Welcome!

@CloudExpo Authors: Elizabeth White, Pat Romanski, Yeshim Deniz, Ed Featherston, Stefan Bernbo

News Feed Item

Fitch Downgrades Cogeco Cable's IDR to 'BB+'; Outlook Stable

Fitch Ratings has downgraded the Issuer Default Rating (IDR) for Cogeco Cable Inc. (Cogeco) to 'BB+' from 'BBB-'. The long-term rating for the secured notes are affirmed at 'BBB-'. Fitch has removed Cogeco from Rating Watch Negative.

The Rating Outlook is Stable.

Fitch has downgraded Cogeco's IDR due to the further deterioration in the company's credit profile resulting from closing its more recent debt financed acquisition. Consequently, debt has increased pro forma for the acquisitions to 3.6 times (x) excluding the non-guaranteed debt at Atlantic Broadband (ABB). Cogeco's leverage at the November 2012 closing of the ABB acquisition was 2.7x, an increase from 1.8x. The long-term leverage expectations for Cogeco ratings at the 'BBB-' level was leverage of approximately 2.5x or less. Fitch does not expect Cogeco will reduce leverage back to this range within the next 12-15 months although leverage should reduce going forward due to both cash flow growth and debt repayment but remain above 3x at year-end 2013.

The 'BB+' ratings reflect Cogeco Cable's stable operating profile and the strength of the Canadian operations that generate the majority of the company's revenue and cash flow. Fitch believes that the Canadian operations are well supported by Cogeco Cable's competitive position anchored by its high speed internet and triple play offering. The cable systems are also clustered in less concentrated and generally less competitive suburban regions.

The PEER 1 Network Enterprises Inc. (PEER 1) acquisition offers a diversified faster growing revenue stream although it has some elevated execution risk as Cogeco pursues growth and investment opportunities outside of their traditional cable footprint. PEER 1's core business of managed services and web hosting is highly and increasingly competitive. PEER 1 focuses on delivering quality service and support to differentiate from competition that is mainly from managed and dedicated cloud providers along with local and regional operators. PEER 1 has a relatively large SMB customer base with no customer representing more than 5% of revenues.

Fitch does not expect PEER 1 operations to contribute meaningful free cash flow during the next several years given the higher capital intensity rates and need to further scale the operations. Thus PEER 1 could require additional working capital to support ongoing operations and expansion. LTM EBITDA and capital spending were both approximately CAD40 million.

Cogeco's strategic shift in pursuing its last two acquisitions is a result of the maturing of cable services and the competitive intensity that has lowered growth prospects for the cable operations. The competitive intensity in Canada is expected to increase with additional IPTV footprint expansion through fiber-to-the-home overbuilds in a material portion of Cogeco's regions. This will increase the pressure on primary service unit additions which have been decreasing due to factors mentioned above along with economic uncertainty and the tightening of credit controls. Fitch believes Cogeco also needs to upgrade technology supporting its video offering to better match capabilities with the telco's IPTV video service.

Cogeco should be able to mitigate revenue pressure through rate increases and SMB primary service unit additions which will become an increasingly important offset. In addition, the enterprise services segment provides a growing diversified revenue stream with good margins. Cogeco's capital spending intensity has been elevated relative to its peers due to success-based spending within this segment.

Cogeco used a material portion of its liquidity position to close the ABB acquisition. Cogeco's main sources of liquidity are through its credit facilities, cash position, and free cash flow (FCF). As of Nov. 30, 2012, Cogeco Cable had drawn down CAD584 million on its CAD750 million credit facility due 2017 and had CAD9 million of cash. In connection with the PEER 1 closing, Cogeco entered into new acquisition facilities. This includes a four year CAD250 million secured revolving credit facility and a four year approximately CAD equivalent $400 million secured term loan as a portion of the draw was in US dollars.

Going forward, Fitch expects Cogeco will restore at least a portion of its liquidity position using FCF to pay down the revolver over the next couple of years. Free cash flow (FCF) for the fiscal year 2012 was CAD42 million after dividend payment. Cogeco's current FCF guidance (excluding PEER 1) after dividend payment for FY2013 is in excess of CAD100 million.

Cogeco's conservative financial policies also support its current ratings. The company does not have an active share program. Additionally the most recent dividend increase of 4% is lower than in the past reflecting in part the increased leverage resulting from the acquisition.

