S&P Global said Thursday that it has raised its credit rating on Mediacom Communications one notch to BBB+/Stable after the cable company lowered its leverage ratio to 1.4 times EBITDA, and committed to keeping the metric below 2 times for the foreseeable future.
Mediacom previously had a BBB/Stable rating -- which is also considered to be investment grade -- on its debt, and the increase will make it easier for the company to access capital markets at favorable interest rates. S&P Global said Mediacom’s leverage commitment is well below the ratings agency’s BBB rating threshold of 2.5 times EBITDA.
S&P said the "stable" outlook reflects Mediacom’s predictable earnings growth and cash flow generation, which enables the company to lower its leverage by about 0.5 times per year.
S&P said Mediacom has consistently reduced its debt since going private in 2011. While it could beef up its debt in the future, especially if it considers a strategic acquisition, the ratings agency said that the commitment to keeping leverage at 2 times or lower gives it “greater clarity into the limitations on the magnitude of any potential re-leveraging.”
In raising Mediacom’s credit rating, S&P said it believes Mediacom has an affordable network upgrade path to ensure its place as the fastest provider of broadband service in its territories, and that its capital expenditures-to-revenue ratio should remain flat at about 15%.
“Therefore, we expect cash flow conversion rates to continue to improve with higher EBITDA margins supported by solid, albeit moderating, HSD growth,” S&P said, adding that it expects annual broadband EBITDA growth of between 4% and 6% and average revenue per unit (ARPU) growth of 5% to 8% over the next two years. ■
