Cablevision Jumps on Refinancing Bandwagon

Joining the wave of homeowners cashing in on historically low interest rates, Cablevision ( CVC) set plans Monday to trim its borrowing costs.

The big New York-area cable system operator said it would refinance up to $2 billion in debt. The move could make a big difference in the numbers the debt-heavy company shows Wall Street.

The estimated interest-expense savings, according to the calculations of one analyst, would be enough to transform a forecast 2004 free cash flow deficit of $55 million to a break-even performance.

Separately, Cablevision said the company's new agreement for carrying Yankees telecaster YES Network won't have a "significant" impact on its forecast annual operating cash flow. The company said there would be a "disproportionately greater" impact on first-quarter results.

Cablevision's shares rose 43 cents Monday to trade at $22.76.

Cablevision said Monday it planned to offer $2 billion of senior notes to certain institutional investors. The company says it will use the money to pay off all or a portion of two series of senior subordinated debentures as well as two series of preferred stock.

As UBS analyst Aryeh Bourkoff wrote earlier this month in anticipation of such a refinancing, that debt and those preferreds have a total face value of $1.9 billion, and have an average annual cash interest rate of 11%.

The refinancing announced Monday, Bourkoff estimated in a new note, would lower the average interest rate to 7.6% and cut $57 million from the $209.1 million in current annual interest expense on those securities. Bourkoff's estimated free cash flow deficit for Cablevision in 2004, absent the refinancing, is $55 million. Cablevision, which didn't discuss the interest it expected to pay on the new debt, has said that free cash flow -- usually defined as operating cash flow minus capital expenditures and interest expense -- would be "modestly negative" for this year and positive in the fourth quarter.

Moody's Investors Service issued a note Monday saying that Cablevision's senior implied rating would remain at Ba3. "While the proposed transaction is expected to result in a meaningful reduction in interest expense, the overall level of financial leverage will remain the same. Proforma for the proposed transaction, consolidated Debt/EBITDA will be close to 8.0x." An absolute reduction in balance sheet debt at Cablevision, says Moody's, is unlikely until 2005.

In reiterating full-year operating cash flow guidance, Cablevision said that first quarter results would reflect both legal costs associated with the YES arbitration settlement as well as the retroactive application of the terms of the YES settlement to the first quarter of 2004, without the offsetting impact of rate increases.

An arbitration panel ruled last week that Cablevision, contrary to its wishes and practice during the 2003 season, could not offer YES to its basic subscribers on an "a la carte" sports programming menu, but would have to include YES in its package of extended basic programming.

In a statement issued after the decision, Cablevision CEO Jim Dolan said the company was raising the price of that extended basic service offering by 95 cents a month to cover "a portion" of the cost of carrying YES.

"We are absorbing most of the cost of carrying YES in an attempt to keep prices reasonable despite this ruling," Dolan said.

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