Welcome!

Microsoft Cloud Authors: Pat Romanski, Elizabeth White, Liz McMillan, Mihai Corbuleac, David Bermingham

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.

@ThingsExpo Stories
In his keynote at 18th Cloud Expo, Andrew Keys, Co-Founder of ConsenSys Enterprise, provided an overview of the evolution of the Internet and the Database and the future of their combination – the Blockchain. Andrew Keys is Co-Founder of ConsenSys Enterprise. He comes to ConsenSys Enterprise with capital markets, technology and entrepreneurial experience. Previously, he worked for UBS investment bank in equities analysis. Later, he was responsible for the creation and distribution of life sett...
There are several IoTs: the Industrial Internet, Consumer Wearables, Wearables and Healthcare, Supply Chains, and the movement toward Smart Grids, Cities, Regions, and Nations. There are competing communications standards every step of the way, a bewildering array of sensors and devices, and an entire world of competing data analytics platforms. To some this appears to be chaos. In this power panel at @ThingsExpo, moderated by Conference Chair Roger Strukhoff, Bradley Holt, Developer Advocate a...
Cognitive Computing is becoming the foundation for a new generation of solutions that have the potential to transform business. Unlike traditional approaches to building solutions, a cognitive computing approach allows the data to help determine the way applications are designed. This contrasts with conventional software development that begins with defining logic based on the current way a business operates. In her session at 18th Cloud Expo, Judith S. Hurwitz, President and CEO of Hurwitz & ...
In his general session at 18th Cloud Expo, Lee Atchison, Principal Cloud Architect and Advocate at New Relic, discussed cloud as a ‘better data center’ and how it adds new capacity (faster) and improves application availability (redundancy). The cloud is a ‘Dynamic Tool for Dynamic Apps’ and resource allocation is an integral part of your application architecture, so use only the resources you need and allocate /de-allocate resources on the fly.
A strange thing is happening along the way to the Internet of Things, namely far too many devices to work with and manage. It has become clear that we'll need much higher efficiency user experiences that can allow us to more easily and scalably work with the thousands of devices that will soon be in each of our lives. Enter the conversational interface revolution, combining bots we can literally talk with, gesture to, and even direct with our thoughts, with embedded artificial intelligence, wh...
19th Cloud Expo, taking place November 1-3, 2016, 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 enterpri...
SYS-CON Events announced today that Bsquare has been named “Silver Sponsor” of SYS-CON's @ThingsExpo, which will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. For more than two decades, Bsquare has helped its customers extract business value from a broad array of physical assets by making them intelligent, connecting them, and using the data they generate to optimize business processes.
Internet of @ThingsExpo, taking place November 1-3, 2016, at the Santa Clara Convention Center in Santa Clara, CA, is co-located with 19th Cloud Expo and will feature technical sessions from a rock star conference faculty and the leading industry players in the world. The Internet of Things (IoT) is the most profound change in personal and enterprise IT since the creation of the Worldwide Web more than 20 years ago. All major researchers estimate there will be tens of billions devices - comp...
Machine Learning helps make complex systems more efficient. By applying advanced Machine Learning techniques such as Cognitive Fingerprinting, wind project operators can utilize these tools to learn from collected data, detect regular patterns, and optimize their own operations. In his session at 18th Cloud Expo, Stuart Gillen, Director of Business Development at SparkCognition, discussed how research has demonstrated the value of Machine Learning in delivering next generation analytics to imp...
There is little doubt that Big Data solutions will have an increasing role in the Enterprise IT mainstream over time. Big Data at Cloud Expo - to be held November 1-3, 2016, at the Santa Clara Convention Center in Santa Clara, CA - has announced its Call for Papers is open. Cloud computing is being adopted in one form or another by 94% of enterprises today. Tens of billions of new devices are being connected to The Internet of Things. And Big Data is driving this bus. An exponential increase is...
The 19th International Cloud Expo has announced that its Call for Papers is open. Cloud Expo, to be held November 1-3, 2016, at the Santa Clara Convention Center in Santa Clara, CA, brings together Cloud Computing, Big Data, Internet of Things, DevOps, Digital Transformation, Microservices and WebRTC to one location. With cloud computing driving a higher percentage of enterprise IT budgets every year, it becomes increasingly important to plant your flag in this fast-expanding business opportuni...
Cloud computing is being adopted in one form or another by 94% of enterprises today. Tens of billions of new devices are being connected to The Internet of Things. And Big Data is driving this bus. An exponential increase is expected in the amount of information being processed, managed, analyzed, and acted upon by enterprise IT. This amazing is not part of some distant future - it is happening today. One report shows a 650% increase in enterprise data by 2020. Other estimates are even higher....
The cloud market growth today is largely in public clouds. While there is a lot of spend in IT departments in virtualization, these aren’t yet translating into a true “cloud” experience within the enterprise. What is stopping the growth of the “private cloud” market? In his general session at 18th Cloud Expo, Nara Rajagopalan, CEO of Accelerite, explored the challenges in deploying, managing, and getting adoption for a private cloud within an enterprise. What are the key differences between wh...
Internet of @ThingsExpo, taking place November 1-3, 2016, at the Santa Clara Convention Center in Santa Clara, CA, is co-located with the 19th International Cloud Expo and will feature technical sessions from a rock star conference faculty and the leading industry players in the world and ThingsExpo Silicon Valley Call for Papers is now open.
It is one thing to build single industrial IoT applications, but what will it take to build the Smart Cities and truly society changing applications of the future? The technology won’t be the problem, it will be the number of parties that need to work together and be aligned in their motivation to succeed. In his Day 2 Keynote at @ThingsExpo, Henrik Kenani Dahlgren, Portfolio Marketing Manager at Ericsson, discussed how to plan to cooperate, partner, and form lasting all-star teams to change t...
Connected devices and the industrial internet are growing exponentially every year with Cisco expecting 50 billion devices to be in operation by 2020. In this period of growth, location-based insights are becoming invaluable to many businesses as they adopt new connected technologies. Knowing when and where these devices connect from is critical for a number of scenarios in supply chain management, disaster management, emergency response, M2M, location marketing and more. In his session at @Th...
SYS-CON Events announced today that ReadyTalk, a leading provider of online conferencing and webinar services, has been named Vendor Presentation Sponsor at the 19th International Cloud Expo, which will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. ReadyTalk delivers audio and web conferencing services that inspire collaboration and enable the Future of Work for today’s increasingly digital and mobile workforce. By combining intuitive, innovative tec...
Amazon has gradually rolled out parts of its IoT offerings, but these are just the tip of the iceberg. In addition to optimizing their backend AWS offerings, Amazon is laying the ground work to be a major force in IoT - especially in the connected home and office. In his session at @ThingsExpo, Chris Kocher, founder and managing director of Grey Heron, explained how Amazon is extending its reach to become a major force in IoT by building on its dominant cloud IoT platform, its Dash Button strat...
industrial company for a multi-year contract initially valued at over $4.0 million. In addition to DataV software, Bsquare will also provide comprehensive systems integration, support and maintenance services. DataV leverages advanced data analytics, predictive reasoning, data-driven diagnostics, and automated orchestration of remediation actions in order to improve asset uptime while reducing service and warranty costs.
Vidyo, Inc., has joined the Alliance for Open Media. The Alliance for Open Media is a non-profit organization working to define and develop media technologies that address the need for an open standard for video compression and delivery over the web. As a member of the Alliance, Vidyo will collaborate with industry leaders in pursuit of an open and royalty-free AOMedia Video codec, AV1. Vidyo’s contributions to the organization will bring to bear its long history of expertise in codec technolo...