Fitch Rates Mediacom Broadband, LLC Sr Unsecured Notes 'B', Maintains Negative Outlook.

CHICAGO -- Fitch Ratings has assigned a 'B' rating to Mediacom Broadband LLC's $200.0 million issuance of 8.5% senior notes due 2015 in a private transaction. Additionally, Fitch has assigned an 'R5' recovery rating to the notes. Mediacom Broadband LLC is a wholly owned subsidiary of Mediacom Communications Corporation (MCCC). Fitch has assigned MCCC an issuer default rating of 'B+'. Proceeds from the offering are expected to be utilized to repay outstanding borrowings under the company's revolving credit facility. Fitch maintains the Negative Rating Outlook assigned to the ratings of MCCC, Mediacom Broadband LLC, and Mediacom LLC.

Fitch believes that MCCC's credit and operating profile is weak within its rating category. Overall, the ratings for MCCC reflect the company's high leverage, competitive operating environment, operating performance that lags its industry peer group, and the execution risks and capital requirements surrounding the launch of Voice over Internet Protocol, and the completion of the roll-out of advance digital services. Fitch's ratings also incorporate the company's upgraded cable plant, as well as the strong clustering of the company's subscribers. Fitch's ratings are supported by the expected revenue and revenue-generating unit diversification through the deepening penetration of digital cable and high speed data services, as well as the introduction of Voice over Internet Protocol telephony service. On a consolidated basis, MCCC's leverage (debt to LTM EBITDA) was approximately 7.5 times (x) as of the end of the second quarter. When considering the new issuance at Mediacom Broadband, the leverage metric remains unchanged. MCCC's leverage has been trending upward as basic subscriber losses and operating cost increases have pressured EBITDA and margins. Fitch does not expect material improvement of the company's credit protection metrics during the remainder of 2005.

The basic subscriber losses, which for the LTM period ended June 30, 2005 totaled approximately 45,000, are primarily attributable to competition from direct broadcast satellite (DBS) providers and the roll-out of local-into-local service. Fitch expects that competitive pressures will persist; however, the impact of new market launches of local-into-local service is largely behind MCCC as approximately 92% of MCCC's subscribers are covered by local-into-local service. Fitch does believe that the company's strategy of focusing on advanced digital services, the repositioning of the digital tier, is having a positive effect on subscriber metrics. Demonstrating this effect, basic subscriber losses during the second quarter of 2005 were 64% less than the basic subscribers losses reported during the second quarter of 2004. Fitch believes that the introduction of Voice over Internet Protocol telephony service could potentially further stabilize MCCC's subscriber base. Additionally, the company added approximately 59,000 digital tier subscribers during the first half of 2005 and lower downgrades to analog service, which compares favorably with the 10,000 digital subscribers lost during the first half of 2004. Fitch notes that these strategies address the higher end of MCCC's subscriber segment. Approximately 69% of MCCC's subscriber base is analog subscribers among the highest in the industry. From Fitch's perspective, these analog subscribers represent the highest risk to be lost to competition. Steps take to convert these subscribers to the digital tier or pricing promotions offered to retain these subscribers will further pressure the company's EBITDA margin and hamper video service revenue growth.

Declines in EBITDA coupled with increased capital expenditures have led to a free cash flow (determined from cash from operations less capital expenditures and dividends) deficit of approximately $5.9 million for the first half of 2005 versus positive free cash flow of approximately $31 million during the first half of 2004. Increased capital expenditures are attributable to the continued acceptance of advanced digital services as spending on customer premise equipment (CPE) during the first half of 2005 has increased over 100% relative to the first half of 2004. During the first half of 2005, CPE capital spending accounts for approximately 56% of total capital expenditures, a substantial increase relative to the 37% of capital expenditures allocated to CPE during the first half of 2004. Fitch points out that the increase in success-based capital spending is positive for MCCC's credit profile and would expect incremental revenue and cash flow growth over the medium term provided that the company control subscriber churn. Fitch had expected the company to generate a modest amount of free cash flow during 2005; however, with higher-than-expected capital expenditures coupled with ongoing EBITDA margin pressure, Fitch expects the company to be break-even on a free cash flow basis during 2005.

From Fitch's perspective, MCCC's liquidity position is strong and is supported by the available borrowing capacity on the bank facilities at Mediacom LLC and Mediacom Broadband LLC. Pro forma for the new issuance at Mediacom Broadband LLC, MCCC had a total of $841.7 million of borrowing capacity as of the end of the second quarter of 2005. Required bank term amortization is approximately $20.25 million during the remainder of 2005 and $48.0 million in 2006. No public debt is scheduled to mature before 2006 when the convertible senior notes become due.

The Negative Rating Outlook reflects the growing business risks and the adverse impact on basic subscriber growth, video revenue growth, and EBITDA metrics attributable to the ongoing competition from direct broadcast satellite (DBS) providers. From Fitch's perspective, the DBS competition has had a more pronounced effect on MCCC's operating metrics relative to MCCC's peer group. Additionally, the Outlook incorporates Fitch's expectation that the company's operating profile will continue to lag the industry peer group and that free cash flow generation during 2005 will be limited.

Factors that could stabilize the Rating Outlook include the continued stabilization of basic subscriber losses, increases in incremental digital penetration, and the return of EBITDA and revenue growth rates to industry norms. Fitch would view negatively a worsening of subscriber metrics, the continued negative trend in leverage, and widening free cash flow deficits.

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