Moody's rates Puerto Rico Cable loan Caa1; outlook negative

Moody's Investors Service said it changed the outlook for Puerto Rico Cable Acquisition Co., Inc. (Choice Cable) to negative from stable, assigned a Caa1 (LGD6, 93%) rating to its proposed $33.5 million second-lien term loan, upgraded its first-lien term loan to B1 (LGD3, 43%) from B2 (LGD3, 35%), upgraded its probability of default rating to B2-PD from B3-PD and affirmed its corporate family rating at B2.

The loan proceeds will be used primarily to fund a dividend to the company's sponsor owners.

The agency said the outlook change incorporates concerns about the increase in leverage given weak economic and demographic trends in Puerto Rico, which Moody's believes will continue to constrain subscriber growth. The proposed transaction would increase the debt-to-EBITDA ratio to 5.7 times from 4.8 times.

Moody's believes the company's strong EBITDA margin and reduced capital intensity will facilitate continued positive free cash flow, even with a slight increase in interest expense, and said the good free cash flow affords the company flexibility to reduce debt if subscriber trends deteriorate, but the dividend demonstrates an aggressive fiscal policy.

Moody's upgraded the first-lien term loan based on the addition of the second-lien term loan, which creates junior capital likely to absorb the first loss in a distress scenario.

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