OREANDA-NEWS. Fitch Ratings has upgraded the Issuer Default Ratings (IDR) assigned to CCO Holdings, LLC (CCOH) and Charter Communications Operating, LLC (CCO) to 'BB+' from 'BB-'. Fitch has also upgraded the specific issue ratings assigned to CCOH and CCOH Safari, LLC (CCOH Safari) to 'BB+' from 'BB-' and CCO to 'BBB-' from 'BB+'. Fitch also affirmed the specific issue ratings assigned to CCO Safari II, LLC (CCO Safari II) and CCO Safari III, LLC (CCO Safari III). The Rating Outlook is Stable.

In addition, Fitch has downgraded the IDR of Time Warner Cable, Inc. (TWC) and Time Warner Cable Enterprises LLC (TWCE) to 'BB+' from 'BBB'. Fitch has also downgraded the specific issue ratings assigned to TWC and TWCE to 'BBB-' from 'BBB' and withdrew the 'F2' Short-Term IDR and commercial paper ratings assigned to TWC as this facility is being closed. The Rating Outlook is Stable.

The rating changes are driven by Charter Communications, Inc.'s (Charter) receiving approval from the California Public Utilities Commission on May 12, 2016 to complete its previously announced merger with TWC and acquisition of Bright House Networks (Bright House) (the Transactions). As such, the Transactions have received all required regulatory approvals and are now expected to close by mid-May 2016. Fitch views the Transactions positively and believes they will strengthen Charter's overall credit profile.

Fitch expects to make several rating changes upon the closing of the Transactions. CCOH Safari's unsecured bonds are expected to become senior unsecured obligations of CCOH while the senior secured debt of CCO Safari II and CCO Safari III will become obligations of CCO. At such time, Fitch will withdraw the specific issue ratings assigned to CCOH Safari, CCO Safari II and CCO Safari III. Simultaneously, TWC and TWCE's senior unsecured bonds are expected to become senior secured obligations of CCO. At such time, Fitch will withdraw the senior unsecured ratings assigned to both TWC and TWCE and assign a 'BBB-' senior secured issue rating to TWC and TWCE's senior secured notes.

Fitch placed CCOH and CCO 'BB-' IDRs on Rating Watch Positive following the April 2015 announcement of the acquisition of Bright House from Advance/Newhouse Partnership (A/N), valued at $10.4 billion as of May 12, 2016. Following the announcement that Comcast Corporation and TWC had terminated their merger agreement, on May 18, 2015, Charter and A/N reaffirmed their commitment to complete the Bright House acquisition under the same economic and governance terms. CCOH and CCO are indirect wholly owned subsidiaries of Charter.

On May 23, 2015, Charter announced a merger with TWC valued at $78 billion as of May 12, 2016. The offer consists of a combination of cash and Charter stock totalling $57 billion for all outstanding TWC shares. TWC shareholders had two options for the split between cash and Charter common stock: 1) $100.00 cash and 0.5409 shares of Charter common stock for each share of TWC common stock or 2) $115.00 cash and 0.4562 shares of Charter common stock for each share of TWC common stock. As of May 12, 2016, the deadline for electing the form of consideration, approximately 1% of TWC shareholders chose the $115 cash election resulting in additional cash requirements of less than $50 million. Charter has sufficient cash on hand to fund the increased cash needs.

KEY RATING DRIVERS
M&A Activity Credit-Positive: Fitch views the TWC and Bright House transactions positively and believes they will strengthen Charter's overall credit profile. Fitch estimates that Charter's total leverage, pro forma for the Transactions, was 4.6x at Dec. 31, 2015.

Integration Key to Success: Integration risks are elevated with two simultaneous transactions, and Charter's ability to manage the integration process and limit disruption to the company's overall operations is key to the success of the Transactions.

Credit Profile Changes: Charter's pro forma Fitch-calculated total leverage exceeds its target of 4x and 4.5x at closing, but is expected to fall below 4.5x within 12 months. In addition, Fitch estimates pro forma first lien leverage is 3.6x. On a pro forma operating basis, the combined company will serve 25 million customers and become the second largest cable multiple system operator in the country

Improving Operating Momentum: Charter's operating strategies are having a positive impact on the company's operating profile, resulting in a strengthened competitive position. The market-share-driven strategy, focused on enhancing Charter's video service competitiveness and leveraging its all-digital infrastructure, is improving subscriber metrics, growing revenue and average revenue per unit (ARPU) trends, and stabilizing operating margins.

