No Pot Of Gold At End Of This Rainbow
BYLINE: Joy Ferguson
BODY:
Investors were less than positive over the new deal from Rainbow National Services (RNS) last week. The satellite-television business, a new spinoff from Cablevision Systems, planned to sell $800 million of debt, including $250 million of senior notes due 2012, and $550 million of senior subordinated notes due 2014. Banc of America Securities, Bear Stearns Credit Suisse First Boston and JP Morgan managed the private offering.
The proceeds of the bond deal, together with borrowings under a new $950 million senior secured credit facility, will be used as a distribution to parent company, Rainbow Media Enterprises, which will then distribute approximately $725 million to Rainbow Media Holdings to repay all existing borrowings under its $821 million credit facility. Additionally, Rainbow Media Enterprises will use the remaining proceeds to invest in its subsidiaries, primarily Rainbow DBS and its Voom satellite service, the first service to offer a comprehensive array of high-definition (HD) television programming.
But investors expressed concern that any of the proceeds would end up at Voom, which many consider a highly speculative, development-stage satellite venture, and Cablevision itself is spinning off its unprofitable Voom subsidiary. In Cablevision's recent second quarter earnings report, the company announced that Voom lost $81.5 million, producing revenue of just $2.7 million out of $1.2 billion total company revenue while contributing to a large part of Cablevision's $187 million net loss.
Voom, said Russ Solomon, analyst at Moody's Investor Service, has been a highly speculative venture for Cablevision, demanding a lot of capital and acting as a drain on the company's financial performance. "The market is not thrilled with that," he said.
As a result, many investors steered clear of the Rainbow National deal. "It's easy to be negative on the credit," said one high yield investor, "given that [Rainbow Media] is taking a lot of the money and putting it toward the satellite business." The three cable networks that Rainbow National controls, which include AMC, Women's Entertainment and International Film Channel, don't need a lot of capital, he said, so the money is "just being passed on to the satellite subsidiary." He also said that the three networks are mediocre and not a big source of revenue. "RNS is a new company coming out of Cablevision; it's unclear how the numbers will be on a quarter-upon-quarter basis," he said.
Another investor said he would not look at the deal given the recent spate of deals from other, more preferable names in the industry, including the higher-rated PanAmSat. "In the long term, uncertainty is still there in the cable and satellite industry as far as how things will play out. I'd rather stick with a higher quality capital structure and a larger, more established company," he said. Investors also considered EchoStar preferable to RNS. EchoStar just released a quarterly report last Monday that indicated strong revenue growth and evidence of an increasing number of subscribers taken from cable television.
A Standard & Poor's analyst said investors' concerns are justified. Rainbow Media, which has a limited subscriber base, is in direct competition with EchoStar and DirecTV. And while the company may offer a specialized high-definition service, the question is whether it will be able to compete at the consumer level with the other choices available. S&P has assigned a triple-C-plus to the senior subordinated notes of RNS.
Likewise, Moody's rated the senior unsecured notes B3 and the senior subordinated notes Caa1. "There is a lot of uncertainty with the credit," said Christina Padgett, analyst at Moody's, who noted concerns over how much it will cost Rainbow National to fund these other businesses or how much money it will take before Voom's business improves. In addition, Rainbow National is almost fully dependent on AMC among its assets, which also makes the company relatively risky.
http://www.thomsonmedia.com http://www.highyieldreport.com
LOAD-DATE: August 16, 2004
BYLINE: Joy Ferguson
BODY:
Investors were less than positive over the new deal from Rainbow National Services (RNS) last week. The satellite-television business, a new spinoff from Cablevision Systems, planned to sell $800 million of debt, including $250 million of senior notes due 2012, and $550 million of senior subordinated notes due 2014. Banc of America Securities, Bear Stearns Credit Suisse First Boston and JP Morgan managed the private offering.
The proceeds of the bond deal, together with borrowings under a new $950 million senior secured credit facility, will be used as a distribution to parent company, Rainbow Media Enterprises, which will then distribute approximately $725 million to Rainbow Media Holdings to repay all existing borrowings under its $821 million credit facility. Additionally, Rainbow Media Enterprises will use the remaining proceeds to invest in its subsidiaries, primarily Rainbow DBS and its Voom satellite service, the first service to offer a comprehensive array of high-definition (HD) television programming.
But investors expressed concern that any of the proceeds would end up at Voom, which many consider a highly speculative, development-stage satellite venture, and Cablevision itself is spinning off its unprofitable Voom subsidiary. In Cablevision's recent second quarter earnings report, the company announced that Voom lost $81.5 million, producing revenue of just $2.7 million out of $1.2 billion total company revenue while contributing to a large part of Cablevision's $187 million net loss.
Voom, said Russ Solomon, analyst at Moody's Investor Service, has been a highly speculative venture for Cablevision, demanding a lot of capital and acting as a drain on the company's financial performance. "The market is not thrilled with that," he said.
As a result, many investors steered clear of the Rainbow National deal. "It's easy to be negative on the credit," said one high yield investor, "given that [Rainbow Media] is taking a lot of the money and putting it toward the satellite business." The three cable networks that Rainbow National controls, which include AMC, Women's Entertainment and International Film Channel, don't need a lot of capital, he said, so the money is "just being passed on to the satellite subsidiary." He also said that the three networks are mediocre and not a big source of revenue. "RNS is a new company coming out of Cablevision; it's unclear how the numbers will be on a quarter-upon-quarter basis," he said.
Another investor said he would not look at the deal given the recent spate of deals from other, more preferable names in the industry, including the higher-rated PanAmSat. "In the long term, uncertainty is still there in the cable and satellite industry as far as how things will play out. I'd rather stick with a higher quality capital structure and a larger, more established company," he said. Investors also considered EchoStar preferable to RNS. EchoStar just released a quarterly report last Monday that indicated strong revenue growth and evidence of an increasing number of subscribers taken from cable television.
A Standard & Poor's analyst said investors' concerns are justified. Rainbow Media, which has a limited subscriber base, is in direct competition with EchoStar and DirecTV. And while the company may offer a specialized high-definition service, the question is whether it will be able to compete at the consumer level with the other choices available. S&P has assigned a triple-C-plus to the senior subordinated notes of RNS.
Likewise, Moody's rated the senior unsecured notes B3 and the senior subordinated notes Caa1. "There is a lot of uncertainty with the credit," said Christina Padgett, analyst at Moody's, who noted concerns over how much it will cost Rainbow National to fund these other businesses or how much money it will take before Voom's business improves. In addition, Rainbow National is almost fully dependent on AMC among its assets, which also makes the company relatively risky.
http://www.thomsonmedia.com http://www.highyieldreport.com
LOAD-DATE: August 16, 2004
