SEC Probing Cablevision

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Standard & Poor's has placed Cablevision Systems Corp.'s credit rating on credit watch with negative implications, the latest stumble for the Bethpage, N.Y.-based MSO.

S&P said it could possibly downgrade Cablevision's debt rating, largely because of a July 3 securities filing which said that Cablevision had received a formal order of investigation from the Securities and Exchange Commission regarding accounting problems at its AMC Networks unit.

Cablevision also said it received a subpoena from the SEC in connection with the investigation.

"[Cablevision] cannot predict how long these investigations will last or their outcome," the Bethpage, N.Y.-based MSO said in the filing. "The company is cooperating fully and intends to continue to do so."

Cablevision's independent investigator has retained PricewaterhouseCoopers LLC for forensic accounting.

The SEC investigation was expected after Cablevision announced that it had uncovered accounting irregularities at the AMC unit — part of Rainbow Media Holdings Inc. — last month.

Cablevision said it discovered that AMC was accruing marketing expenses at improper times and said certain employees were "fabricating invoices."

Cablevision fired 14 employees at AMC, including division president Kate McEnroe.

Earlier this month, a report in Newsday
said Cablevision was the subject of an investigation by the U.S. Attorney's office.

The amount of the improper accruals was minimal — about $18 million over three years — and Cablevision said it would not restate financial reports.

An S&P downgrade could delay Cablevision's plans to spin off its direct-broadcast satellite venture, called Rainbow DBS, or complicate its plans to combine national programming networks in a bid with former Vivendi Universal S.A. vice chairman Edgar Bronfman Jr. for Vivendi's U.S. programming assets, according to some analysts.

A report from Merrill Lynch's Jessica Reif Cohen said the investigation might be minor, but delaying the DBS spin-off could be a big problem.

Calling the DBS spin-off "critical to preserving Cablevision's balance sheet," Reif Cohen added that if the SEC investigation lasts past the planned December transaction, "Cablevision will not be able to secure additional credit needed to fund a full-fledged DBS operation, increasing the possibility that CVC will pursue an outright sale of the asset."

When it announced the spin-off on June 2, Cablevision said it would contribute up to $450 million in cash (on top of $114 million already earmarked for this year) to the venture. Cablevision already has invested $400 million in Rainbow DBS.

"While the magnitude of the discrepancies reported by Cablevision does not appear to be material, Standard & Poor's cannot currently quantify the potential impact of the formal SEC investigation at this time," the ratings agency said. "Nor can Standard & Poor's predict whether the review will extend beyond the issues already raised by Cablevision or say what ramifications an expanded review would have for Cablevision's business prospects."

S&P said it would continue to monitor the situation, including any possible impact on Cablevision's ability to spin off the DBS unit.

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