Moody over Cablevision money

Media group's liquidity rating on junk pile

With New York media group Cablevision yet to make a formal announcement about a cash-generating asset sale, Moody’s Investors Services has slapped a new subjunk liquidity rating on the cash-strapped company.

Moody’s assigned a “SGL-4” speculative grade liquidity rating to Cablevision Systems’ CSC Holdings subsid (Cablevision), citing its doubt that the company will generate positive free cash flow from either its core or noncore assets. Moody’s rating means it thinks Cablevision has the highest chance of running out of cash within a year, despite recently revised capital spending and restructuring plans.

New liquidity rating (they run from SGL-1, best, to SGL-4, worst), comes in addition to Moody’s traditional debt rating, which for Cablevision is in danger of falling further into junk bond territory.

Anticipating sales

Analysts had been looking for Cablevision to successfully execute plans that should trim some $300 million in operating expenses going forward, and they are anticipating sales of noncore assets such as wireless provider Northcoast Communications and the Clearview Cinema chain. But Moody’s reckons that even those measures won’t solve the liquidity issues and funding gap for next year.

In addition to concern that Cablevision’s existing bank credit won’t cover the shortfall, Moody’s says it is waiting to see an announcement or implementation of more definitive strategic plans before rethinking its rating.

One fund manager dismissed the Moody’s move as just scare tactics and a way of covering itself. “Investors (in Cablevision) already know about the cash-flow shortfall issues and management credibility problems,” he said.

What’s surprising, said many analysts and Cablevision shareholders, is the controlling Dolan family’s seeming willingness to fall on its own sword. The fund manager opined that, unlike more complicated financial cases such as Charter’s, “Cablevision’s (answer) is so simple: Just sell some large assets and most of their problem goes away.”

Sources said a purchase of Bravo by NBC is still being negotiated and remains the most obvious short-term solution.

Cablevision’s funding gap has been pegged at anywhere from $500 million to $1 billion. That likely does not include the potential cost of a put option held by News Corp. on its 40% stake in Regional Programming Partner. RPP comprises six Fox Sports Network cable channels in Florida, Ohio, New York, Chicago and San Francisco as well as Madison Square Garden properties (including the Garden, Knicks basketball and Rangers hockey teams and Radio City Music Hall). If the put option’s exercised at the earliest possible trigger point in December, Cablevision could be obliged to buy back the News Corp. stake for some $1 billion in cash and/or other assets.

The parties have engaged in friendly discussions to divvy up the pieces of the joint venture, with Fox believed to want control of the cable sports nets, while James Dolan is said to covet the sports teams. One sticking point in the talks could be the New York-area sports channel that Cablevision may fight to keep. A News Corp. spokesman insists, however, that there’s no urgency over its ongoing negotiations with Cablevision and a deal is not expected before next year.

Cable crunch

Cablevision’s continued woes come during a tough week for the cable sector.

The U.S.’ fourth-largest cable operator, Charter, warned earlier this week that it would not hit its forecast third-quarter operating cash-flow targets due to faster than expected subscriber losses. The multisystem operator, controlled by Microsoft co-founder Paul Allen, promptly got slapped with a Moody’s warning of its own, with the agency saying it may cut the debt rating due to concerns about the cabler’s high debt load, slowing cash-flow growth, continued capital spending requirements and subscriber losses.

Charter’s stock has lost over 90% of its value this year.

Meanwhile, five former Adelphia Communications execs, including founder John Rigas, and sons Timothy and Michael, pleaded not guilty in the Federal District Court in New York on Wednesday to charges of securities and bank fraud, and conspiracy. The case will be heard starting Jan. 9.

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