Welcome!

News Feed Item

Fitch Downgrades Cogeco Cable's IDR to 'BB+'; Outlook Stable

Fitch Ratings has downgraded the Issuer Default Rating (IDR) for Cogeco Cable Inc. (Cogeco) to 'BB+' from 'BBB-'. The long-term rating for the secured notes are affirmed at 'BBB-'. Fitch has removed Cogeco from Rating Watch Negative.

The Rating Outlook is Stable.

Fitch has downgraded Cogeco's IDR due to the further deterioration in the company's credit profile resulting from closing its more recent debt financed acquisition. Consequently, debt has increased pro forma for the acquisitions to 3.6 times (x) excluding the non-guaranteed debt at Atlantic Broadband (ABB). Cogeco's leverage at the November 2012 closing of the ABB acquisition was 2.7x, an increase from 1.8x. The long-term leverage expectations for Cogeco ratings at the 'BBB-' level was leverage of approximately 2.5x or less. Fitch does not expect Cogeco will reduce leverage back to this range within the next 12-15 months although leverage should reduce going forward due to both cash flow growth and debt repayment but remain above 3x at year-end 2013.

The 'BB+' ratings reflect Cogeco Cable's stable operating profile and the strength of the Canadian operations that generate the majority of the company's revenue and cash flow. Fitch believes that the Canadian operations are well supported by Cogeco Cable's competitive position anchored by its high speed internet and triple play offering. The cable systems are also clustered in less concentrated and generally less competitive suburban regions.

The PEER 1 Network Enterprises Inc. (PEER 1) acquisition offers a diversified faster growing revenue stream although it has some elevated execution risk as Cogeco pursues growth and investment opportunities outside of their traditional cable footprint. PEER 1's core business of managed services and web hosting is highly and increasingly competitive. PEER 1 focuses on delivering quality service and support to differentiate from competition that is mainly from managed and dedicated cloud providers along with local and regional operators. PEER 1 has a relatively large SMB customer base with no customer representing more than 5% of revenues.

Fitch does not expect PEER 1 operations to contribute meaningful free cash flow during the next several years given the higher capital intensity rates and need to further scale the operations. Thus PEER 1 could require additional working capital to support ongoing operations and expansion. LTM EBITDA and capital spending were both approximately CAD40 million.

Cogeco's strategic shift in pursuing its last two acquisitions is a result of the maturing of cable services and the competitive intensity that has lowered growth prospects for the cable operations. The competitive intensity in Canada is expected to increase with additional IPTV footprint expansion through fiber-to-the-home overbuilds in a material portion of Cogeco's regions. This will increase the pressure on primary service unit additions which have been decreasing due to factors mentioned above along with economic uncertainty and the tightening of credit controls. Fitch believes Cogeco also needs to upgrade technology supporting its video offering to better match capabilities with the telco's IPTV video service.

Cogeco should be able to mitigate revenue pressure through rate increases and SMB primary service unit additions which will become an increasingly important offset. In addition, the enterprise services segment provides a growing diversified revenue stream with good margins. Cogeco's capital spending intensity has been elevated relative to its peers due to success-based spending within this segment.

Cogeco used a material portion of its liquidity position to close the ABB acquisition. Cogeco's main sources of liquidity are through its credit facilities, cash position, and free cash flow (FCF). As of Nov. 30, 2012, Cogeco Cable had drawn down CAD584 million on its CAD750 million credit facility due 2017 and had CAD9 million of cash. In connection with the PEER 1 closing, Cogeco entered into new acquisition facilities. This includes a four year CAD250 million secured revolving credit facility and a four year approximately CAD equivalent $400 million secured term loan as a portion of the draw was in US dollars.

Going forward, Fitch expects Cogeco will restore at least a portion of its liquidity position using FCF to pay down the revolver over the next couple of years. Free cash flow (FCF) for the fiscal year 2012 was CAD42 million after dividend payment. Cogeco's current FCF guidance (excluding PEER 1) after dividend payment for FY2013 is in excess of CAD100 million.

Cogeco's conservative financial policies also support its current ratings. The company does not have an active share program. Additionally the most recent dividend increase of 4% is lower than in the past reflecting in part the increased leverage resulting from the acquisition.

Importantly, Fitch believes the new ABB subsidiary should be in a self-funding position. This is supported by ABB's current cash generation, a substantial tax shield related to net operating losses, a competitive environment with limited triple play competition and the expected growth from increasing underpenetrated services. ABB will increase success-based capital spending which should improve its competitive position relative to satellite operators which is the primary competitor in approximately three quarters of its markets.

SENSITIVITY/RATING DRIVERS

Negative: Future developments that may, individually or collectively, lead to negative rating include:

--Cogeco Cable leverage stays in the mid 3.5x range reflecting lack of cash flow growth and debt reduction;

--An additional material leveraging transaction;

--Greater than expected IPTV competition in Cogeco Cable territory that adversely affects operating trends;

--Negative operating trends in the Atlantic Broadband operations that requires Cogeco Cable to infuse additional funding;

--Large debt-financed acquisition;

--Reduced free cash flow prospects.

Positive: Future developments that may, individually or collectively, lead to positive rating include:

--Cogeco Cable leverage improves to less than 2.5x due to strong cash growth and debt reduction;

--Good operating trends across its three business segments;

--Pre-dividend FCF to sales of greater than 10%;

--Financial policy to maintain leverage below 2.5x.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 8, 2012);

--'Rating Telecom Companies: Sector Credit Factors' (Aug. 9, 2012).

Applicable Criteria and Related Research:

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460

Rating Telecom Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682323

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.

More Stories By Business Wire

Copyright © 2009 Business Wire. All rights reserved. Republication or redistribution of Business Wire content is expressly prohibited without the prior written consent of Business Wire. Business Wire shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon.

