Fitch puts Cablevision on watch

Fitch Ratings said it placed the ratings of Cablevision Systems Corp. and CSC Holdings, Inc. on Rating Watch negative, including the B+ issuer default rating, following the company's announcement that it entered into a definitive merger agreement with an entity created by the Dolan family to purchase the publicly held shares of Cablevision for $36.26 a share.

To affect the transaction, Cablevision has committed financing totaling $15.5 billion, which will finance the conversion of its common stock into cash and refinance bank debt at CSC Holdings and Rainbow National Services LLC. Additionally, the Dolan family will contribute its existing equity stake in Cablevision, valued at $2.1 billion, to the transaction. The company's existing senior notes and subordinated debentures are expected to remain outstanding.

The agency said that from its perspective, the proposed transaction materially increases Cablevision's financial risk and significantly erodes the company's credit profile. Depending on the company's ultimate capital structure, Fitch believes that leverage could increase to more than 10x from 6.9x at the end of 2006 when the transaction is finalized, constraining the company's ability to generate free cash flow.

The review will consider the final capital structure, credit profile and recovery prospects of the entities created by the transactions as well as the business and operational risks of the entities going forward. The agency said it expects a multi-notch downgrade of the ratings upon closing of the transaction.

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