Moody's rates Knology notes Caa2

Moody's Investors Service said it assigned a Caa2 rating to the proposed $280 million senior unsecured notes of Knology Inc. and also assigned a Caa1 senior implied rating, a Caa2 issuer rating, and an SGL-3 speculative grade liquidity rating.

The outlook is stable.

Moody's said the ratings for Knology primarily reflect the company's high financial leverage and low coverage levels pro forma for the proposed senior notes offering; the prospect of four years of cash burn before achieving breakeven operating performance, which will erode liquidity over time; structural concerns regarding access to cash flow from the company's ILEC business; the heightened competition from much larger and better capitalized incumbent operators; and questionable asset values given the company's overbuilder strategy.

Moody's noted the ratings benefit, however, from the company's highly upgraded network, which allows it to deliver a bundled product of video, telephony and Internet, and still maintain sufficient capacity for future new product roll-outs; a high level of services per subscriber in its existing subscriber bases, which should serve to reduce churn and yield better operating leverage; strong ARPUs for its established systems; and the prospect of growing cash flows as the company is able to further penetrate its high margin Internet product to its existing basic subscriber base.

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