Domingo 19 de Agosto 2018

Fitch Assigns First-time ‘B+’ Rating to Liberty Cablevision of Puerto Rico; Outlook Stable

CHICAGO–(BUSINESS WIRE)–Fitch Ratings has assigned a Long-Term Foreign Currency Issuer Default
Ratings (IDRs) of ‘B+ to Liberty Cablevision of Puerto Rico LLC (LCPR).
The Rating Outlook is Stable.

A full list of rating actions follows at the end of this release.

KEY RATING DRIVERS

LCPR’s ratings reflect the company’s strong business position as the
leading pay-TV and broadband services provider in Puerto Rico. The
company has extensive network coverage and quality, and strong brand
recognition. The ratings also incorporate the company’s improved scale
and cash flow generation following the acquisition of Choice in 2015,
and adequate liquidity. The ratings are tempered by LCPR’s high leverage
and its lack of service and geographical diversification, making it
vulnerable to the weak macroeconomic conditions in Puerto Rico.

LCPR is 60% owned by Liberty Global plc (LG) and 40% owned by
Searchlight Capital Partners, and is a part of the LiLAC Group (LiLAC),
which represents LG’s Latin America and Caribbean operations. The
company benefits from the strategic oversight by LG and its management
expertise, as well as procurement and operating synergies from belonging
to a larger operational group. LiLAC operating entities are separately
capitalized and managed independently and LG maintains a group leverage
target of 4.0x to 5.0x for its subsidiaries. LCPR’s leverage level is
currently aligned with that target. Fitch forecasts the company to
maintain relatively stable leverage based on its operational
fundamentals over the medium term, while any potential material
improvement in the financial profile could be difficult as any
significant deviation from the group’s financial target could be limited.

LCPR’s credit facility and its first-lien term loan are rated same as
the company’s IDR, given their ‘RR4’ recovery ratings which represent
average recovery prospects in case of default. Based on Fitch’s recovery
analysis of the company’s second lien term loan, Fitch assigned a ‘RR6’
recovery rating and the issuance rating of ‘B-‘, indicating below
average recovery prospects in the event of default, which is two notches
lower than the company’s IDR.

Strong Business Position

Fitch expects LCPR’s market leadership to remain intact supported by its
extensive network coverage and quality. LCPR is the leading pay-TV and
broadband services provider in Puerto Rico with market shares of 39% and
53%, respectively. Competitive pressures are high in the broadband and
pay-TV segments, and the fixed-voice service continues to suffer from
the unfavourable industry trend of mobile-fixed substitution. This trend
should continue to limit any material growth in ARPU and operating
margins in the short-to-medium term. Positively, Fitch believes that
LCPR’s competitive advantages should enable the company to maintain its
leading market shares.

Weak Operating Environment

Economic conditions in Puerto Rico continue to be negative for LCPR. The
company’s lack of geographic diversification exposes it to Puerto Rico’s
struggling economy, which is undergoing declining population, low GDP
per capita, and high unemployment rates. Despite the company’s stable
performance in recent years, these factors could begin to erode service
affordability and negatively affect LCPR’s cash flow generation going
forward. Fitch forecasts LCPR’s revenue growth to be in the low single
digits in the short-to- medium term, reflecting the weak macro
environment and a high level of market competition.

Financial Profile Improvement

LCPR’s cash flow from operations (CFFO) has grown consistently in recent
years due to continued expansion of its subscriber base and the
acquisition of Choice. During the LTM ended Sept. 30, 2016, the company
generated CFFO of USD141 million, which favourably compares to the 2015
level of USD113 million and USD80 million in 2014. LCPR’s improving
operational cash flow generation has provided the company with
comfortable headroom to cover its capex, averaging approximately USD65
million annually during 2014 and 2015, and positive FCF generation over
the last two years. Fitch forecasts this trend to continue over the
medium term, with its positive FCF margin in the low-to-mid single
digits.

