S&P keeps Cablevision on watch

Standard & Poor's said Cablevision Systems Corp. remains on CreditWatch negative including CSC Holdings Inc.'s senior unsecured debt at BB-, subordinated debt at B+ and preferred stock at B and Rainbow Media Holdings LLC's secured bank loan at BB+.

The ratings were originally placed on CreditWatch on July 9, 2003 because of concerns about the company being investigated by the SEC.

However, the independent law firm Wilmer, Cutler & Pickering has since completed its own investigation of accounting irregularities and reported its findings to the company's audit committee and independent auditor KPMG. As a result, Cablevision was able to file its 2003 10-K, which included a nonqualified report from KPMG.

Given these developments, it is not expected the SEC investigation will have a material impact on the company's credit profile, S&P said.

However, the ratings remain on CreditWatch with negative implications because of the uncertainty regarding the company's ability to complete its planned spin-off of its satellite broadcast business and a significant portion of its programming businesses later this year. Failure to complete the spin-off in 2004 could materially weaken the company's credit profile.

Assuming a midyear spin-off of the satellite and programming assets, 2004 debt to EBITDA is expected to improve to less than 7x because of expectations for increased EBITDA from the cable business.

However, the spin-off requires a refinancing of the Rainbow debt by the spun-off company and a failure to secure such financing would cause the spin-off plans to be terminated. If the spin-off does not occur, the ratings could be subject to downgrade, given the uncertainty regarding the incremental financing requirements for the satellite broadcast business, including the possibility that additional satellites could be launched.

Moreover, Cablevision's overall business risk would be somewhat weaker, as prospects for the satellite business remain uncertain given the high degree of competition from DBS operators DirecTV and EchoStar, which collectively have more than 20 million subscribers, S&P added.

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