KEY ASSUMPTIONS
Fitch's key assumptions within the rating case for Charter include:
--Mid-single-digit pro forma revenue growth highlighted by continued high-speed data and commercial service revenue growth.
--Pro forma EBITDA margin improves as ARPU growth from subscribers taking more advanced video services and higher speed data service tiers offsets increased programming costs and spending to enhance customer service and products.
--Fitch estimates Charter will generate more than $4 billion of pro forma FCF in 2016 and 2017.

RATING SENSITIVITIES
Positive rating actions would be contemplated given the following:

--Integrating TWC and Bright House while limiting disruption in the company's overall operations;

--Demonstrating continued progress in closing gaps relative to its industry peers in service penetration rates and strategic bandwidth initiatives;

--Operating profile strengthens as the company captures sustainable revenue and cash flow growth envisioned when implementing the current operating strategy;

--Reduction and maintenance of total leverage below 4.0x.

Fitch believes negative rating actions would likely occur given the following:

--A leveraging transaction or the adoption of a more aggressive financial strategy that increases leverage beyond 5.5x in the absence of a credible deleveraging plan;

--Adoption of a more aggressive financial strategy;

--A perceived weakening of Charter's competitive position or failure of the current operating strategy to produce sustainable revenue and cash flow growth along with strengthening operating margins.

LIQUIDITY
Fitch regards Charter's liquidity position and overall financial flexibility as satisfactory given the rating category. Charter's financial flexibility will improve in step with the growth of free cash flow (FCF) generation following the completion of the Transactions. Charter generated $519 million of FCF during the year ended Dec. 31, 2015 and Fitch expects Charter to generate more than $4 billion in 2016. The company's liquidity position at Dec. 31, 2015 includes cash of $5 million, excluding cash held in escrow at Safari Entities, and is supported by $961 million of borrowing capacity from its $1.3 billion revolver, which expires in April 2018, and anticipated FCF generation. Fitch notes that the revolver will roll into a new $3 billion facility that matures in May 2021 with the closing of the Transactions.

Charter's pro forma leverage as of the last 12 months ended Dec. 31, 2015 was 4.6x while senior secured leverage was 3.6x. Charter's total leverage target remains unchanged, ranging between 4x and 4.5x, and will remain unchanged following the completion of the Transactions.

Charter's pro forma maturity profile is manageable with less than 15% of outstanding debt maturing before 2019, including $164 million in 2016 and $2.2 billion in both 2017 and 2018. Fitch believes that Charter has the financial flexibility to retire near term maturities with cash on hand and future FCF.

FULL LIST OF RATING ACTIONS

Fitch has removed the Rating Watch Positive and upgraded the following ratings:

CCO Holdings, LLC (CCOH)
--Long-Term IDR to 'BB+' from 'BB-';
--Senior unsecured to 'BB+' from 'BB-'.

Charter Communications Operating, LLC (CCO)
--Long-Term IDR to 'BB+' from 'BB-';
--Senior secured to 'BBB-' from 'BB+'.

CCOH Safari, LLC
--Senior unsecured to 'BB+' from 'BB'.

Fitch has affirmed the following ratings:

CCO Safari II, LLC
--Senior secured at 'BBB'.

CCO Safari III, LLC
--Senior secured at 'BBB'.

Fitch has assigned a Stable Outlook.

Fitch has removed the Rating Watch Negative and downgraded the following ratings:

Time Warner Cable, Inc.
--Long-Term IDR to 'BB+' from 'BBB'
--Senior unsecured to 'BBB-' from 'BBB'.

Time Warner Cable Enterprises LLC
--Long-Term IDR to 'BB+' from 'BBB';
--Senior shelf to 'BBB-' from 'BBB';
--Senior unsecured to 'BBB-' from 'BBB'

Fitch has assigned a Stable Outlook.

Fitch has withdrawn the following ratings:

Time Warner Cable, Inc.
--Short-Term IDR 'F2';
--Commercial paper 'F2'.