Possible Upgrade for Cable Giant
October 4, 1999
Cablevision Systems Corp. said it plans to sell off its non-New York cable subscriber service assets to focus on the Big Apple. While company officials declined to comment, outside analysts said the sale may fetch as much as $3 billion. Bond trading was up on the news.
Following the announcement of the planned sale, which entails about 714,000 subscriber licenses, Moody's Investors Service placed Cablevision's debt and preferred stock ratings under review for a possible upgrade.
Up to $9.1 billion of debt and preferred securities might be affected. This includes the Ba2 ratings for $2.7 billion of senior debt and the B1 ratings for $1.05 billion of subordinated debt. One Moody's official said the upgrade would probably not move the issues up more than a single notch.
Following the announcement, CIBC World Markets raised its recommendation of Cablevision high yield issues to a buy from a hold rating.
"I'm very encouraged Cablevision has decided to use its equity proceeds to pay down debt," said CIBC media, telecom and cable analyst Aryeh Bourkoff. "Adelphia cable certainly has been quite astute already to use equity trade at these levels to keep debt low. Cablevision's move is certainly a sign of an industry trend: flopping and moving to efficiently align cable properties after a long streak of consolidation," he said.
Cablevision is the nation's sixth-largest cable provider, with approximately 2.8 million customers in New York, New Jersey and Connecticut. It hopes to identify new ownership for the 714,000 cable customers it serves in Massachusetts, Ohio and Michigan by mid-November.
"There's sufficient interest for these assets," said Russ Solomon, vice president and senior analyst at Moody's. "They're good quality assets, but not strategic for Cablevision, and it's an appropriate time, especially with their high capital needs and expectations of rolling out a new product in the coming year, to sell them off."
As of yet, no buyer has been identified, although analysts had identified Comcast Corp., the nation's third-largest cable company, as a possible bidder. The company's senior vice president, however, denied any interest since the company does not already have a presence in that area. Analysts insist, however, that Comcast should not be ruled out.
Others involved in the deal might include Time Warner Inc. or Adelphia. Because of its holdings in the area, Charter Communications may have a particular interest in the Kalamazoo, Mich. subscriber base.
"This is probably not going to be a straight sale because of the fairly large tax burden that might impose on the company. Whatever Cablevision decides to do, we expect the transaction to be fully tax-efficient, which might include asset swaps and equity compensation in terms of payment," said Solomon.
Like many cable companies, Cablevision is moving toward clustering its subscriber base and building a large regional grouping. This allows for the company to market and deliver new services more efficiently.