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Moody’s could lift Charter Communications
Moody's Investors Service said it placed the ratings for Charter Communications Inc. on review for upgrade, including the Ba3 corporate family rating, Ba3-PD probability of default rating and provisional B1 shelf rating following the announcement that Charter will purchase Time Warner Cable, Inc. for about $80 billion.
Based on the proposed capital structure, the agency placed the Baa3 rating on the secured debt at Charter Communications Operating, LLC (CCO) on review for downgrade.
In addition to the acquisition of Time Warner Cable, Charter will also purchase Bright House Networks for roughly $10 billion.
The transactions value Time Warner and Bright House at roughly 9.1 times and 7.6 times EV/EBITDA respectively.
Moody’s said the review for upgrade will focus on the substantial scale benefits and cost synergy opportunity for the post-close entity, as well as the execution risk required to achieve the potential savings. The high proportion of equity consideration in the two deals (about $41 billion) will result in leverage in the mid-4 times range (Debt/EBITDA, Moody's adjusted) and strong free cash flows.
The agency expects the upward ratings impact on the corporate family rating to be limited to one notch. The secured debt component of the proposed capital structure represents about three-fourths of the total debt capital, which is likely to result in only one notch of ratings differential versus the corporate family rating.
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