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Cable Operators

Bond Market Is Loosening Up

2/15/2009 6:00 AM Eastern

The bond market, shut tight over the past several months as the economy has been battered, is beginning to show signs of opening up, with three big issuances announced last week.

Cablevision Systems announced a $500 million bond offering last Monday, its second in one month. The Bethpage, N.Y.-based MSO agreed to sell the senior notes at 9.75% interest. That deal was priced about two points lower than its previous deal — a $500 million senior note offering — that was completed in January.

The Cablevision deal was followed quickly by a $4 billion issuance by Cisco Systems, also on Feb. 9. And last Wednesday, News Corp. subsidiary News America Corp. announced that it would offer $1 billion in two separate deals — $700 million in 6.9% notes and $300 million in 7.85% notes.

Of note is that the Cablevision issuance is a high-yield deal, which means it is riskier, although that exposure is offset by the higher interest rate paid to bondholders. But the high-yield market has been nearly nonexistent since September, when the stock market tanked in the wake of the collapse of financial institutions Lehman Brothers, Bear Stearns and Merrill Lynch. Cablevision's January bond deal was the first high-yield issuance of this year.

Collins Stewart analyst Tom Eagan said the new offerings appear to signal that the bond market is beginning to open up, adding that he was encouraged that the recent deals included a diverse group of companies and credit ratings. Cisco and News both have investment-grade ratings, while Cablevision has a high-yield rating.

Neil Begley, senior vice president and analyst at ratings agency Moody's Investors Service, said that the bond market looks favorably on the cable industry in particular, adding that of 50 industry segments, Moody's has a positive outlook on just two — aerospace/defense and cable.

“It [the bond market] has clearly loosened up,” Begley said. “The question is for how long and is this for everybody. The other question is whether it is selective. Cable would clearly fall into that area.”

Moody's high-yield debt expert, senior vice president Russell Solomon, agreed that the market is beginning to open up to select companies. But he added that even the better rates are far from the 7% and 8% these companies paid just 18 months ago.

“For the right opportunity and the right situation, there is definitely money in the market looking to be put to work,” Solomon said. “I would not characterize it as open for business to anyone and anywhere.”

Begley added that cable is looked is in a good spot at the moment because it is considered to be more resilient in times of economic turmoil.

Begley pointed to improving interest rates — the most recent Cablevision deal was priced at about the same rate as Time Warner Cable's $2 billion deal in December, even though TWC is considered investment-grade and Cablevision high-yield.

“That's pretty significant,” Begley said. “There is a lot of supply sitting on the sidelines for an entire quarter. It's just a question of who needs capital.”

Although cable operators have said in the past that there is no pressing need for them to tap the debt markets, some are selling debt to serve interim needs.

Bonds, Cable Bonds
Three companies in the cable space issued bonds in the past week:

Company Amount
Source: Individual companies and published reports
Cisco Systems $4 billion
News Corp. $1 billion
Cablevision $500 million

Begley added that Cox Communications, which sold about $600 million in bonds at around 9% in December, is gearing up for another offering. That should be priced shortly and should fetch a similar rate.

September