S&P rates CCO Holdings notes BB-, on watch

Standard & Poor's said it assigned its BB- issue-level rating and 4 recovery rating to the proposed $500 million aggregate principal of senior notes due 2027 to be issued by CCO Holdings LLC and CCO Holdings Capital Corp., subsidiaries of Charter Communications Inc. (CCI).

The 4 recovery rating indicates an expectation for average (30%-50%; lower half of the range) recovery for noteholders in the event of a payment default.

At the same time, the agency placed the BB- issue-level rating on the proposed notes on CreditWatch with positive implications, in line with the existing senior unsecured debt.

The proposed notes are guaranteed on a senior unsecured basis by parent company CCI, similar to the existing senior unsecured notes. However, the guarantee will fall away upon the completion of the acquisition of Bright House Networks LLC. Assuming the acquisition is completed, the proposed notes would rank below the existing senior unsecured notes under a default scenario, in respect to the assets that are held in entities between CCO Holdings and CCI.

However, in S&P’s opinion, the difference in asset value is not material enough to warrant a ratings distinction between the proposed notes and existing unsecured debt. The most material asset would include Charter Communications Holdings LLC's 33% interest in GreatLand Connections Inc. (a $1.6 billion book value), along with other assets, intercompany loans and preferred stock that have a total book value of about $1.2 billion.

As a result, the proposed notes could have a modestly lower recovery than the existing senior unsecured notes within the 4 recovery band.

However, the assets that are held at entities above CCO Holdings are outside the bond-restricted group, and therefore, their value may not be available to any of the unsecured lenders at CCO Holdings in a default scenario, the agency said.

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