Cogeco 2013 Annual Report Download - page 36

Management's discussion and analysis (“MD&A”) COGECO CABLE INC. 2013 35
At August 31, 2013, the Corporation had used $453.8 million of its $600 million Term Revolving Facility for a remaining availability of $146.2
million. In addition, the Corporation had draw-down $113.9 million from additional Revolving Facilities of $201.4 million as a result of the acquisition
of PEER 1 leaving an unused portion of $87.5 million. Two subsidiaries of the Corporation also benefit from a Revolving Facility of $105.3 million
(US$100 million) related to the acquisition of Atlantic Broadband, of which $35.8 million (US$34.1 million) was used at August 31, 2013 for a
remaining availability of $69.5 million (US$65.9 million).
On August 23, 2013, Dominion Bond Rating Service (“DBRS”) confirmed their ratings on the Senior Secured Debentures and Notes to “BBB
(low)”, on the Senior Unsecured Notes to BB and confirmed the Issuer Rating of BB (high). The “BBB (low)” rating is one notch above the Issuer
ratings of “BB (high)” and reflects very high recovery prospects of first lien secured issues. Obligations rated in the “BBB” category are in the
fourth highest category and are regarded as of adequate credit quality, where the degree of protection afforded interest and principal is considered
acceptable, but the entity is fairly susceptible to adverse changes in financial and economic conditions, or there may be other adverse conditions
present which reduce the strength of the entity and its rated securities. DBRS has assigned a recovery rating of “RR1” to Cogeco Cable’s Senior
Secured Debentures and Notes reflecting the likelihood that holders would recover 100% of principal in the event of payment default. Obligations
rated in the “BB” category are speculative, non-investment grade credit quality. The capacity for the payment of financial obligations is uncertain
and vulnerable to future events. DBRS has assigned a recovery rating of “RR5” to Cogeco Cable’s Senior Unsecured Notes reflecting the likelihood
that holders would recover 10% to 30% of their value in a default scenario.
On April 15, 2013, Standard & Poor’s Ratings Services (“S&P”) confirmed their ratings on the Senior Secured Debentures and Notes to “BBB”
and the corporate credit rating to “BB+”. The “BBB” rating is two notches above the corporate credit ratings of “BB+” and reflects very high recovery
prospects of first lien secured issues. Obligations rated in the “BBB” category are in the fourth highest category and are regarded as investment-
grade. Such obligations show adequate protection parameters. However, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation. The ratings may be modified by the addition
of a plus “(+)” or minus “(-)” sign to show relative standing within the major rating categories. S&P has assigned a recovery rating of “1” to Cogeco
Cable’s credit facility and other senior secured first-priority debt. The “1” recovery rating indicates expectations of very high recovery (90%-100%)
of principal in the event of payment default. On April 15, 2013, S&P issued a 'BB-' rating (two notches below the corporate credit rating) on its
Senior Unsecured Notes, with a recovery rating of ‘6’, indicating lenders can expect negligible (0%-10%) recovery in the event of a payment
default. An obligation rated in the “BB” category is less vulnerable to payment than other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or economic conditions that could lead to the obligor’s inadequate capacity to meet its
financial commitment on the obligation.
On February 1, 2013, Fitch Ratings (“Fitch”) has downgraded the Issuer Default Rating (IDR) of Cogeco Cable from “BBB-” to “BB+” as a result
of the increased leverage following the debt financed acquisitions of Atlantic Broadband and PEER 1. However, the rating on Senior Secured
Notes was confirmed at “BBB-”. Obligations rated in the “BBB” category are regarded as of good credit quality, where the capacity for payment
of financial commitments is considered adequate but adverse changes in circumstances and economic conditions are more likely to impair this
capacity. On April 15, 2013, Fitch issued a “BB+” rating (same notching as the IDR rating) on its Senior Unsecured Notes. Obligations rated 'BB'
category are regarded as speculative and indicate an elevated vulnerability to credit risk, particularly in the event of adverse changes in business
or economic conditions over time; however, business or financial alternatives may be available to allow financial commitments to be met.
Atlantic Broadband
On August 20, 2013, Moody’s Investors Service (“Moody’s”) maintained their ratings on Atlantic Broadband’s credit facilities at "Ba3", one notch
above the B1 corporate family rating. Obligations rated Ba are judged to be speculative and are subject to substantial credit risk. Moody’s appends
numerical modifiers 1, 2, and 3 to each generic rating classification from Aa through Caa. The modifier 1 indicates that the obligation ranks in the
higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of
that generic rating category. Moody’s also maintained the Loss Given Default (LGD) on Atlantic Broadband’s credit facilities at 3 (which reflect
a loss range between 30% and 50%). LGD assessments are opinions about expected loss given default expressed as a percent of principal and
accrued interest at the resolution of the default.
On January 25, 2013, S&P raised their ratings on Atlantic Broadband’s credit facilities to "BB", one notch above the "BB-" Issuer Rating. S&P
has assigned a recovery rating of “2” to Atlantic Broadband’s credit facilities, indicating lenders can expect substantial (70%-90%) recovery in
the event of a payment default.
The table below shows Cogeco Cable’s and Atlantic Broadband’s credit ratings:
At August 31, 2013 Moody's DBRS Fitch S&P
Cogeco Cable
Senior Secured Notes and Debentures NR BBB (low) BBB- BBB
Senior Unsecured Notes NR BB BB+ BB-
Atlantic Broadband
First Liens Credit Facilities Ba3 NR NR BB
NR : Not rated
A security rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the rating
organization.