Click here to close now.

Welcome!

Cloud Expo Authors: Blue Box Blog, AppDynamics Blog, Kelly Murphy, John Smith, Liz McMillan

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
There is little doubt that Big Data solutions will have an increasing role in the Enterprise IT mainstream over time. 8th International Big Data Expo, co-located with 17th International Cloud Expo - to be held November 3-5, 2015, at the Santa Clara Convention Center in Santa Clara, CA - has announced its Call for Papers is open. As advanced data storage, access and analytics technologies aimed at handling high-volume and/or fast moving data all move center stage, aided by the cloud computing bo...
Every day we read jaw-dropping stats on the explosion of data. We allocate significant resources to harness and better understand it. We build businesses around it. But we’ve only just begun. For big payoffs in Big Data, CIOs are turning to cognitive computing. Cognitive computing’s ability to securely extract insights, understand natural language, and get smarter each time it’s used is the next, logical step for Big Data.
There's no doubt that the Internet of Things is driving the next wave of innovation. Google has spent billions over the past few months vacuuming up companies that specialize in smart appliances and machine learning. Already, Philips light bulbs, Audi automobiles, and Samsung washers and dryers can communicate with and be controlled from mobile devices. To take advantage of the opportunities the Internet of Things brings to your business, you'll want to start preparing now.
DevOps Summit, taking place Nov 3-5, 2015, at the Santa Clara Convention Center in Santa Clara, CA, is co-located with 17th Cloud Expo and will feature technical sessions from a rock star conference faculty and the leading industry players in the world. The widespread success of cloud computing is driving the DevOps revolution in enterprise IT. Now as never before, development teams must communicate and collaborate in a dynamic, 24/7/365 environment. There is no time to wait for long developmen...
In a world of ever-accelerating business cycles and fast-changing client expectations, the cloud increasingly serves as a growth engine and a path to new business models. Dynamic clouds enable businesses to continuously reinvent themselves, adapting their business processes, their service and software delivery and their operations to achieve speed-to-market and quick response to customer feedback. As the cloud evolves, the industry has multiple competing cloud technologies, offering on-premises ...
The 5th International DevOps Summit, co-located with 17th International Cloud Expo – being held November 3-5, 2015, at the Santa Clara Convention Center in Santa Clara, CA – announces that its Call for Papers is open. Born out of proven success in agile development, cloud computing, and process automation, DevOps is a macro trend you cannot afford to miss. From showcase success stories from early adopters and web-scale businesses, DevOps is expanding to organizations of all sizes, including the...
Over the years, a variety of methodologies have emerged in order to overcome the challenges related to project constraints. The successful use of each methodology seems highly context-dependent. However, communication seems to be the common denominator of the many challenges that project management methodologies intend to resolve. In this respect, Information and Communication Technologies (ICTs) can be viewed as powerful tools for managing projects. Few research papers have focused on the way...
As the world moves from DevOps to NoOps, application deployment to the cloud ought to become a lot simpler. However, applications have been architected with a much tighter coupling than it needs to be which makes deployment in different environments and migration between them harder. The microservices architecture, which is the basis of many new age distributed systems such as OpenStack, Netflix and so on is at the heart of CloudFoundry – a complete developer-oriented Platform as a Service (PaaS...
17th Cloud Expo, taking place Nov 3-5, 2015, at the Santa Clara Convention Center in Santa Clara, CA, will feature technical sessions from a rock star conference faculty and the leading industry players in the world. Cloud computing is now being embraced by a majority of enterprises of all sizes. Yesterday's debate about public vs. private has transformed into the reality of hybrid cloud: a recent survey shows that 74% of enterprises have a hybrid cloud strategy. Meanwhile, 94% of enterprises a...
Hybrid IT is an approach to delivering IT services that matches business requirements and application needs with different IT deployment modalities. In their session at 16th Cloud Expo, Jeff Katzen, Director of the Cloud Practice at CenturyLink, and Gary Sloper, Area Vice President, Sales Engineering and Operations, at CenturyLink, will go into more depth around those different modalities and how customers have made decisions to choose between them. They will talk to some of the challenges t...
