Fitch: Charter Remains on Positive Watch on Time Warner Cable Merger

NEW YORK--(BUSINESS WIRE)-- CCO Holding LLC's (CCOH) and Charter Communications Operating, LLC's (CCO) 'BB-' Issuer Default Ratings (IDRs) remain on Rating Watch Positive following the announcement of the merger agreement today by Charter Communications, Inc. (Charter) and Time Warner Cable, Inc. (TWC), according to Fitch Ratings.

Fitch placed CCOH and CCO's 'BB-' IDRs on Rating Watch Positive following the April 2015 announcement of the acquisition of Bright House Networks, LLC (Bright House) from Advance/Newhouse Partnership (A/N) for $10.4 billion. Following the announcement that Comcast Corporation and TWC had terminated their merger agreement, on May 18, 2015 Charter and A/N reaffirmed their commitment to complete this deal under the same economic and governance terms. CCOH and CCO are indirect wholly owned subsidiaries of Charter.

Fitch views the merger with TWC positively and believes it will strengthen Charter's overall credit profile. Fitch anticipates that Charter's total leverage, pro forma for both the TWC merger as it is currently structured and the Bright House acquisition, would be 4.5x. Fitch notes that integration risks are elevated and Charter's ability to manage the integration process and limit disruption to the company's overall operations is key to the success of the transactions.

On a pro forma basis the combined company will serve 24 million customer relationships and become the second largest cable multiple system operator in the country. Pro forma revenues totalled approximately $36 billion during 2014 and EBITDA was approximately $13 billion. Charter's operating strategies are having a positive impact on the company's operating profile resulting in a strengthened competitive position. The market share-driven strategy, which is focused on enhancing the overall competitiveness of Charter's video service and leveraging its all-digital infrastructure, is improving subscriber metrics, growing revenue and ARPU trends, and stabilizing operating margins.

Charter's leverage as of the LTM ended March 31, 2015 was 4.4x excluding the debt issued by CCOH Safari, LLC and CCO Safari, LLC. Management's leverage target remains unchanged ranging between 4x and 4.5x. Fitch recognizes that a large portion of the TWC transaction will involve senior secured debt, both existing at TWC and new issuance. Depending on the ultimate capital structure, a one or two notch upgrade could be possible provided that pro forma senior secured leverage is at or below 4.0x and total leverage does not exceed 5.0x.

Resolution of the Rating Watch will largely be based on Fitch's review of Charter's capital structure including assignment of potential equity credit to the convertible preferred partnership units and an assessment of the risks associated with Charter's ability to integrate the new cable systems from TWC and Bright House.

RATING SENSITIVITIES

--Positive rating actions would be contemplated if the TWC merger and the Bright House acquisition go forward as total leverage is expected to be 4.5x;

--If 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.

Additional information is available at 'www.fitchratings.com'.

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. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20150526006223/en/

Fitch Ratings
Primary Analyst
Jack Kranefuss
Senior Director
+1-212-908-0791
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Constance McKay
Associate Director
+1-312-368-3148
or
Committee Chairperson
John Culver, CFA
Senior Director
+1-312-368-3216
or
Media Relations:
Alyssa Castelli, +1-212-908-0540
[email protected]
Elizabeth Fogerty, +1-212-908-0526
[email protected]

Source: Fitch Ratings

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