Las Vegas Sun

March 29, 2024

Cox Communications bonds fall

BLOOMBERG NEWS

ATLANTA -- Bonds of Cox Communications Inc. are tumbling after a bid to take the third-largest U.S. cable-television operator private led Moody's Investors Service and Standard & Poor's to say they may cut its credit ratings.

Cox Communications' 7.625 percent bonds due in 2025 fell 9.42 percent in August, the second-worst performer of 3,664 investment- grade corporate issues tracked by Merrill Lynch & Co. Moody's said it may lower its Baa2 senior unsecured debt rating because the proposal would probably increase debt.

Cox Communications is the leading cable provider in Las Vegas. The Greenspun family, owner of the Las Vegas Sun, is a minority investor in Cox Communications.

Such buyouts often boost a company's stock price while weakening the ability to repay debt. Bonds of Atlanta-based Cox Communications and other companies that are the target of debt-financed takeovers such as Rouse Co. made up 17 of last month's 25 worst company-bond returns.

Rouse is a developer in the Las Vegas area with its Summerlin planned community and its Fashion Show mall on the Las Vegas Strip.

"Credit investors are focused on this type of risk," said Neil Begley, an analyst for Moody's in New York. "I took over 100 calls in August on Cox from investors evaluating the risk of this type of transaction."

Announced mergers and acquisitions totaled about $635.3 billion through August, 48 percent more than the same period last year, according to data compiled by Bloomberg.

James Cox Kennedy, whose family controls Cox Communications, offered $7.9 billion on Aug. 2 to buy the company. Kennedy's Cox Enterprises Inc., which owns 62 percent of Cox Communications, said shareholders will get $32 in cash for each share, a 16 percent premium to where the stock was trading.

Cox Communications' shares are up 20 percent since July 30 to $32.98. In that time, the company's 7.625 percent bonds fell to 103.53 cents on the dollar from 111.4 cents, according to Merrill Lynch.

Cox Communications bonds probably won't rebound without details of how the plan will be financed, and how debt will be split between Cox Enterprises and Cox Communications, said Dimitri Triantafyllides, a fixed-income analyst at Wachovia Corp. in Charlotte, N.C.

"The proposed transaction, while not a positive for the bonds, is not the worst case scenario," said Triantafyllides, who has a 'market perform' rating on Cox bonds.

Cox Communications offering to buy another cable company in a debt-financed acquisition would be worse for bondholders, Triantafyllides said. Cox Communications spokesman Bobby Amirshahi didn't immediately return a call.

The company's debt is rated Baa2 by Moody's and BBB by S&P, the second-lowest levels of investment grade. Going private and adding debt may result in a reduction to high yield, or junk, according to Begley and Eric Geil, a cable analyst at S&P.

"Management strategy appears to have shifted toward this type of leveraged transaction," said Geil. Cox Communications has $6.88 billion of notes and bonds and $1.25 billion of loans outstanding, compared with a stock-market value of $20.8 billion, according to Bloomberg data.

Cox Communications said Aug. 17 it formed a committee to consider Cox Enterprises' offer.

Rouse's 5.375 percent notes due in 2013 declined 3.91 percent last month, making the real estate investment trust the fifth- worst performing corporate bond, according to Merrill Lynch.

Moody's on Aug. 20 said it may cut Columbia, Md.-based Rouse's Baa3 credit rating as Chicago-based shopping-mall owner General Growth Properties plans to buy the company for about $12.6 billion, including $9.75 billion in bank loans.

archive