Rocco's Dilemma

The Setting: Mediacom Communications' fourth-quarter conference call on Feb. 26.

The Dilemma: What to do with the growing amount of free cash flow the midsized cable operator is generating. Mediacom expects free cash flow to grow to as much as $18 million in 2008. Normally, free cash flow is used for debt reduction, buying back shares or reinvesting in the business.

The Solution: Commisso said that one use of that free cash flow could be buying back its bonds rather than its stock.

Bond prices have dropped dramatically in light of the lending crisis and while Commisso wouldn't make a full commitment, hinted that bonds may be a better buy at this stage of the game.

“Our highest priority is to preserve as much as possible whatever liquidity we have been able to raise in the last five years,” Commisso said on the conference call, adding that to the extent that Mediacom may want or need to buy back its securities, the question is whether it should be more bonds than stock.

“I can tell you that in the first quarter, we have dramatically reduced the stock buyback program,” Commisso said. “We have seen a dramatic reduction in the price of our bonds. That may be a better investment today than our stock.”