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Fitch upgrades outlook on Cablevision
(Newsday (Melville, NY) (KRT) Via Acquire Media NewsEdge) Jul. 4--A top Wall Street rating agency has upgraded its outlook on Cablevision Systems Corp. from negative to stable -- a decision that follows junk-bond grades by two other major agencies on the cable operator's $650-million bond to purchase Newsday.
Fitch Ratings this week held steady on its high-risk grade for Cablevision but did not grade the bond. Moody's Investors Service put out its junk rating on the bond two weeks ago, and Standard & Poor's did the same a week ago.
The junk, or speculative, grade means there's a higher chance of default -- unlikely to scare investors but likely to cost Cablevision more to make the risk worthwhile, experts said.
Instead of paying a 7 percent or so interest rate, Cablevision might have to offer something just under a 10 percent return, said Robert Willens, a Manhattan acquisitions specialist and a former managing director at Lehman Brothers.
The money would finance the joint venture announced in May, with Newsday's parent, Tribune Co., keeping a 3 percent stake. The purchase is expected to close by the end of September. Bank of America, which has committed to the financing, has not put the bond on the market yet.
Cablevision spokeswoman Kim Kerns declined to comment on the credit ratings.
For investors, the junk rating is what Willens calls "almost a blessing in disguise," because the real risk is probably lower.
He said ratings agencies primarily consider legal and financial obligations, not something like "the moral imperative" to make good on a loan. It's "inconceivable" that a Long Island-based cable giant with assets would let Long Island's daily paper end in default, he said.
"I would think it's a bargain -- a loan with a high interest but nevertheless backed by what I would say is a very good product," Willens said.
S&P's report said the loan does not affect the overall financial picture for Cablevision, partly because the deal is expected to generate money from cross selling of services and ads. That made the bond's junk grade one notch better than the overall credit rating assigned to Cablevision.
"You're talking about 5 percent of their total debt or even less," said Richard Siderman, an S&P managing director and primary analyst for Cablevision. "It's not like just debt and no inflow of cash."
To see more of Newsday, or to subscribe to the newspaper, go to http://www.newsday.com
Copyright (c) 2008, Newsday, Melville, N.Y.
Distributed by McClatchy-Tribune Information Services.
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