Fitch forecasts LCPR’s net leverage, measured by total adjusted net debt
to operating EBITDAR, to improve to 4.5x by end-2016, from 5.3x at
end-2015, reflecting the full year EBITDA contribution from Choice and
Fitch’s aforementioned cash flow expectations. The company’s
deleveraging capacity should allow its leverage ratio to gradually
improve further to 4.2x by 2018, barring any sizable shareholder
distributions, the level that is solidly in line with the current rating
level.

DERIVATION SUMMARY

LCPR’s credit weaknesses to its regional peers in the ‘BB’ rating
category are its relatively small scale of operations, lack of
diversified service offerings, and high leverage. In addition, the
company’s operating environment in Puerto Rico, which has undergone
tough economic challenges is also a key credit concern. These weaknesses
are somewhat mitigated by the LCPR’s leading market position and network
competitiveness, which are considered strong for its rating level.
Parent/Subsidiary Linkage is not applicable and the ratings are not
constrained by the country ceiling.

KEY ASSUMPTIONS

Fitch’s key assumptions within the agency’s rating case for the issuer
include:

–Low-single digits revenue growth from 2017 and beyond, following an
over 10% growth rate in 2016;

–Relatively muted EBITDA improvement from 2017 amid slow revenue growth
and intense competition;

–Capital expenditures to remain at about 21% of revenues in the
short-to-medium term;

–No material shareholder distributions;

–Total adjusted net leverage to remain in the range of 4.0x to 4.5x
over the short-to-medium term.

RATING SENSITIVITIES

Future developments that may, individually or collectively, lead to a
negative rating action include:

–Deterioration in operating performance caused by unfavorable
macroeconomic conditions and competitive landscape;

–Sustained negative FCF generation amid higher-than-expected capex
requirement;

–Any material cash flow upstream to LG;

–Adjusted net leverage increasing to above 5.0x on a sustained basis.

Future developments that may, individually or collectively, lead to a
positive rating action include:

–Continued solid top-line growth along with margin expansion, and
positive FCF generation;

–Clear commitment for deleveraging in the absence of any material cash
flow upstream to LG, resulting in its adjusted net leverage falling well
below 4.0x on a sustained basis;

LIQUIDITY

LCPR’s liquidity is sound given its cash balance of USD51.0 million
comfortably covers the short-term debt of USD0.2 million as of Sept. 30,
2016. Fitch does not foresee any liquidity problem for LCPR in the
short-to-medium term as the company does not face any sizable debt
maturities until 2022, when its first lien term loan B becomes due. The
company’s liquidity position is further strengthened by its USD40
million undrawn credit facility.

FULL LIST OF RATING ACTIONS

Fitch has assigned the following ratings.

Liberty Cablevision of Puerto Rico, LLC.

–Long-Term Foreign Currency Issuer-Default Rating (IDR) ‘B+’; Outlook
Stable;

–Senior Secured Revolver ‘B+/RR4’;

–Senior Secured 1st Lien Term Loan B due 2022 ‘B+/RR4’;

–Senior Secured 2nd Lien Term Loan C due 2023 ‘B-/RR6’.

Additional information is available on www.fitchratings.com.

Applicable Criteria

Criteria for Rating Non-Financial Corporates (pub. 27 Sep 2016)

https://www.fitchratings.com/site/re/885629

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1016074

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1016074

Endorsement Policy

https://www.fitchratings.com/regulatory

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING
THIS LINK: HTTPS://WWW.FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS.
IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE
AVAILABLE ON THE AGENCY’S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM.
PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS
SITE AT ALL TIMES. FITCH’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS
OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES
AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF
THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE
RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR
RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY
CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH
WEBSITE.

