Fitch Ratings has affirmed the 'BB-' Issuer Default Rating (IDR) assigned to KEY RATING DRIVERS:
--Growing free cash flow generation improving Charter's overall financial flexibility within the current ratings;
--Fitch anticipates that Charter's credit profile will strengthen during 2014 with consolidated leverage declining to 4.6x by the end of 2014;
--Market share focused operating strategy is strengthening Charter's operating profile;
--Event risks related to Charter's potential participation in cable industry consolidation are elevated.
Changes to Charter's operating strategies currently implemented by management are expected to further improve Charter's operating profile and strengthen the company's overall competitive position in the market. The market share driven strategy, which is focused on enhancing the overall competitiveness of Charter's video service and executing on its all-digital infrastructure, is improving subscriber metrics, growing revenue and ARPU trends, stabilizing operating margins and increasing free cash flow generation.
The company's all-digital conversion initiative along with anticipated enhancements to the user interface, expected to be largely completed by the end of 2014, will certainly improve the video service offering and lead to lower video subscriber churn in Fitch's estimation. Fitch anticipates these initiatives will alleviate residential video subscriber losses and increase triple- play service penetration while boosting video service ARPU, which will position the company to accelerate revenue growth during 2014.
Event risks related to Charter's participation in cable industry consolidation are elevated. A potential merger agreement between
Assuming Charter debt finances its entire cash requirement related to its proposal, Fitch believes the pro forma debt of the combined entity would approximate
Charter's debt structure has evolved into a more traditional hold- co/op-co structure, with senior unsecured debt issued by CCOH and senior secured debt issued by CCO. Total debt outstanding as of
Fitch regards Charter's liquidity position and overall financial flexibility as satisfactory given the rating category. Charter's financial flexibility will improve in step with the growth of free cash flow generation. Charter generated
The company's liquidity position is primarily supported by available borrowing capacity from its
Outside of an event driven merger and acquisition activity, rating concerns center on Charter's elevated financial leverage (relative to other large cable MSOs), and a comparatively weaker subscriber clustering and operating profile. Moreover, Charter's ability to adapt to the evolving operating environment while maintaining its relative competitive position given the challenging competitive environment and soft housing and employment trends remains a key rating consideration. Considering the mature nature of video services and growing penetration of high speed data services, Charter's ability to grow consumer revenues while maintaining operating margins also remains a concern.
--Positive rating actions would be contemplated as leverage declines below 4.5x;
--The company demonstrates progress in closing gaps relative to its industry peers on service penetration rates and strategic bandwidth initiatives;
--Operating profile strengthens as the company captures sustainable revenue and cash flow growth envisioned when implementing the current operating strategy.
--Fitch believes negative rating actions would likely coincide with a leveraging transaction or the adoption of a more aggressive financial strategy that increases leverage beyond 5.5x in the absence of a credible deleveraging plan;
--Adoption of a more aggressive financial strategy;
--A perceived weakening of Charter's competitive position or failure of the current operating strategy to produce sustainable revenue and cash flow growth along with strengthening operating margins.
Fitch has affirmed the following ratings with a Stable Outlook:
--IDR at 'BB-';
--Senior secured term loan at 'BB+';
--Senior unsecured debt at 'BB-'.
--IDR at 'BB-';
--Senior secured credit facility at 'BB+'.
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Fitch Ratings has affirmed the 'BB-' Issuer Default Rating (IDR) assigned to
KEY RATING DRIVERS: