Moody's raises Knology outlook following deals

Moody's Investors Service on Tuesday raised Knology Inc.'s outlook to positive from stable and affirmed its ratings, reflecting the cable operator's successful integration of its PrairieWave and Graceba acquisitions.

The ratings agency said Knology has begun to realize the benefits of the two deals in the form of a larger, more diverse subscriber base and improved cash flow.

Despite a slight decline in subscribers, Moody's said it believes the company will maintain profit margins and continue to produce positive free cash flow throughout the year "buffeted by its increasingly diverse subscriber base as well as growing exposure to rapidly expanding commercial markets."

Moody's noted that the current credit crunch likely limits the ability of the cable, Internet and telephone services provider to make additional debt-financed acquisitions. It said the company has "more than ample cushion" with respect to meeting its debt obligations.

Knology paid $255 million in April 2007 to acquire Sioux Falls, S.D.-based PrairieWave Communications, which provides voice, video and high-speed Internet broadband services in South Dakota and portions of Minnesota and Iowa. It bought Dothan, Ala.-based Graceba Total Communications, a cable, Internet and phone provider, for $75 million last January.

Shares in the West Point, Ga.-based company fell 33 cents, or 3.7 percent, to $8.55 in afternoon trading after touching a two-year low of $8.41. The stock has lost nearly half its value from a year ago.