Good news for Cablevision (CVC) shareholders: The cable operator's fledgling satellite service won't be an infinitely deep money pit.
That's the heartening takeaway from a Friday filing made by Rainbow Media Enterprises, the programming company that Long Island-based Cablevision plans to spin off later this year.
At issue is the financing of Voom, a satellite-delivered service Cablevision launched earlier this year focusing on high definition television programming.
Given the head start that satellite services owned by
have on Voom -- and the likely costs of funding Voom until it starts generating cash -- investors have questioned the wisdom of Cablevision's launch of the service.
Responding to investor concerns, Cablevision is proceeding with plans to spin off Voom into a separate Rainbow, one which will own the Voom service and other Cablevision assets, including the nationally-distributed programming services American Movie Classics, The Independent Film Channel and WE: Women's Entertainment.
Despite this plan and further assurances by Cablevision that it would limit its investment in Voom, the satellite service has been one of several issues weighing on Cablevision's stock in recent months.
In the dumps with other cable stocks, Cablevision's shares have slid in 2004 from a high of $27.70 to as low as $17.09. Cablevision's shares rose 9 cents Friday to close at $17.47.
Friday's filing, pointed out Fulcrum Global Partners analyst Richard Greenfield in an intraday note, specifies that financing covenants for Rainbow will prevent the spun-off company from spending more than $150 million annually on Voom and more than $600 million in total, barring a new financing.
That agreement, says Greenfield, "prevents Voom from completely destroying the value of the existing cable networks that are part of the Rainbow/Voom spin-off and should boost investor confidence that a financing will get done."
Further, writes Greenfield, the filing reiterates Cablevision's assertions that it won't be putting more capital into Rainbow when it's spun off.
"We would be aggressive buyers ahead of the announced financing," Greenfield concludes. "We believe investors have increasingly been shorting CVC on fears that the financing would not get done and that CVC would plow more money into VOOM itself (which we believe is an incorrect assumption)."
Greenfield has a buy rating and a $29 price target on Cablevision.