2008-10-02 03:27:02 -

- Fitch Ratings has affirmed the 'BB+' Issuer Default Rating (IDR) and 'BBB-' long-term debt ratings of Cogeco Cable Inc. (Cogeco Cable). Fitch has also assigned a 'BBB-' rating to Cogeco Cable's approximately C$260 million two-tranche debt offering. The offering consists of US$190 million 7% senior secured notes due 2015 and C$55 million 7.6% senior secured notes due 2018. Proceeds from the offering will be used to refinance the US$150 million of senior secured notes due 2008 as well as the related cross currency swaps for a total of C$239 million and for general corporate purposes. The Rating Outlook is Stable.

The ratings incorporate Cogeco Cable's stable credit protection measures and the strength in the Canadian operations that generate

the majority of the company's revenue and cash flow. The Canadian operations are well supported by Cogeco Cable's competitive position and clustered cable systems, which leverages the Triple Play bundling strategy that resulted in strong revenue generating unit (RGU) growth for fiscal year 2007, driven by its telephony offering. Growth in fiscal year 2008 has slowed, reflecting the signs of maturation in most services. Fitch expects the company will continue to improve financial performance over the rating horizon, which should result in solid organic revenue growth, higher margins, greater free cash flow and lower leverage. Pro forma leverage at the end of the third fiscal quarter of 2008 was 3.0 times(x), which should reduce over the next several quarters as the company pays down debt and grows its cash flow.

These strengths are balanced against the unfavorable competitive and economic environments facing Cabovisao, Cogeco Cable's Portugal operations. Fitch believes this market environment will likely remain difficult in the future given the increased overbuild activity, digital terrestrial television, mobile broadband and satellite television as operators expand their bundled offerings thereby limiting revenue and cash flow growth. Accordingly, management expects revenue growth of approximately 3.5% for fiscal year (FY) 2009 compared with double digit growth in the low teens for the Canadian operations. The market in Portugal is potentially under-penetrated with significantly greater density than Cogeco Cable's Canadian operations, thus representing an opportunity for Cabovisao to grow its revenue and cash flow, although the company must execute on its strategic initiatives against significant competitive activity to achieve success and drive greater bundled penetration. Positively, with Cabovisao's focus on profitable growth, the company's margins increased 500 basis points to 37.7% during the third quarter of FY2008.

Cogeco Cable currently has good liquidity through its credit facilities, cash position, growing free cash flow and new debt offering. Cogeco Cable's debt maturities over the next two years include approximately C$240 million due in October 2008 (including cross currency swaps) and C$150 million in June 2009. Cogeco Cable's C$885 million secured credit facility matures in 2011 and includes a C$725 million revolver and C$160 million term loan. As of May 31, 2008, Cogeco Cable had drawn a total of C$366 million on its credit facilities. Expectations for free cash flow in FY2009 are for approximately C$100 million. Cogeco Cable also acquired Toronto Hydro Telecom Inc. in July for a total consideration of $200 million.

Cogeco Cable also has significant flexibility under its financial covenants in the event of an acquisition. Cogeco Cable's management has indicated a preference to consider additional acquisitions although current market conditions have significantly limited opportunities. While leverage could rise materially if the company made an acquisition, Fitch expects the company would prudently manage its capital structure and issue equity to deleverage the company within 12-18 months after any potential acquisition. The Stable Outlook reflects the company's current financial performance and the expectation for continued improvement.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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 Ratings
Bill Densmore, +1-312-368-3125 (Chicago)
David Peterson, +1-312-368-3177 (Chicago)
Media Relations:
Cindy Stoller, +1-212-908-0526 (New York)