Moodys: April (2nd) 2015
Approximately $2.2 billion of debt affected
New York, April 02, 2015 -- Moody's Investors Service downgraded TWCC Holding Corp.'s ("TWCC": d/b/a The Weather Channel Companies) Corporate Family rating (CFR) to B2 from B1 and the Probability of Default rating to B2-PD from B1-PD. Further, the rating on the company's first lien senior secured credit facility was lowered to B1 from Ba3 (LGD3) and the rating on the second lien senior secured term loan was lowered to Caa1 from B3 (LGD5). The rating outlook is stable. Downgrades: ..Issuer: TWCC Holding Corp. .... Corporate Family Rating, Downgraded to B2 from B1 .... Probability of Default Rating, Downgraded to B2-PD from B1-PD ....Senior Secured Bank Credit Facility (Local Currency), Downgraded to B1, LGD3 from Ba3, LGD3 ....Senior Secured Bank Credit Facility (Local Currency), Downgraded to Caa1, LGD5 from B3, LGD5 Outlook Actions: ....Outlook, Remains Stable RATINGS RATIONALE The downgrade reflects Moody's view that the company's credit metrics are unlikely to improve to levels expected for the prior B1 CFR and continued weak operating performance and high levels of absolute debt will result in leverage being sustained above 7.0x for the next few years at least. Moody's notes that TWCC has not been successful in reducing debt-to-EBITDA as we originally expected, largely due to weak operating trends, as evidenced by a 5% decline in reported EBITDA in 2014. While we recognize that a significant portion of the decline in EBITDA is attributable to the loss of DIRECTV's carriage and television advertising in approximately 20 million homes in the first quarter, we believe that The Weather Channel is not being a "must have" network or bundle of networks like some other larger cable networks, and therefore we believe remains susceptible to the risk of receiving less affiliate revenue or potentially being dropped, perhaps permanently, by other cable, DBS and telco companies. Verizon Communications recently allowed its agreement with The Weather Channel to expire, essentially dropping the network from its lineup of cable channels and replacing it with the AccuWeather Channel in the same channel position. We estimate that the revenue impact from the loss of Verizon's carriage will be in the 2%-4% range (of total consolidated revenues) and while the two companies could eventually resolve the disagreement over affiliate fees, there have been no indications of progress being made in that regard. Even though the impact on revenues and EBITDA from the loss of Verizon's carriage is moderate, the development underscores broader trends and operating risks for smaller networks that have no sports or entertainment programming with high audience ratings and which could gradually lose their renegotiation power or be dropped altogether from cable companies' bundled packages.
