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Rating Action: Moody's upgrades Cable One's senior secured ratings to Ba2 on $800 million notes issuance; all other credit ratings affirmedGlobal Credit Research - 03 Mar 2021New York, March 03, 2021 -- Moody's Investors Service ("Moody's") upgraded Cable One, Inc.'s (Cable One or the Company) senior secured bank credit facility ratings to Ba2, from Ba3. All other credit ratings, including the Ba3 Corporate Family Rating (CFR), Ba3-PD Probability of Default Rating (PDR), and B2 senior unsecured rating are affirmed. The SGL-1 Speculative Grade Liquidity Rating is maintained. The outlook is stable.Upgrades:..Issuer: Cable One, Inc.....Senior Secured Bank Credit Facility, Upgraded to Ba2 (LGD3) from Ba3 (LGD3) Affirmations: ..Issuer: Cable One, Inc. .... Probability of Default Rating, Affirmed Ba3-PD.... Corporate Family Rating, Affirmed Ba3....Senior Unsecured Regular Bond/Debenture, Affirmed B2 (LGD5) Outlook Actions: ..Issuer: Cable One, Inc. ....Outlook, Remains Stable On March 1, Cable One announced the commencement of a private offering (the "Offering") of $500 million aggregate principal amount of its convertible senior notes due 2026 (the "2026 Notes") and $300 million aggregate principal amount of its convertible senior notes due 2028 (the "2028 Notes" and, together with the "2026 Notes", the "Notes"), subject to market and other conditions. Cable One expects to grant the initial purchasers of the Notes an option to purchase up to an additional $75 million principal amount of 2026 Notes and up to an additional $45 million principal amount of 2028 Notes, in each case exercisable within a period of 13 days from the date the Notes are first issued (the "greenshoe"). Proceeds from the transaction are expected to be used to partially fund the purchase of the remaining interest in Hargray Acquisition Holdings, LLC, the ultimate parent of Hargray Communications Group, Inc. (B2 RUR) that Cable One does not already own.We estimate the acquisition financing will increase pro forma leverage to approximately 4.8x (Moody's pro forma adjusted) for the year ended December 31, 2020, pre-synergies, and assuming the remaining financing is roughly an equal mix of balance sheet cash and secured debt (Hargray has a $687 million term loan outstanding that could be assumed). If the greenshoe is exercised, the leverage ratio would be near 5.0x (Moody's pro forma adjusted), above our current guidance of 4.5x for the Ba3 CFR. However, with the realization of synergies and organic growth of the combined business, and based on the current pro forma capital structure, we expect leverage to fall to between 4.0x-4.25x by the end of 2022.RATINGS RATIONALECable One, Inc.'s ("Cable One" or "the Company") Ba3 Corporate Family Rating (CFR) reflects a diversified footprint, superior network speeds, a favorable competitive environment, and a very profitable business model that produces EBITDA margins approaching 50%. Constraining the rating is the Company's declining video (and voice) services which exhibit low penetration, and high loss rates. The service offering is subject to intense competition and is being harvested for cash and profits. There is moderate governance risk, with a tolerance for leverage at or below 4.0x-4.5x (management's calculation) for M&A, and dividends.The Company has very good liquidity, supported by positive operating cash flow, an undrawn $500 million revolving credit facility (with approximately $470 million available at December 31, 2020), and good covenant cushion. The credit profile also benefits from a favorable maturity profile with no maturities until 2025.We rate the senior secured credit facilities Ba2 (LGD3), one notch above the Ba3 corporate family rating (CFR). Secured lenders benefit from junior capital provided by senior unsecured notes rated B2 (LGD5) and the unrated senior convertible notes. The B2 rating on the unsecured notes reflects effective subordination to the secured debt. The rated senior unsecured notes are pari passu with the convertible notes. The instrument ratings reflect the probability of default of the company, as reflected in the Ba3-PD Probability of Default Rating, and an average expected family recovery rate of 50% at default given mixed capital structure with multiple claim priorities.RATING OUTLOOKThe stable outlook reflects our expectation that revenue will rise to near $1.7 billion and EBITDA will rise to over $900 million, over the next 12-18 months, with EBITDA margins rising to the mid 50% range. Net of capex (about 25% of revenue) and interest (about 3.5% weighted average borrowing cost), we project free cash flow to rise near $170 million with free cash flow to debt in the range of 2.5%-5.0%. We expect leverage to fall to 4.0-4.25x over the next 12-18 months. We expect liquidity to remain very good. Unless otherwise notes, all figures are Moody's adjusted and include Hargray on a pro forma basis, with an estimate of realized synergies, over next 12-18 months.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSFactors that Could Lead to an Upgrade» Gross debt / EBITDA (Moody's adjusted) sustained comfortably below 3.5x with commitment by management to sustain metrics at this level» Free cash flow to gross debt (Moody's adjusted) sustained above 10%We could also consider a positive rating action if financial policy was more conservative, the scale of the Company was larger, or there was more diversity in the business model without negative implications on profitability.Factors that Could Lead to a Downgrade» Gross debt / EBITDA (Moody's adjusted) sustained above 4.5x» Free cash flow to gross debt (Moody's adjusted) sustained below 5%We could also consider a negative rating action if liquidity deteriorated, financial policy turned more aggressive, or there was a material and unfavorable change in the scale, diversity or operating performance.The principal methodology used in these ratings was Pay TV published in December 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1134554. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.Headquartered in Phoenix, AZ, Cable One, Inc. offers traditional and advanced video services including digital television, video-on-demand, high-definition television, as well as high-speed Internet access and phone service. The Company passes 2.3 million homes, in 21 states across the West, Mid-West, and South (including Arizona, Idaho, Illinois, Mississippi, Missouri, Oklahoma, and Texas), serving more than 900 thousand residential and commercial customers. Revenue for the year ended December 31, 2020 was approximately $1.3 billion.Founded in 1947, Hargray is a regional telecommunications company providing advanced Internet, television, and telephone communications services to residential and business customers in 14 markets across Alabama, Florida, Georgia, and South Carolina. Hargray offers gigabit-capable services to approximately 99% of its customers. Approximately 60% of Hargray's total revenues for the 12-month period ended December 31, 2020 were derived from residential data and business services customersFor any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.REFERENCES/CITATIONS Press Release and Form 8-K (SEC) 01-Mar-2021Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. 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