Charter/VoIP news comment ...
[NTOP responded to a Charter RFP re cable telephony, which is being reviewed; if NTOP partners with Charter on cable telephony it would be in areas where Charter faces intense satellite competition.]
S&P revises Charter Comms outlook to positive
Reuters, 05.24.04, 4:41 PM ET
(The following statement was released by the rating agency)
NEW YORK, May 24 - Standard & Poor's Ratings Services revised its outlook on Charter Communications Inc. (nasdaq: CHTR - news - people) and subsidiaries to positive from developing. All ratings, including the 'CCC+' corporate credit rating, were affirmed.
"The outlook revision is based largely on the company's improved maturity profile following the April 2004 refinancing," explained Standard & Poor's credit analyst Eric Geil. "Operating improvement, including a slowing rate of basic subscriber loss, also factored into the outlook revision." Nevertheless, the ratings are still dominated by very high financial risk from elevated leverage, negative discretionary cash flow, and pressure from rising debt maturities, including $588 million in convertible debt due in 2005. Repayment of this debt could depend on access to external financing, which will hinge on Charter's demonstration of sustainable positive operating momentum. Performance could be challenged by intense competition for video customers from satellite TV companies, which have recently increased promotional spending.
The ratings on Charter continue to reflect high financial risk from elevated leverage due to acquisition- and capital spending-related debt, and uncertain intermediate-term likelihood of meaningful discretionary cash flow generation. The company also faces considerable operating challenges from weak video subscriber trends and a limited ability to raise prices because of intense satellite TV competition. These factors are partly mitigated by a good business risk profile from Charter's position as the dominant provider of pay TV services in its markets, strong growth in high-speed data services, cash flow opportunities from other advanced digital services, scale benefits from a large subscriber base totaling roughly 6.2 million, respectable EBITDA margins, and healthy system asset values.
Charter has completed most system-rebuilding projects and has consolidated customer service centers, converted its billing systems, and rationalized certain channel lineups and prices to boost revenue and operating efficiency. These efforts helped the company lower the rate of analog subscriber erosion to 1.2% in the 12 months ended March 31, 2004, from over 5% in full-year 2002.
Charter is now in a better position to focus on boosting revenue and EBITDA growth through further improvement in customer retention and deeper penetration of enhanced services, primarily high-speed data. In addition, the company expects to meaningfully expand availability of digital video recorders, high-definition TV converters, and voice over Internet protocol (VOIP) telephone services in the next year, which could add new profitable revenue streams in the intermediate to longer term.
Nevertheless, Charter's consolidated leverage remains very high, and the company still faces liquidity pressure from $588 million in convertible debt maturing in 2005. There is significant uncertainty as to whether Charter will generate meaningful discretionary cash flow during the next few years because of below-average revenue and EBITDA growth, despite lower capital expenditures following the completion of system-rebuilding projects and healthy growth in profitable high-speed data revenue.
Competitive pressure from satellite direct-to-home (DTH) operators is intense and is likely to increase as those companies boost subscriber acquisition spending, expand local-into-local broadcast signal availability, and begin to bundle video with telephone company-provided data services. |
