CSC Holdings LLC's New $1 Billion Senior Secured Term Loan Rated 'BB-' (Recovery Rating: '2')


NEW YORK (S&P Global Ratings) Feb. 4, 2019--S&P Global Ratings today assigned 
its 'BB-' issue-level rating and '2' recovery rating to Long Island City-based 
cable provider CSC Holdings LLC's proposed $1 billion secured term loan B-4 
due 2027. The '2' recovery indicates our expectation of substantial recovery 
(70%-90%; rounded estimate: 70%) to lenders in the event of a payment default. 
The company will use proceeds to repay the remaining amount of unsecured 
10.25% notes due 2023. Existing issue-level ratings are unchanged, as we 
continue to expect secured and guaranteed recovery prospects within the 
70%-90% range, albeit at the lower end of the range pro forma for this 
transaction.  

The 'B+' issuer credit rating on parent Altice USA Inc. is unchanged as this 
is a leverage-neutral transaction that will modestly improve cash flow due to 
lower interest expense. Our positive outlook continues to incorporate an 
expectation for de-leveraging in the coming months and we could raise the 
rating if the company is able to maintain leverage below 5.5x on a sustained 
basis (currently 5.4x for the 12 months ended Sept. 30, 2019), without a 
material deterioration in subscriber trends. 

RECOVERY ANALYSIS

Key Analytical Factors
  • Our simulated default scenario contemplates a default during 2023, primarily due to accelerated pricing pressure and competition from Verizon FiOS and new 5G fixed wireless broadband offerings combined with increased video churn stemming from streaming alternatives. Ultimately, a declining subscriber base combined with lower revenues per customer would result in a simulated level of EBITDA below the minimum required to service Altice USA's fixed charges (principally interest expense, capex, and scheduled debt amortization).
  • We believe that if Altice USA defaulted it would retain a viable business model fueled by continued demand for wired high-speed internet connections. We have valued the company at a 6x expected emergence-level EBITDA to determine debtholders' recovery prospects. The 6x multiple is at the lower end of the typical 6x-7x multiple we ascribe to incumbent cable operators to reflect heightened competition form Verizon in the Optimum footprint.
  • Other key default assumptions include the $2.56 billion revolver is 85% drawn, a rise in the spread on the revolver to 5% as covenant amendments are obtained, and all debt having six months of prepetition interest.
  • Secured debt is pari passu with guaranteed notes because the notes carry guarantees by the majority of operating subsidiaries whereas collateral for the secured debt consists of a pledge of the capital stock of material operating subsidiaries. In a default scenario, this collateral, in our view, would not provide lenders with incremental value relative to the guaranteed unsecured claims.
Simulated Default Assumptions
  • Simulated year of default: 2023
  • EBITDA at emergence: $2.2 billion
  • EBITDA multiple: 6x
Simplified Waterfall
  • Net enterprise value (after 5% administrative claims): $12.4 billion
  • Obligor/nonobligor split (%): 96/4
  • Estimated secured credit facility and guaranteed claims: $16.5 billion
  • Value available for secured and guaranteed claims: $12.2 billion
  • --Recovery expectations: 70%-90% (rounded estimate: 70%)
  • Estimated senior unsecured claims: $6.6 billion
  • Estimated deficiency claims: $4.3 billion
  • Unpledged value available to unsecured notes and deficiency claims: $0.2 billion
  • --Recovery expectations: 0%-10% (rounded estimate: 0%)
  • Structurally subordinated claims: $1.2 billion
  • --Recovery expectations: 0%-10% (rounded estimate: 0%)
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