Fitch Affirms Insight's IDR at 'B+'; Rates $2.6B Bank Facility 'BB+'

Business Wire, Sept 29, 2006

CHICAGO -- Fitch Ratings has affirmed the 'B ' Issuer Default Rating (IDR) assigned to Insight Communications Company, Inc. (Insight), Insight Midwest, LP, and Insight Midwest Holdings, LLC. In addition Fitch has assigned a 'BB ' rating and 'RR1' recovery rating to Insight Midwest Holdings, LLC's proposed $2.575 billion senior secured credit facility. Fitch has also affirmed specific issue ratings and recovery ratings to debt issued by Insight Midwest, LP and Insight as listed below. The Rating Outlook for all of Insight's ratings is Stable.

Approximately $2.7 billion of debt as of June 30, 2006 is affected by Fitch's actions. Insight Midwest Holdings, LLC is a wholly owned subsidiary of Insight Midwest, LP. Insight owns a 50% interest in Insight Midwest, LP while subsidiaries of Comcast Corporation own the remaining 50% interest.

Fitch expects that proceeds from the $2.575 billion credit facility, which includes a $350 million revolver, a seven-year $500 million term loan A and a 7.5-year $1.725 billion term loan B, will be used to refinance the existing credit facility at Insight Midwest Holdings, LLC, redeem in full the 10.5% senior unsecured notes due 2010, and redeem $185 million of the 9.75% senior unsecured notes due 2009 issued by Insight Midwest, LP. The refinancing will materially increase the proportion of senior secured debt within Insight's debt structure while nominally increasing overall indebtedness. From Fitch's prospective, however, the new credit facility is positive for Insight's overall credit profile as the new credit facility increases the borrowing capacity under the revolver, extends final maturities from 2009 to 2012 and 2013, and reduces scheduled mandatory amortization through 2008 by approximately $230 million.

Overall, Fitch's ratings for Insight reflect the operating advantages and cost synergies derived from the company's technologically upgraded network and its tightly clustered cable systems, which primarily operate in the states of Kentucky, Indiana, Illinois, and Ohio. Fitch's ratings are also indicative of Insight's high leverage relative to its cable peer group, and the increasing business risk attributable to Insight's credit profile stemming from the persistent competitive threat from DBS operators and the increasing likelihood that incumbent telephone companies will enter the video business, further elevating competitive pressures. These competitive factors heighten the importance of Insight's planned voice over Internet protocol (VoIP) telephony service launch that is expected to take place during the remainder of 2006 and early into 2007. From Fitch's perspective the complete introduction (Insight provides circuit switched telephony service to approximately 871,000 homes as of June 30, 2006) of telephony service is critical for Insight to maintain the positive subscriber metric momentum and to enhance its competitive position relative to the DBS operators and incumbent telephone companies.

The uncertainty surrounding the long-term existence of Insight's partnership with Comcast presents event, business, and refinancing risk to investors. At any time after Dec. 31, 2005, either partner can elect to terminate the Insight Midwest, LP partnership. Insight would emerge from the dissolution of the Insight Midwest partnership as a much smaller MSO operating with approximately 1.2 million RGUs and without the operating cost advantages afforded to Insight through its partnership with Comcast. While the new bank agreement contains provisions to survive the dissolution of the Insight Midwest partnership, bondholders can be exposed to refinancing risks depending on the structure of the exit event. Post the dissolution of the partnership, Fitch expects that Insight's credit profile will be more leveraged than the current capital structure.

After generating approximately $116 million of free cash flow during 2004 and $76 million during 2005 (after adjusting for privatization costs), Fitch does not expect Insight to generate free cash flow during 2006. The lack of free cash flow generation is attributable to higher capital expenditures related to the positive subscriber growth the company has experienced over the last four quarters, infrastructure investments to prepare the cable plant for telephone service launch, and higher interest expense costs. Fitch expects Insight to generate a nominal amount of free cash flow in 2007. However, to position the company to generate free cash flow in 2007, Fitch believes that Insight will need to continue to grow advanced digital video products and its high-margin high speed data product as well as gain scale within its telephony business and temper the increase in capital expenditures.

From Fitch's perspective, Insight's liquidity position is adequate when considering the increased amount of borrowing capacity under the company's new $350 million revolver and the lack of scheduled amortization under the term loan facilities through the third quarter of 2008. No other debt is scheduled to mature until 2009.