Latest Stories
In his session at 20th Cloud Expo, Mike Johnston, an infrastructure engineer at Supergiant.io, discussed how to use Kubernetes to set up a SaaS infrastructure for your business. Mike Johnston is an infrastructure engineer at Supergiant.io with over 12 years of experience designing, deploying, and maintaining server and workstation infrastructure at all scales. He has experience with brick and mortar data centers as well as cloud providers like Digital Ocean, Amazon Web Services, and Rackspace. H...
Digital Transformation is much more than a buzzword. The radical shift to digital mechanisms for almost every process is evident across all industries and verticals. This is often especially true in financial services, where the legacy environment is many times unable to keep up with the rapidly shifting demands of the consumer. The constant pressure to provide complete, omnichannel delivery of customer-facing solutions to meet both regulatory and customer demands is putting enormous pressure on...
DXWorldEXPO LLC announced today that All in Mobile, a mobile app development company from Poland, will exhibit at the 22nd International CloudEXPO | DXWorldEXPO. All In Mobile is a mobile app development company from Poland. Since 2014, they maintain passion for developing mobile applications for enterprises and startups worldwide.
The best way to leverage your CloudEXPO | DXWorldEXPO presence as a sponsor and exhibitor is to plan your news announcements around our events. The press covering CloudEXPO | DXWorldEXPO will have access to these releases and will amplify your news announcements. More than two dozen Cloud companies either set deals at our shows or have announced their mergers and acquisitions at CloudEXPO. Product announcements during our show provide your company with the most reach through our targeted audienc...
IoT is at the core or many Digital Transformation initiatives with the goal of re-inventing a company's business model. We all agree that collecting relevant IoT data will result in massive amounts of data needing to be stored. However, with the rapid development of IoT devices and ongoing business model transformation, we are not able to predict the volume and growth of IoT data. And with the lack of IoT history, traditional methods of IT and infrastructure planning based on the past do not app...
With 10 simultaneous tracks, keynotes, general sessions and targeted breakout classes, @CloudEXPO and DXWorldEXPO are two of the most important technology events of the year. Since its launch over eight years ago, @CloudEXPO and DXWorldEXPO have presented a rock star faculty as well as showcased hundreds of sponsors and exhibitors!
"Akvelon is a software development company and we also provide consultancy services to folks who are looking to scale or accelerate their engineering roadmaps," explained Jeremiah Mothersell, Marketing Manager at Akvelon, in this SYS-CON.tv interview at 21st Cloud Expo, held Oct 31 – Nov 2, 2017, at the Santa Clara Convention Center in Santa Clara, CA.
IoT is rapidly becoming mainstream as more and more investments are made into the platforms and technology. As this movement continues to expand and gain momentum it creates a massive wall of noise that can be difficult to sift through. Unfortunately, this inevitably makes IoT less approachable for people to get started with and can hamper efforts to integrate this key technology into your own portfolio. There are so many connected products already in place today with many hundreds more on the h...
More and more brands have jumped on the IoT bandwagon. We have an excess of wearables – activity trackers, smartwatches, smart glasses and sneakers, and more that track seemingly endless datapoints. However, most consumers have no idea what “IoT” means. Creating more wearables that track data shouldn't be the aim of brands; delivering meaningful, tangible relevance to their users should be. We're in a period in which the IoT pendulum is still swinging. Initially, it swung toward "smart for smart...
DXWorldEXPO LLC, the producer of the world's most influential technology conferences and trade shows has announced the 22nd International CloudEXPO | DXWorldEXPO "Early Bird Registration" is now open. Register for Full Conference "Gold Pass" ▸ Here (Expo Hall ▸ Here)
Without lifecycle traceability and visibility across the tool chain, stakeholders from Planning-to-Ops have limited insight and answers to who, what, when, why and how across the DevOps lifecycle. This impacts the ability to deliver high quality software at the needed velocity to drive positive business outcomes. In his general session at @DevOpsSummit at 19th Cloud Expo, Eric Robertson, General Manager at CollabNet, will discuss how customers are able to achieve a level of transparency that e...
FinTechs use the cloud to operate at the speed and scale of digital financial activity, but are often hindered by the complexity of managing security and compliance in the cloud. In his session at 20th Cloud Expo, Sesh Murthy, co-founder and CTO of Cloud Raxak, showed how proactive and automated cloud security enables FinTechs to leverage the cloud to achieve their business goals. Through business-driven cloud security, FinTechs can speed time-to-market, diminish risk and costs, maintain continu...
As data explodes in quantity, importance and from new sources, the need for managing and protecting data residing across physical, virtual, and cloud environments grow with it. Managing data includes protecting it, indexing and classifying it for true, long-term management, compliance and E-Discovery. Commvault can ensure this with a single pane of glass solution – whether in a private cloud, a Service Provider delivered public cloud or a hybrid cloud environment – across the heterogeneous enter...
The Jevons Paradox suggests that when technological advances increase efficiency of a resource, it results in an overall increase in consumption. Writing on the increased use of coal as a result of technological improvements, 19th-century economist William Stanley Jevons found that these improvements led to the development of new ways to utilize coal. In his session at 19th Cloud Expo, Mark Thiele, Chief Strategy Officer for Apcera, compared the Jevons Paradox to modern-day enterprise IT, examin...
DXWorldEXPO LLC announced today that ICC-USA, a computer systems integrator and server manufacturing company focused on developing products and product appliances, will exhibit at the 22nd International CloudEXPO | DXWorldEXPO. DXWordEXPO New York 2018, colocated with CloudEXPO New York 2018 will be held November 11-13, 2018, in New York City. ICC is a computer systems integrator and server manufacturing company focused on developing products and product appliances to meet a wide range of ...