SAP is delivering break-through innovation combined with fantastic user experience powered by the market-leading in-memory technology, SAP HANA. In his General Session at 15th Cloud Expo, Thorsten Leiduck, VP ISVs & Digital Commerce, SAP, discussed how SAP and partners provide cloud and hybrid cloud solutions as well as real-time Big Data offerings that help companies of all sizes and industries run better. SAP launched an application challenge to award the most innovative SAP HANA and SAP HANA...
P2P RTC will impact the landscape of communications, shifting from traditional telephony style communications models to OTT (Over-The-Top) cloud assisted & PaaS (Platform as a Service) communication services. The P2P shift will impact many areas of our lives, from mobile communication, human interactive web services, RTC and telephony infrastructure, user federation, security and privacy implications, business costs, and scalability. In his session at @ThingsExpo, Robin Raymond, Chief Architect...
The widespread success of cloud computing is driving the DevOps revolution in enterprise IT. Now as never before, development teams must communicate and collaborate in a dynamic, 24/7/365 environment. There is no time to wait for long development cycles that produce software that is obsolete at launch. DevOps may be disruptive, but it is essential. The DevOps Summit at Cloud Expo – to be held June 3-5, 2015, at the Javits Center in New York City – will expand the DevOps community, enable a wide...
Enterprises are fast realizing the importance of integrating SaaS/Cloud applications, API and on-premises data and processes, to unleash hidden value. This webinar explores how managers can use a Microservice-centric approach to aggressively tackle the unexpected new integration challenges posed by proliferation of cloud, mobile, social and big data projects. Industry analyst and SOA expert Jason Bloomberg will strip away the hype from microservices, and clearly identify their advantages and d...
With worldwide spending on cloud services and infrastructure growing by 23% in 2015 to $118B, it is clear that cloud services are here to stay. Yet, the rate of cloud adoption varies by companies and markets around the world. With thousands of outages and hijacks across the Internet every day, one reason for hesitation is the faith in quality Internet performance. In his session at 16th Cloud Expo, Michael Kane, Senior Manager at Dyn, will explore how Internet performance affects your end-user...
Cloud Expo, Inc. has announced today that Andi Mann returns to DevOps Summit 2015 as Conference Chair. The 4th International DevOps Summit will take place on June 9-11, 2015, at the Javits Center in New York City. "DevOps is set to be one of the most profound disruptions to hit IT in decades," said Andi Mann. "It is a natural extension of cloud computing, and I have seen both firsthand and in independent research the fantastic results DevOps delivers. So I am excited to help the great team at ...
Organizations today are confounded by an avalanche of data that needs to be processed and managed on a daily basis. Through relevant use cases and a thought-provoking dialogue on an organization’s ‘Data to Decisions’ journey, Andrew Clyne, Chief Data Officer at CenturyLink Cognilytics, will reveal in his session at Big Data Expo how your organization can monetize data as a strategic asset. State-of-the-art Big Data and Advanced Analytics capabilities provided as a managed service can enable da...
Explosive growth in connected devices. Enormous amounts of data for collection and analysis. Critical use of data for split-second decision making and actionable information. All three are factors in making the Internet of Things a reality. Yet, any one factor would have an IT organization pondering its infrastructure strategy. How should your organization enhance its IT framework to enable an Internet of Things implementation? In his session at Internet of @ThingsExpo, James Kirkland, Chief Ar...
With SaaS use rampant across organizations, how can IT departments track company data and maintain security? More and more departments are commissioning their own solutions and bypassing IT. A cloud environment is amorphous and powerful, allowing you to set up solutions for all of your user needs: document sharing and collaboration, mobile access, e-mail, even industry-specific applications. In his session at 16th Cloud Expo, Shawn Mills, President and a founder of Green House Data, will discus...
Move from reactive to proactive cloud management in a heterogeneous cloud infrastructure. In his session at 16th Cloud Expo, Manoj Khabe, Innovative Solution-Focused Transformation Leader at Vicom Computer Services, Inc., will show how to replace a help desk-centric approach with an ITIL-based service model and service-centric CMDB that’s tightly integrated with an event and incident management platform. Learn how to expand the scope of operations management to service management. He will al...