Cablevision Q3 loss about same, revenues up on bundling; 5.3x leverage ratio improved versus year-ago

By Paul Deckelman

New York, Nov. 8 - Cablevision Systems Corp. reported a third quarter loss about in line with its year-ago deficit - but said that revenues had risen from year-ago levels, helped by the Bethpage, N.Y.-based cable systems operator's sales tactic of bundling its cable, telephone and internet service offerings together under the "Optimum" brand name. Cablevision, which serves the New York metropolitan area, reported a sixth consecutive quarter of basic subscriber gains, with over three million households in New York and its suburbs as cable customers.

Cablevision reported a $62.9 million loss for the quarter (22 cents per share), not much changed from the year-ago deficit of $63.2 million (22 cents a share). Revenues rose 11% to $1.24 billion from $1.12 billion. Cablevision credited the surge to more customers having signed up for the high-speed internet and other premium services.

On the liquidity and leverage front, Cablevision said that as of the end of the quarter on Sept. 30, it had total consolidated debt of $10.145 billion, consisting of $5.992 billion of outstanding senior notes and debentures, $746.5 million of outstanding subordinated notes and debentures, $17.4 million of notes payable, $2.057 billion of bank debt, $61.7 million of capital lease obligations, and $1.269 billion of collateralized debt.

The company said excluding the collateralized debt - because, it said in its statement accompanying the release of its results, "it is viewed as a forward sale of the stock of unaffiliated companies and the company's only obligation at maturity is to deliver the stock or its cash equivalent" - and also subtracting some $351.4 million of cash and cash equivalents, net debt as of the end of the quarter stood at some $8.524 billion.

Using that consolidated net debt figure as a base, the company's leverage ratio, versus annualized adjusted operating cash flow stood at 5.3 times at the end of the quarter, Cablevision's chief financial officer, Michael P. Huseby, said on the conference call with analysts following the release of the quarterly results. The restricted group leverage ratio, used as the test in the company's bank debt covenants, stood at 4.5 times, while the debt to cash flow ratio for the company's Rainbow National Services unit was 5.5 times. Huseby also said that Rainbow National Services had no outstanding borrowings under its revolving credit facility. He further said that most of the $351 million of cash was in balances at the Rainbow National and Madison Square Gardens units.

Cablevision did not offer any historical numbers for comparison, but a look at its year-ago results shows that total consolidated debt as of the end on the 2004 third quarter on Sept. 30, 2004 stood at $11.102 billion, cash and equivalents at $922.9 million and net debt, subtracting the cash balances and collateralized indebtedness from the overall figure, was $8.520 billion, not much changed from the latest quarterly figures. The consolidated net debt-to-adjusted operating cash flow ratio was 5.7 times, the restricted group ratio used for the bank test was 5.1 times, and the Rainbow National Services ratio was 5.2 times.

Continuing to "evaluate leverage"

Company executives were vague about what might constitute a "comfortable" leverage level for Cablevision; the company's president and chief executive officer, James L. Dolan, told an analyst who asked during the question-and-answer portion of the proceedings that "we've never discussed what leverage we're comfortable with. However, we continue to evaluate leverage, free cash flow and business opportunities to ensure that we are maximizing our shareholder value."

Dolan also sidestepped around the same analyst's question - phrased as an assertion - about whether Cablevision might tap the capital markets to raise capital if need be, since it has for now seemingly ruled out the sale of any of its national programming networks that operate under the Rainbow National banner.

The CEO told another analyst who asked about possible sales of any of those networks that "we think they're very good businesses, they're very valuable. Would we consider selling them? You can't ever rule out a strategic move like that, but at this time, we have no plans to do so."

Cablevision has one big asset sale currently awaiting completion - the sale of its Rainbow1 broadcast satellite to larger satellite broadcaster EchoStar DBS Corp., for anticipated proceeds of some $200 million. The sale of the satellite is part of Cablevision's shutdown of its money-losing Rainbow DBS satellite broadcasting operation, which company executives had hoped would prove to be a viable rival to EchoStar and to industry leader DirecTV Group.

Huseby said that proceeds are expected to be used to fund remaining Rainbow DBS shutdown costs, pre-pay restricted group bank debt, and for other general corporate purposes.

Dolan acknowledged the demise last month of the company's planned buyout by his family, which would have been partly funded with a new $4 billion-plus debt issue, which has also since been scrubbed. And he said that the company was moving ahead with its planned $3 billion dividend payable to Cablevision shareholders, but declined to comment further on the latter initiative.

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