Importantly, Fitch believes the new ABB subsidiary should be in a self-funding position. This is supported by ABB's current cash generation, a substantial tax shield related to net operating losses, a competitive environment with limited triple play competition and the expected growth from increasing underpenetrated services. ABB will increase success-based capital spending which should improve its competitive position relative to satellite operators which is the primary competitor in approximately three quarters of its markets.

SENSITIVITY/RATING DRIVERS

Negative: Future developments that may, individually or collectively, lead to negative rating include:

--Cogeco Cable leverage stays in the mid 3.5x range reflecting lack of cash flow growth and debt reduction;

--An additional material leveraging transaction;

--Greater than expected IPTV competition in Cogeco Cable territory that adversely affects operating trends;

--Negative operating trends in the Atlantic Broadband operations that requires Cogeco Cable to infuse additional funding;

--Large debt-financed acquisition;

--Reduced free cash flow prospects.

Positive: Future developments that may, individually or collectively, lead to positive rating include:

--Cogeco Cable leverage improves to less than 2.5x due to strong cash growth and debt reduction;

--Good operating trends across its three business segments;

--Pre-dividend FCF to sales of greater than 10%;

--Financial policy to maintain leverage below 2.5x.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 8, 2012);

--'Rating Telecom Companies: Sector Credit Factors' (Aug. 9, 2012).

Applicable Criteria and Related Research:

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460

Rating Telecom Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682323

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.

More Stories By Business Wire

Copyright © 2009 Business Wire. All rights reserved. Republication or redistribution of Business Wire content is expressly prohibited without the prior written consent of Business Wire. Business Wire shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon.

