S&P cuts CSG, on watch

Standard & Poor's downgraded CSG Systems International Inc. including cutting its $100 million revolving credit facility due 2007, $125 million term A loan due 2007 and $175 million term B loan due 2008 to BB- from BB and put it on CreditWatch negative.

S&P said the action follows an arbitrator's decision awarding Comcast Corp. approximately $120 million in damages from CSG stemming from a contract dispute between the two companies.

While CSG currently has sufficient cash available to pay these damages, this ruling will significantly diminish the company's flexibility to meet future liquidity needs, S&P said. Also, CSG announced that revenues and operating income from Comcast will decrease between $8 million and $14 million per quarter, compared with total revenues of $284 million for the first six months of 2003.

Furthermore, the arbitrator granted Comcast meaningful price adjustments. Revenues from Comcast for the first six months of 2003 were $75 million, while operating income was $39 million.

The arbitrator ruled that Comcast could not terminate the Master subscriber agreement, which accounts for more than a quarter of CSG's revenue. However, should Comcast decide to unilaterally terminate its relationship with CSG, it could potentially exit the agreement following a $44 million damages payment to CSG. The loss of this contract would have a significant impact on CSG's business profile, S&P said.

Moody's puts CSG on review

Moody's Investors Service put CSG Systems International's ratings on review for possible downgrade including its $100 million senior secured revolving credit facility due 2007, $146 million senior secured term loan B due 2008 and $83 million senior secured term loan A due 2007 at Ba2.

Moody's said the review reflects the company's announcement that an arbitration ruling will cause CSG to pay damages of up to $120 million to Comcast. Various other parts of the decision include a discount to Comcast going forward, and the possibility that Comcast will choose to cancel the contract.

The ruling calls for CSG to pay Comcast $120 million and to reduce the price that it charges Comcast for its services. According to CSG this rate reduction is to result in a decline in CSG revenues by $8 million to $14 million per quarter.

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