Mediacom Communications Corp. Upgraded To 'BB+' On Continued Improvement In Credit Metrics, Outlook Stable

  • Mediacom Communications Corp. has continued to increase its earnings and use its free operating cash flow (FOCF) to reduce its debt such that the company's leverage declined by 0.5x in 2018 to 3.0x, which is comfortably below our upgrade trigger of 3.5x.
  • Therefore, we are upgrading the company to 'BB+' from 'BB' because we believe its ability to reduce its leverage by about 0.5x per year will allow it to maintain enough of a cushion to accommodate most acquisition scenarios while sustaining credit metrics that support a higher rating.
  • The stable outlook reflects Mediacom's continued positive momentum, which should enable it to gradually reduce its leverage by increasing its earnings by 4%-5% annually. However, potential acquisitions and dividends and the lack of a committed leverage target limit ratings upside over the next year.
NEW YORK (S&P Global Ratings) April 5, 2019—S&P Global Ratings today took the 
rating actions listed above.  The upgrade reflects Mediacom's increased 
leverage cushion, which will allow it to make small acquisitions or pay a 
moderate dividend following another year of significant debt reduction and 
predictable earnings growth. Since 2011 when the company was taken private by 
controlling shareholder Rocco Commisso, Mediacom has consistently used its 
internal cash generation to pay down debt. We expect that this trend will 
continue in 2019, leading the company to reduce its forecasted leverage to 
about 2.5x. Therefore, if Mediacom undertakes an acquisition or issues a 
dividend, we believe there will likely be a quick and credible path for it to 
reduce its leverage such that its debt to EBITDA will not remain above 3.75x 
for an extended period.

The stable outlook on Mediacom reflects our expectation that the company's 
leverage will approach 2.5x by the end of 2019, from 3.0x in 2018, due to debt 
repayment and moderate earnings growth on increased revenue in its HSD and 
business services segments, which is partlyoffset by the declines in its video 
product. However, we continue to be uncertain about the timing and amount of 
any potential acquisitions or dividends the company will undertake, which 
limits the upside over the next year.

Given our expectation for a relatively steady operating performance over the 
next one to two years, we expect that we would most likely downgrade Mediacom 
if it undertakes debt-financed acquisitions or shareholder returns that raise 
its leverage above 3.75x for a sustained period. This could occur if 
management issues a dividend of more than $1 billion or undertakes a 
debt-financed acquisition of greater than $2 billion. Based on our analysis of 
potential targets, Cable One is the only cable provider that would fit this 
description, though we view the likelihood of such an acquisition as low.

We are unlikely to upgrade the company unless management commits to keeping 
debt-to-EBITDA below 3x, including the potential for acquisitions and 
dividends. 
 
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