The end result: a downgrade in the company’s outlook.
Although its Corporate Family Rating remains the same at B2, its outlook has slipped from stable to negative.
Moody’s says that a 6x leverage level would likely be sustainable for a company with a B2 CFR. Unfortunately for WOW, its leverage has consistently been above 7x.
The cable operator added the cable systems of Knology to its portfolio of assets back in 2012.
Moody’s analyst Karen Berckmann said, “Moody’s expectations for WOW’s leverage to remain high and free cash flow to remain anemic position it weakly within its B2 corporate family rating. The good liquidity profile affords the company with time to improve, but the high leverage (in the mid 7 times debt-to-EBITDA range) nevertheless creates minimal flexibility as the company navigates an intensely competitive landscape and continues to execute on its combination with Knology.”
Berckmann commented that cost restructuring and consideration of asset sales might improve the company’s overall financial picture. “Nevertheless, the uncertain trajectory warrants a negative outlook,” she concluded.
Added Berckmann, “The negative outlook reflects the potential for a downgrade absent a clear path toward sustainable leverage in the mid 6 times range and sustainable positive free cash flow by the end of 2015.”
One of the hurdles facing the company is the maturity of the video side of the business. Berchkmann suggested that getting more business on the high-speed date and from providing commercial business service could be the most viable path out of the company’s current difficulties.