Cogeco 2014 Annual Report Download - page 27

26 COGECO CABLE INC. 2014 MD&A
On November 22, 2013, the Corporation amended and restated its Term Revolving Facility of $800 million with a syndicate of lenders. The maturity
was extended until January 22, 2019 and can be further extended annually. The amendments also reduced the margin for the calculation of the
interest rate and reduced restrictions on certain covenants. The amended and restated Term Revolving Facility also replaced Cogeco Cable’s
Secured Credit Facilities coming to maturity on January 27, 2017 which was fully repaid on November 22, 2013. This amended and restated
Term Revolving Facility is comprised of two tranches: a first tranche, a Canadian tranche, amounting to $788 million and the second tranche, a
UK tranche, amounting to $12 million. Both Cogeco Cable and Peer 1 (UK) Ltd. can borrow under the UK tranche. The Canadian tranche is
available in Canadian dollars, US dollars, Euros and British Pounds and interest rates are based on banker's acceptance, US dollar base rate
loans, LIBOR loans in US dollars, Euros or British Pounds, plus the applicable margin. The UK tranche is available in British Pounds and interest
rates are based on British Pounds base rate loans and British Pounds LIBOR loans. The Term Revolving Facility is indirectly secured by first
priority fixed and floating charges and a security interest on substantially all present and future real and personal properties and undertaking of
every nature and kind of the Corporation and certain of its subsidiaries, and provides for certain permitted encumbrances, including purchased
money obligations, existing funded obligations and charges granted by any subsidiary prior to the date when it becomes a subsidiary, subject to
a maximum amount. The provisions under this facility provide for restrictions on the operations and activities of the Corporation. Generally, the
most significant restrictions relate to permitted investments and dividends on multiple and subordinate voting shares, as well as incurrence and
maintenance of certain financial ratios primarily linked to adjusted EBITDA, financial expense and total indebtedness.
As at August 31, 2014, the Corporation had a working capital deficiency of $267.6 million compared to $223.5 million at August 31, 2013. The
increase of $44.0 million in the deficiency is mainly due to the increases of trade and other payables of $52.4 million and of income tax liabilities
of $23.6 million, partly offset by the increase of cash and cash equivalents of $24.3 million. As part of the usual conduct of its business, Cogeco
Cable maintains a working capital deficiency due to a low level of trade and other receivables since a large proportion of the Corporation’s
customers pay before their services are rendered, unlike trade and other payables, which are usually paid after products are delivered or services
are rendered, thus enabling the Corporation to use cash and cash equivalents to reduce Indebtedness.
At August 31, 2014, the Corporation had used $182.8 million of its $800 million amended and restated Term Revolving Facility for a remaining
availability of $617.2 million. In addition, two subsidiaries related to Atlantic Broadband also benefit from a Revolving Facility of $163.1 million
(US$150 million), of which $55.7 million (US$51.2 million) was used at August 31, 2014 for a remaining availability of $107.4 million (US$98.8
million).
On July 29, 2014, 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 to 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 28, 2014, Standard & Poor’s Ratings Services (“S&P”) confirmed their ratings on the Senior Secured Debentures and Notes to “BBB” ,
on the Senior Unsecured Notes to "BB-" and confirmed the corporate credit rating of “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. Obligations rated in the “BB” category
are speculative, non-investment grade credit quality. Such obligation 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. S&P assigned a
recovery rating of ‘6’ to Cogeco Cable’s Senior Unsecured Notes reflecting the likelihood that holders could expect negligible (0%-10%) recovery
in the event of a payment default.
On September 30, 2014, Fitch Ratings (“Fitch”) has confirmed the Issuer Default Rating ("IDR") of Cogeco Cable to “BB+” and has also confirmed
the rating on Senior Secured Notes to “BBB-” and Senior Unsecured Notes to “BB+”. 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. Obligations rated in the "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 14, 2014, 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 April 1, 2014, S&P confirmed 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.