Copyright (c) 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its
subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone:
1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or
retransmission in whole or in part is prohibited except by permission.
All rights reserved. In issuing and maintaining its ratings and in
making other reports (including forecast information), Fitch relies on
factual information it receives from issuers and underwriters and from
other sources Fitch believes to be credible. Fitch conducts a reasonable
investigation of the factual information relied upon by it in accordance
with its ratings methodology, and obtains reasonable verification of
that information from independent sources, to the extent such sources
are available for a given security or in a given jurisdiction. The
manner of Fitch’s factual investigation and the scope of the third-party
verification it obtains will vary depending on the nature of the rated
security and its issuer, the requirements and practices in the
jurisdiction in which the rated security is offered and sold and/or the
issuer is located, the availability and nature of relevant public
information, access to the management of the issuer and its advisers,
the availability of pre-existing third-party verifications such as audit
reports, agreed-upon procedures letters, appraisals, actuarial reports,
engineering reports, legal opinions and other reports provided by third
parties, the availability of independent and competent third- party
verification sources with respect to the particular security or in the
particular jurisdiction of the issuer, and a variety of other factors.
Users of Fitch’s ratings and reports should understand that neither an
enhanced factual investigation nor any third-party verification can
ensure that all of the information Fitch relies on in connection with a
rating or a report will be accurate and complete. Ultimately, the issuer
and its advisers are responsible for the accuracy of the information
they provide to Fitch and to the market in offering documents and other
reports. In issuing its ratings and its reports, Fitch must rely on the
work of experts, including independent auditors with respect to
financial statements and attorneys with respect to legal and tax
matters. Further, ratings and forecasts of financial and other
information are inherently forward-looking and embody assumptions and
predictions about future events that by their nature cannot be verified
as facts. As a result, despite any verification of current facts,
ratings and forecasts can be affected by future events or conditions
that were not anticipated at the time a rating or forecast was issued or
affirmed.

The information in this report is provided “as is” without any
representation or warranty of any kind, and Fitch does not represent or
warrant that the report or any of its contents will meet any of the
requirements of a recipient of the report. A Fitch rating is an opinion
as to the creditworthiness of a security. This opinion and reports made
by Fitch are based on established criteria and methodologies that Fitch
is continuously evaluating and updating. Therefore, ratings and reports
are the collective work product of Fitch and no individual, or group of
individuals, is solely responsible for a rating or a report. The rating
does not address the risk of loss due to risks other than credit risk,
unless such risk is specifically mentioned. Fitch is not engaged in the
offer or sale of any security. All Fitch reports have shared authorship.
Individuals identified in a Fitch report were involved in, but are not
solely responsible for, the opinions stated therein. The individuals are
named for contact purposes only. A report providing a Fitch rating is
neither a prospectus nor a substitute for the information assembled,
verified and presented to investors by the issuer and its agents in
connection with the sale of the securities. Ratings may be changed or
withdrawn at any time for any reason in the sole discretion of Fitch.
Fitch does not provide investment advice of any sort. Ratings are not a
recommendation to buy, sell, or hold any security. Ratings do not
comment on the adequacy of market price, the suitability of any security
for a particular investor, or the tax-exempt nature or taxability of
payments made in respect to any security. Fitch receives fees from
issuers, insurers, guarantors, other obligors, and underwriters for
rating securities. Such fees generally vary from US$1,000 to US$750,000
(or the applicable currency equivalent) per issue. In certain cases,
Fitch will rate all or a number of issues issued by a particular issuer,
or insured or guaranteed by a particular insurer or guarantor, for a
single annual fee. Such fees are expected to vary from US$10,000 to
US$1,500,000 (or the applicable currency equivalent). The assignment,
publication, or dissemination of a rating by Fitch shall not constitute
a consent by Fitch to use its name as an expert in connection with any
registration statement filed under the United States securities laws,
the Financial Services and Markets Act of 2000 of the United Kingdom, or
the securities laws of any particular jurisdiction. Due to the relative
efficiency of electronic publishing and distribution, Fitch research may
be available to electronic subscribers up to three days earlier than to
print subscribers.

For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia
Pty Ltd holds an Australian financial services license (AFS license no.
337123) which authorizes it to provide credit ratings to wholesale
clients only. Credit ratings information published by Fitch is not
intended to be used by persons who are retail clients within the meaning
of the Corporations Act 2001.

Contacts

Fitch Ratings
Primary Analyst
Alvin Lim, CFA
Director
+1-312-368-3114
Fitch
Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary
Analyst
Diana Barriga
Analyst
+1-312 368 2319
or
Committee
Chairperson
Daniel R. Kastholm, CFA
Regional Group Head –
Latin America Corporates
+1 312 368 2070
or
Media
Relations
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com