Cablevision Rating Downgraded By Moody's Prior To Altice Buy

Leading cable MSO (multi service operator) Cablevision Systems Corp. (NYSE:CVC) recently faced a downgrade of its corporate family rating from Moody's Investors Service.

Notably, in Sep 2015, Cablevision had entered into a definitive agreement with the European telecom group, Altice NV, through which Altice will acquire Cablevision for a consideration of around $17.7 billion. Just a few days ago, Altice overcame the final regulatory hurdle with the New York Public Service Commission (PSC) approving the proposed acquisition. The deal is expected to be completed this month.

In the meantime, Moody's Investors Service downgraded the corporate family rating of Cablevision by two notches to B1 from Ba2. The rating agency cited the regulatory approval of the takeover deal as the primary reason for the downgrade. Moody’s outlook on the overall rating is stable implying that no further downgrade is likely in the near term.

The rating agency is concerned about Cablevision’s high leverage and aggressive financial policies of Altice. According to Altice, the takeover deal will result in around $900 million of cost synergies per annum. However, Moody’s is of the opinion that this level of synergy cannot be achieved before 24 months.

High Hopes for Altice

Altice has recently been on an acquisition spree with focus on the U.S. cable companies. This strategy is in line with the European company’s objectives of cross-border expansion.

In May 2015, Altice entered the U.S. market through its buyout of cable operator Suddenlink Communications in a deal valued at $9.1 billion. Upon the successful completion of the Cablevision deal, Altice will become the fourth largest cable operator in the U.S. Altice was also looking to take over Time Warner Cable at that time, but eventually lost out to a higher bid by Charter Communications Inc. (NASDAQ:CHTR) .

Bottom Line

The U.S. cable TV industry has been witnessing a considerable downturn over the last six years. Bundled triple-play services by telecom operators and the evolution of Over the Top (OTT) video service providers like Netflix Inc. (NASDAQ:NFLX) , Hulu, Amzon.com Inc. (NASDAQ:AMZN) pose significant challenges to traditional video service providers.

Moreover, the recent merger of Charter Communications and Time Warner Cable is bound to induce competition within the MSO space. In this scenario, it is to be seen how Altice benefits from its acquisition of Cablevision.