The credit crunch has understandably put a damper on the systems deal market, with several operators who had expected to clean up some of their cable chaff by the end of the year now likely to hold onto those properties a little while longer.
According to some executives in the cable financial community, at least two operators have put auction plans on hold — 1.3-million subscriber Suddenlink Communications, which was looking to sell about 200,000 customers in systems scattered across its territory, and Charter Communications, which was pondering the sale of several non-strategic systems to more tightly cluster its footprint.
The reasons for postponing the auctions should be fairly obvious: The credit crunch has tightened up the lending markets, making it nearly impossible to raise financing for a deal; potential buyers are looking to conserve cash and MSOs don't want to sell properties in a down market.
“It's been the complete freezing of the credit markets,” Miller Tabak media analyst David Joyce said. “The banks that have been survivors have been hoarding cash and haven't been lending. At some point, they will be forced to start opening the coffers again, but in the meantime, it's really the banks that are holding up economic activity from getting jump-started again.”
Charter has managed a few very small deals this year, selling a handful of non-strategic systems with fewer than 3,000 customers, according to securities filings. Charter declined to comment as to its plans for the future.
Suddenlink spokesman Peter Abel didn't want to get into specifics but conceded it is unlikely that any deal will get done this year. “We don't anticipate for the foreseeable future any major deals, either acquisitions or divestitures,” he said.
One deal that might go through involves the nation's largest cable operator, Comcast. Back in July it unveiled a plan to sell about 400,000 subscribers scattered across the country. While some preliminary bids for those systems did come in — from Bresnan Communications and Suddenlink Communications, to name a few — that was well before the credit crunch and stock-market woes went into full swing.
Comcast would not comment on the potential systems sales. According to some members of the cable financial community, though, the Philadelphia-based MSO is optimistic the sale could go through before the end of the year.
In the meantime, Comcast has purchased a small system in Alameda, Calif. with about 9,500 subscribers for about $17 million, or about $1,800 per subscriber. Comcast bought the operation from Alameda Power & Telecom, the municipal utility in the area, where Comcast is the dominant cable company. Waller Capital Corp., the New York cable investment banker advising Comcast on the larger sale, represented Alameda Power & Telecom.
Comcast did not want to comment about the larger sale, but according to several people in the financial community, the company believes that deal could get done.
On the surface, the Comcast systems would seem to be a hard sell. The properties aren't clustered — located in 46 markets including Maine, Virginia, New Mexico and Kentucky — and need a substantial upgrade investment.
According to some people familiar with the auction, the Comcast systems would need between $300 million and $400 million in upgrades.
Comcast had hoped to wrap up a deal before the end of the year — ahead of the Feb. 17 federally mandated digital transition and upgrades related to that transition.
Joyce said the state of the systems actually may be a big selling point. Systems that require more work generally sell for lower prices.
“Something that needs fixing up could be a diamond in the rough for the right kind of player,” Joyce said.
Joyce pointed to Time Warner Cable's deal in July to sell 80,000 subscribers in several non-core markets to Windjammer Communications for an undisclosed sum. He earlier estimated that deal could have been worth about $400 to $500 per subscriber.
According to spokesman Justin Venech, Time Warner Cable had no other deals pending this year.
