORK (S&P Global Ratings) Jan. 10, 2018--S&P Global Ratings today revised the outlook to positive on the 'B+' corporate credit rating on Town of Oyster Bay, N.Y.-based cable provider Altice USA Inc. We also affirmed all existing debt ratings at subsidiaries.

At the same time, we assigned our 'BB' issue-level rating and '1' recovery rating to the company's proposed incremental term loan due 2026 issued at CSC Holdings LLC. The '1' recovery rating indicates expectations for very high recovery (90%-100%; rounded estimate: 95%). We also assigned our 'BB-' issue-level rating and '2' recovery rating to the company's guaranteed unsecured notes. The '2' recovery rating indicates our expectation for substantial recovery (70%-90%; rounded estimate: 85%) in the event of a payment default.

The existing guaranteed notes were also lowered to 'BB-' from 'BB' and revised the recovery rating to '2' from '1' due to the increase in priority claims. Following the same logic, we also lowered the issue-level rating on the company's unsecured notes (issued at CSC Holdings LLC) to 'B-' from 'B' and revised the recovery rating to '6' from '5'. The '6' recovery rating indicates our expectation of negligible (0%-10%; rounded estimate: 0%) recovery for lenders in the event of a payment default. The positive outlook revision is due to the proposed transaction that separates Altice USA from its European parent, Altice NV. As a result, we believe the longer-term probability for Altice USA to support European operations has been greatly reduced.

In addition, the company has articulated a desire to operate with a more conservative leverage target, will have more clearly defined executive roles after the spin-off, and has achieved solid operating performance on a standalone basis over the past year. Still, there is uncertainty around the company's financial policy as the company has instituted a $2 billion share repurchase program, we believe debt-financed acquisitions are a medium-term possibility, and the company does not have an established track record of operating within its leverage targets yet.

The positive outlook reflects our belief that Altice USA has the ability to delever to the low-5x area in 2018 through earnings growth through a combination of cost-cutting initiatives and high-margin broadband growth, which will likely offset competitive pressures in the video business. Still, uncertainty remains around the company's financial policy and we believe there is execution risk associated with its aggressive cost cutting strategy, which could result in market share losses if customer satisfaction erodes. We could raise the rating over the next year if the company continues to improve profitability and reduce leverage below 5.5x without a material deterioration in subscriber trends.

We would also need increased confidence that leverage would remain below this threshold on a sustained basis, even factoring in the potential for debt-financed acquisitions and/or shareholder returns. We could revise the outlook to stable if leverage remains above 5.5x over the next year to fund shareholder returns or acquisitions. Under our base-case operating scenario, this could be caused by share repurchases of about $1.5 billion-$2 billion or an acquisition of more than $5 billion in 2018 (although an improvement in business prospects could cause us to re-evaluate this threshold). Alternatively, we could take a negative rating action if FOCF declines substantially from broadband subscriber losses over the next year.


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