 |
April 1, 2008 |
|
|
|
 |
C&M CO: S&P Downgrades Long-Term Corporate Credit Rating to 'B' Standard & Poor's Ratings Services had lowered its long-term corporate credit rating on C&M Co. Ltd. to 'B' from 'BB+'. The rating was removed from CreditWatch with negative implications, where it was placed on Feb. 20, 2008. The downgrade follows the March 27 announcement by KCI Inc., the special purpose vehicle established by a consortium for the purpose of owning C&M, that it has finalized the agreement in a leveraged transaction allowing it to take a 95.6% stake in C&M. At the same time, Standard & Poor's lowered to 'B' from 'BB+' its ratings on the US$200 million floating-rate senior notes, due 2011, and the US$450 million senior notes, due 2016, issued by C&M Finance Ltd. and guaranteed by C&M. The outlook on the long-term corporate credit rating on the company is stable. The rating downgrade reflects C&M's new, highly leveraged capital structure following its LBO by KCI, which is owned by a consortium of private equity funds led by MBK Partners and Macquarie Korea Opportunity Fund. The pro forma total debt, which includes KRW1.2 trillion of debt under KCI, is expected to increase to KRW1.85 trillion, and its pro forma debt to EBITDA ratio is expected to increase significantly to 10.1x from an estimated 3.9x in 2007. This would entail a significant deterioration in C&M's overall debt servicing capability on a consolidated basis (including parent debt). Due to a change of control clause of the covenants of global notes, this rating downgrade will trigger put options for global note holders. At this time, it is difficult to estimate how much of the total US$650 million in global notes will be put, but we believe any short-term liquidity risk to be limited at this stage. This takes into consideration C&M's new KRW500 billion loan facility, prepared by new shareholders, which can be used to refinance the global notes and the company's cash and cash equivalent holdings of about KRW155 billion on a parent basis. Standard & Poor's believes that the creditworthiness of C&M is linked directly to the debt servicing capability of a consolidated KCI (made up of both KCI and C&M), mainly through a cross-default clause in the loan covenants of both companies' total loan facilities of KRW2.15 trillion. Regulatory requirements for cable TV license renewal every three years and the need for regulatory approval of any cable TV merger should somewhat mitigate any risks KCI places on C&M's capital. Ultimately, however, C&M is consolidated KCI's only source of cash with which it can service its financial obligation unless KCI sells its stake in C&M at a higher price than the purchase price and within the tenor of loan facilities of five years. However, it should be remembered that the two companies directly share default risk by virtue of the cross-default clause. On the other hand, we believe C&M's business risk profile is satisfactory, with a strong market position in Korea's pay TV market in the most densely populated regions of the greater Seoul area. Although its dominant, and somewhat oligopolistic, market position may be challenged over the next two to three years by the imminent arrival of IPTV, it is not likely to be an immediate threat to cable TV operators. The rating on the company could be upgraded if there is a significant improvement in consolidated KCI's leveraged capital structure. However, the rating or outlook could be negatively affected if there is stronger-than-expected competitive pressure from IPTV service providers leading to deterioration in C&M's cash flow protection measures. Ratings List Downgraded; CreditWatch/Outlook Action To From C&M Co. Ltd. Corporate Credit Rating B/Stable/-- BB+/Watch Neg/-- Senior Unsecured Foreign Currency B BB+/Watch Neg About C&M Co. C&M Co Ltd offers cable television services. The company operates in Seoul and in Kyunggi Province, Korea. In January 2006, Moody's Investors Service assigned a provisional foreign currency senior unsecured long-term debt rating of (P)Ba2 to the proposed US$550 million Notes issue, due 2011 and 2016, of C&M Finance Ltd., backed by C&M Co. Ltd. and its operating subsidiaries. |
|
|
||
|
Today's Top Stories have been selected from the Troubled Company Reporter - Asia Pacific. To receive the Full TCR-AP please CLICK HERE.
