Avalon Cable Holdings Assigned `B+' Credit Rtg by S&P.

NEW YORK--(BUSINESS WIRE)--Standard & Poor's CreditWire 10/9/98-- Standard & Poor's today assigned its single-'B'-plus corporate credit rating to Avalon Cable Holdings LLC and its subsidiaries.

At the same time, Standard & Poor's assigned its ratings to Avalon's and its subsidiaries' senior discount notes, senior subordinated notes, and bank loans (see list below).

Ratings reflect the favorable business characteristics and stable cash flows of the small to midsize cable markets in which Avalon operates, offset by the company's fairly aggressive leverage. The total debt of $425 million will mainly be used to complete the purchase of Cable Michigan. Upon completion of the merger with its New England operation, Avalon will have a subscriber base of about 248,000. Since the previous owners of Cable Michigan did not aggressively promote premium cable products, the new company will initially have relatively low penetration rates of premium subscribers. This will provide Avalon with ample opportunity to increase cash flows through improved marketing of its premium cable services.

The company is likely to face minimal competition in its smaller suburban and exurban markets. Direct cable competition currently affects only 4,000 homes in Avalon's territory and, given satellite's inability to deliver local signals, competition from satellite providers is not expected to cause material deterioration to near-term subscriber growth.

Nevertheless, Avalon will be highly leveraged with total debt to earnings before interest, taxes, depreciation, and amortization (EBITDA) anticipated to be about 9 times (x). In addition, the company will be greatly dependent on the Michigan economy since approximately 90% of its customers are residents of that state. Avalon's EBITDA coverage is expected to be modest at 1.2 times (x) and to improve to about 1.4x over the next several years.

Although the jointly issued $321 million credit facility was secured by assets it was rated single-'B'-plus rather than higher than the company's corporate credit rating. This was due to the $1,200 debt per subscriber level being deemed to be too high to ensure that debt holders could recover their investments in a financially stressed situation. The jointly issued $105 million unsecured bridge loan was rated single-'B'-minus, below the corporate credit rating. The lower rating was due to the bridge loan's subordinate position in relation to secured debt and its structural subordination to the secured credit facility.

Avalon's senior discount notes and senior subordinated notes will be issued at a later date than the bank loans. Note proceeds will be used to pay off the bridge loan and reduce the secured credit facility to about $245 million from $321 million. The secured credit facility would likely then be considered for an upgrade to double-'B'-minus due to its secured nature and its $900 senior debt per subscriber level that should enable secured debtholders to fully recover their investment in a liquidation scenario. Both the senior discount notes and the senior subordinated notes are structurally subordinated to the secured credit facility and are offered under Rule 144A with registration rights.

OUTLOOK: STABLE

Standard & Poor's expects that Avalon will improve its premium service penetration and will reduce costs through some consolidation in its network. This should improve its cash flows over the next two or three years. Nevertheless, the expected improvement is not likely to be enough to warrant an increase in the company's rating over that time frame, Standard & Poor's said. -- CreditWire -0-

RATINGS ASSIGNED

                                           Rating

Avalon Cable Holdings LLC

  Corporate credit rating                   B+

Avalon Cable LLC*
Avalon Cable Holdings Finance Inc.*
Avalon Cable of Michigan Holdings Inc.*

  Corporate credit rating                   B+
  $100 million senior unsecured notes       B-
  $105 million unsecured bank loan          B-

Avalon Cable of New England LLC@
Avalon Cable Finance Inc.@
Avalon Cable of Michigan Inc.@

  Corporate credit rating                   B+
  $100 million senior subordinated notes    B-
  $321 million secured bank loan            B+

*Co-issuers for the senior notes and bank loan. @Co-issuers for the subordinated notes and bank loan.