Fitch Affirms Cox Enterprises and Cox Communications 'BBB-'.NEW YORK New York, state, United States
New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of -- Fitch has affirmed the following ratings:
Cox Enterprises Cox Enterprises is the successor to the publishing company founded in Dayton, Ohio, by James Middleton Cox, who began with the Dayton Daily News. The company is private, 98% controlled by the octogenarian daughter of Cox, Anne Cox Chambers, and the two children of her late
--Issuer Default Rating (IDR IDR
In currencies, this is the abbreviation for the Indonesian Rupiah.
The currency market, also known as the Foreign Exchange market, is the largest financial market in the world, with a daily average volume of over US $1 trillion. ) 'BBB-';
--Senior unsecured debt Unsecured debt
Debt that does not identify specific assets that the debtholder is entitled to in case of default. 'BBB-';
--commercial paper 'F3'.
Cox Communications Cox Communications is a privately owned subsidiary of Cox Enterprises providing digital cable television and telecommunications services in the United States. It is the third-largest cable television provider in the United States, serving more than 6.
--IDR 'BBB-' ;
--Senior unsecured debt 'BBB-';
--commercial paper 'F3'.
The Rating Outlook is Stable.
The ratings continue to be supported by strong free cash flow generation, business and geographic diversification, solid growth prospects of its cable business which has shown favorable trends in cash flow generation and credit-protection measures, has modern systems and strong bundled service offerings that enhance growth and minimize churn, and Fitch's expectations that a material amount of Free Cash Flow will be utilized for debt reduction and will remain a main focus of management in the near-term.
Cox announced this month the closing of its cable systems sale which comprised approximately 940,000 basic cable subscribers for a purchase price of approximately $2.55 billion in cash. Fitch expects the after-tax proceeds of approximately $2 billion as well as an anticipated $1 billion-1.5 billion of free cash flow over the next two years to substantially be used to reduce debt. This should result in consolidated gross leverage of approximately 4.0 times (x) at year-end 2006 and 3.5x by year-end 2007, metrics Fitch considers investment grade for a diversified media entity such as Cox Enterprises. While the cable system sales System sales is a business term used in the franchising industry. Franchisors provide supplies, marketing and administration services to franchisees in return for a part of the franchisees' revenues. Some franchisors also operate some outlets directly. occurred 6 months-9 months later than Fitch originally anticipated, recent financial results as well as current and pro forma As a matter of form or for the sake of form. Used to describe accounting, financial, and other statements or conclusions based upon assumed or anticipated facts.
The phrase pro forma credit metrics are in-line with Fitch's original expectations for pre-and-post asset sales.
Importantly, Fitch expects Cox Communications' stand-alone leverage ratio to fall below 4.5x by year end 2006, allowing for unlimited dividends up to its parent Cox Enterprises. This was a key consideration for Fitch linking the entities' ratings as we believe Cox Communications would use its free cash flow to support Cox Enterprise's businesses and vice-versa if needed. Fitch's analysis looks at metrics for the consolidated entity, as well as metrics and covenant compliance at the stand-alone entities of Cox Enterprises (excluding Cox Communications, Cox Radio Cox Radio NYSE: CXR is a publicly traded company that holds a number of radio stations. Private company Cox Broadcasting, Inc., a subsidiary of Cox Enterprises owns all of the company's super-voting Class B common stock, and thus controls the company. , and AutoTrader.com) and Cox Communications.
Credit concerns include secular issues surrounding the company's newspaper and television segments that could pressure cash flow available to repay debt towards metrics anticipated by Fitch and strengthen the company's metrics within the current rating category. While the television segment should get a boost in 2006 from the Olympics, Super Bowl, and political races, long-term issues related to network content sales and Digital Video Recorders (DVR (1) (Digital Video Recorder) A device that records video onto a hard disk from one or more ceiling mounted video cameras. Part of a security system, the DVR typically supports 4, 8 or 16 separate camera channels. ) continue to be a concern, the latter being mitigated somewhat by the Company's digital cable business when analyzed on a consolidated basis. The newspaper industry continues to be challenged by decreasing circulation and increasing costs related to newsprint and energy. Other rating concerns include the company's weak free cash flow to debt metrics, a large exposure to the auto industry between advertising revenues and transaction revenues at Manheim, and increasing competition (DBS (Direct Broadcast Satellite) A one-way TV broadcast service from a communications satellite to a small round or oval dish antenna no larger than 20" in diameter. and RBOC's) and programming costs at the company's cable segment.
The stable outlook reflects the company's generally stable revenue base as Cox Communications continues to grow its ancillary offerings related to Digital Television, high-speed Internet See broadband. , and Digital Telephone. The stable outlook also takes into account our belief that material free cash flow would continue to be generated under what we would consider a stress scenario over the next few years.
The company's credit metrics prior to the cable systems sale were not reflective of a 'BBB-' credit, therefore it is important to point out that the sale and subsequent debt reduction has helped the company begin to strengthen its position within the current rating category. Fitch believes upward movement on the rating could potentially be achieved in the next 12 months-18 months should management be committed to continued debt reduction on a long-term basis, with a commensurate improvement in the Company's free cash flow to debt metric. This may not be a priority of management as reduced external restrictions was one of the primary drivers of taking Cox Communications private in 2004.
The company's consolidated liquidity is solid and supported by strong free cash flow, which Fitch expects to exceed $750 million in 2006, and approximately $1.7 billion in available credit facilities at Cox Enterprises and Cox Communications without taking into account recent debt reduction from the cable systems sale. The credit facilities mature mid-to-late 2009. Fitch expects Cox Communications Cash Flow from Operations Cash flow from operations
A firm's net cash inflow resulting directly from its regular operations (disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuing securities), calculated as the sum of net income plus noncash expenses to Capital Expenditures to remain in the 1.4x range over the next few years.
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