Cox May Sell Debt, Use Asset Sales to Rebuild in New Orleans
Cox may sell bonds or use asset sales to finance system rebuilds to restore operations to more than 165,000 customers in New Orleans who can’t get service, analysts said. The company is committed to a full return to the city flooded by Hurricane Katrina, and can use proceeds from insurance to at least partly fund restarting service to all customers who eventually return to the area, a spokesman said, but analysts believe additional money will be needed. The company declined to provide information on the extent of its insurance. Cox, with an investment- grade credit rating, would see plenty of demand in any bond sale, analysts said. “The market would not have a problem buying Cox debt,” said Jefferies & Co. analyst Robert Routh, who has a “neutral” rating on the cable industry: “Whether or not it’s investment grade or not is another story.”
Sign up for a free preview to unlock the rest of this article
Communications Daily is required reading for senior executives at top telecom corporations, law firms, lobbying organizations, associations and government agencies (including the FCC). Join them today!
Cox, with about $13 billion in debt, has the lowest investment-grade debt rating, BBB-minus, said Standard & Poor’s credit analyst Eric Geil: “They're more heavily leveraged than would typically be appropriate for a company with a ‘BBB-minus’ rating. If we didn’t expect them to deleverage, we'd have lower ratings on them.” The company can cut debt with the expected sale of cable systems with 900,000 total subscribers, analysts say. Cox said this month it expects a sale agreement by mid-Oct. in a deal that analysts estimate could be worth almost $3 billion (CD Sept 20 p2). “You can certainly explore asset sales” as a way to pay for rebuilds, said Stanford Group managing director Fred Moran. “I don’t suspect they'll do anything with public equity. They've shown their frustration” by taking the company private, he said.
The biggest concern for Cox in the Crescent City isn’t the loss of sales from customers it’s not billing. Cox’s attention will be focused on restoring operations, said analysts including Moran and Dennis McAlpine of McAlpine Assoc. “I would guess that the biggest concern is just going to be planning this thing and getting it cleaned up enough,” said McAlpine. Cox said it was too soon to estimate clean-up and restoration costs. “It’s going to take a while for them to flesh out what the long- term effects are,” Geil said. “By the same token, they're fairly diversified in just the cable business itself.”
Cox must determine how to rebuild. “If there is extensive damage, you have to look at what you replace it with, do you go aboveground or do you go underground?” McAlpine asked. “If there are extensive damages, this would be the ideal to go underground and put yourself in ducts.” One concern for Cox may be increased competition from satellite providers. “If I were DirecTV and Dish, I would be all over the place trying to find homes that need service,” McAlpine said, “sort of like grave robbers.” Cox is in “a good position financially to recover from these hurricanes,” the spokesman said. “We have a strong balance sheet. On top of that, we are very well insured… We will rebuild New Orleans, and they are going to have as good a network if not better than what they had before.”