@CloudExpo Stories
I think DevOps is now a rambunctious teenager - it's starting to get a mind of its own, wanting to get its own things but it still needs some adult supervision," explained Thomas Hooker, VP of marketing at CollabNet, in this SYS-CON.tv interview at DevOps Summit at 20th Cloud Expo, held June 6-8, 2017, at the Javits Center in New York City, NY.
Enterprises are moving to the cloud faster than most of us in security expected. CIOs are going from 0 to 100 in cloud adoption and leaving security teams in the dust. Once cloud is part of an enterprise stack, it’s unclear who has responsibility for the protection of applications, services, and data. When cloud breaches occur, whether active compromise or a publicly accessible database, the blame must fall on both service providers and users. In his session at 21st Cloud Expo, Ben Johnson, C...
In this presentation, you will learn first hand what works and what doesn't while architecting and deploying OpenStack. Some of the topics will include:- best practices for creating repeatable deployments of OpenStack- multi-site considerations- how to customize OpenStack to integrate with your existing systems and security best practices.
"MobiDev is a software development company and we do complex, custom software development for everybody from entrepreneurs to large enterprises," explained Alan Winters, U.S. Head of Business Development at MobiDev, in this SYS-CON.tv interview at 21st Cloud Expo, held Oct 31 – Nov 2, 2017, at the Santa Clara Convention Center in Santa Clara, CA.
Agile has finally jumped the technology shark, expanding outside the software world. Enterprises are now increasingly adopting Agile practices across their organizations in order to successfully navigate the disruptive waters that threaten to drown them. In our quest for establishing change as a core competency in our organizations, this business-centric notion of Agile is an essential component of Agile Digital Transformation. In the years since the publication of the Agile Manifesto, the conn...
Major trends and emerging technologies – from virtual reality and IoT, to Big Data and algorithms – are helping organizations innovate in the digital era. However, to create real business value, IT must think beyond the ‘what’ of digital transformation to the ‘how’ to harness emerging trends, innovation and disruption. Architecture is the key that underpins and ties all these efforts together. In the digital age, it’s important to invest in architecture, extend the enterprise footprint to the cl...
Leading companies, from the Global Fortune 500 to the smallest companies, are adopting hybrid cloud as the path to business advantage. Hybrid cloud depends on cloud services and on-premises infrastructure working in unison. Successful implementations require new levels of data mobility, enabled by an automated and seamless flow across on-premises and cloud resources. In his general session at 21st Cloud Expo, Greg Tevis, an IBM Storage Software Technical Strategist and Customer Solution Architec...
"We work around really protecting the confidentiality of information, and by doing so we've developed implementations of encryption through a patented process that is known as superencipherment," explained Richard Blech, CEO of Secure Channels Inc., in this SYS-CON.tv interview at 21st Cloud Expo, held Oct 31 – Nov 2, 2017, at the Santa Clara Convention Center in Santa Clara, CA.
Data is the fuel that drives the machine learning algorithmic engines and ultimately provides the business value. In his session at Cloud Expo, Ed Featherston, a director and senior enterprise architect at Collaborative Consulting, discussed the key considerations around quality, volume, timeliness, and pedigree that must be dealt with in order to properly fuel that engine.
"We were founded in 2003 and the way we were founded was about good backup and good disaster recovery for our clients, and for the last 20 years we've been pretty consistent with that," noted Marc Malafronte, Territory Manager at StorageCraft, in this SYS-CON.tv interview at 20th Cloud Expo, held June 6-8, 2017, at the Javits Center in New York City, NY.
Effectively SMBs and government programs must address compounded regulatory compliance requirements. The most recent are Controlled Unclassified Information and the EU's GDPR have Board Level implications. Managing sensitive data protection will likely result in acquisition criteria, demonstration requests and new requirements. Developers, as part of the pre-planning process and the associated supply chain, could benefit from updating their code libraries and design by incorporating changes. In...
Andi Mann, Chief Technology Advocate at Splunk, is an accomplished digital business executive with extensive global expertise as a strategist, technologist, innovator, marketer, and communicator. For over 30 years across five continents, he has built success with Fortune 500 corporations, vendors, governments, and as a leading research analyst and consultant.
No hype cycles or predictions of zillions of things here. IoT is big. You get it. You know your business and have great ideas for a business transformation strategy. What comes next? Time to make it happen. In his session at @ThingsExpo, Jay Mason, Associate Partner at M&S Consulting, presented a step-by-step plan to develop your technology implementation strategy. He discussed the evaluation of communication standards and IoT messaging protocols, data analytics considerations, edge-to-cloud tec...
Today we can collect lots and lots of performance data. We build beautiful dashboards and even have fancy query languages to access and transform the data. Still performance data is a secret language only a couple of people understand. The more business becomes digital the more stakeholders are interested in this data including how it relates to business. Some of these people have never used a monitoring tool before. They have a question on their mind like “How is my application doing” but no id...
Announcing Poland #DigitalTransformation Pavilion
Digital Transformation is much more than a buzzword. The radical shift to digital mechanisms for almost every process is evident across all industries and verticals. This is often especially true in financial services, where the legacy environment is many times unable to keep up with the rapidly shifting demands of the consumer. The constant pressure to provide complete, omnichannel delivery of customer-facing solutions to meet both regulatory and customer demands is putting enormous pressure on...
CloudEXPO | DXWorldEXPO are the world's most influential, independent events where Cloud Computing was coined and where technology buyers and vendors meet to experience and discuss the big picture of Digital Transformation and all of the strategies, tactics, and tools they need to realize their goals. Sponsors of DXWorldEXPO | CloudEXPO benefit from unmatched branding, profile building and lead generation opportunities.
DXWorldEXPO LLC announced today that All in Mobile, a mobile app development company from Poland, will exhibit at the 22nd International CloudEXPO | DXWorldEXPO. All In Mobile is a mobile app development company from Poland. Since 2014, they maintain passion for developing mobile applications for enterprises and startups worldwide.
In his Opening Keynote at 21st Cloud Expo, John Considine, General Manager of IBM Cloud Infrastructure, led attendees through the exciting evolution of the cloud. He looked at this major disruption from the perspective of technology, business models, and what this means for enterprises of all sizes. John Considine is General Manager of Cloud Infrastructure Services at IBM. In that role he is responsible for leading IBM’s public cloud infrastructure including strategy, development, and offering m...
The best way to leverage your CloudEXPO | DXWorldEXPO presence as a sponsor and exhibitor is to plan your news announcements around our events. The press covering CloudEXPO | DXWorldEXPO will have access to these releases and will amplify your news announcements. More than two dozen Cloud companies either set deals at our shows or have announced their mergers and acquisitions at CloudEXPO. Product announcements during our show provide your company with the most reach through our targeted audienc...
@DevOpsSummit at Cloud Expo, taking place November 12-13 in New York City, NY, is co-located with 22nd international CloudEXPO | first international DXWorldEXPO and will feature technical sessions from a rock star conference faculty and the leading industry players in the world.