News

Bonds Key for Rainbow

8/08/2004 8:00 PM Eastern

Cablevision Systems Corp. has come a step closer to the proposed spinoff of its national programming and direct-broadcast satellite assets, saying it will sell $800 million in bonds to help finance the new entity.

Rainbow National Services LLC, a unit of Cablevision, will sell the bonds on behalf of Rainbow Media Enterprises, the programming arm of the Bethpage, N.Y.-based MSO that’s scheduled to be spun off later this year.

The cable company said the offering would include $250 million in senior notes due 2012 and $550 million in senior subordinated notes due 2014.

The offering, coupled with a $950 million senior secured credit facility, will be distributed to Rainbow Media Enterprises, which in turn will distribute $725 million of the proceeds to Rainbow Media Holdings to pay off all existing borrowings under an $821 million credit agreement.

LIFT TO Voom

The rest of the proceeds will be distributed to RME’s other subsidiaries, including satellite arm Rainbow DBS.

Rainbow DBS launched its high-definition satellite service Voom last October. As of April 30, the service has about 8,000 subscribers.

The bond offering is one of several pieces that must be put into place as Cablevision moves ahead to separate itself into two businesses.

Cablevision Systems Corp. will be headed by CEO James Dolan (who will add the chairman’s title after the spinoff) and will include the cable-television systems; Lightpath; arenas Madison Square Garden and Radio City Music Hall; its professional sports teams; regional sports networks; New York-centric programming assets Madison Square Garden Networks, Fuse and MetroChannels; Fox Sports Net; News 12 Networks; National Advertising Partners; local and interconnect ad sales operations of Rainbow Advertising Sales Corp.; and Clearview Cinemas.

Rainbow Media Enterprises will be headed by chairman Charles Dolan and include the national programming assets (Independent Film Channel, AMC and WE: Women’s Entertainment); Rainbow DBS; Mag Rack; Rainbow Network Communications and the national ad-sales functions of Rainbow Advertising Sales Corp.

Cablevision has been assembling a management team for the post-spinoff company, most recently hiring former Charter Communications Inc. executive vice president and chief financial officer Michael Huseby.

Huseby, who will hold the same titles at Cablevision, is expected to start Aug. 20.

Earlier in the year, Cablevision promoted former cable and communications division president Tom Rutledge to chief operating officer for the entire company. Former Time Warner Cable executive John Bickham has Rutledge’s old job.

In June, Cablevision senior vice president John Bier added treasurer to his title and vice president Elizabeth Dolce was also named assistant treasurer.

While the spinoff has been slated for months, RME provided more clarity as to the funding requirements of the unit in a securities filing late last month.

According to the amended Form 10 filed July 30, Rainbow DBS could require as much as $1 billion to $2 billion to build four satellites over several years to take advantage of Ka-band spectrum the company owns.

Another $400 million to $500 million could be needed over the next several years to finance additional satellites utilizing Ku-ban spectrum Cablevision won during an Federal Communications Commission auction in July.

While there was some concern among investors that the bulk of that money would come from the other Rainbow assets in the new entity, that won’t be the case.

RAINBOW LIMITS

According to the Form 10, Rainbow Media is limited to investing $150 million a year, or an aggregate of $600 million in Rainbow DBS, for the life of the venture.

That is a limitation that pleased most of the analyst community, especially since the funding requirements for the DBS entity have changed considerably since its launch last year.

Cablevision had said funding requirements for Rainbow DBS would be about $397 million for 2004, but later increased that number to $482 million.

New DBS Funding Plan
(In millions of dollars, except leverage figures)
Rainbow Media Debt
Source: Merrill Lynch & Co.
Term loan $600
Sr. Notes 2012 $250
Sr. sub Notes 2014 $550
Debt as of 3/31/04 $1,400
2004 Adjusted Cash Flow $203
Leverage 6.9x
Availability Under Revolver $350
Total Sources of Cash $1,750
Leverage 8.6x
Fees ($25)
Repay RMH Credit Facility Borrowings ($725)
DBS Investment ($650)
Total Uses ($1,400)
Net Undrawn Availability $350

September