Realistic Bankruptcy Analysis, Including
Realistic Bankruptcy Analysis
Verdict in one sentence. Triangulating four independent methods — Altman Z-prime, a simple Merton distance-to-default proxy, the empirical default rate of a single-B rated U.S. HY cable issuer, and the company's own traded credit spreads — central estimate of Chapter 11 filing risk is roughly 3% over the next 12 months, 6% over 24, and ~12% over 36 (plausible range 6–20% at 36 months); the single most load-bearing variable is whether trailing Adjusted EBITDA stays above ~$650M through the FY2027 refinancing window, and the most likely non-bankruptcy resolution is a 2027 secured "amend-and-extend" of the Term Loan B-4 plus an opportunistic distressed-bond repurchase program already in motion.
Chapter 11 within 12 mo
Chapter 11 within 24 mo
Chapter 11 within 36 mo
Chapter 11 within 60 mo
Net Leverage (LQA, x)
Covenant Cap, Total Net Lev (x)
Revolver Undrawn ($M)
Adj EBITDA — Capex TTM ($M)
How to read these probabilities. They are point estimates for a filing event, not for equity drawdown. The equity can be wiped out (covenant amendment with warrants, distressed exchange, dilutive recap) at materially higher probability than Chapter 11 itself — order-of-magnitude 2–3x. Treat the bankruptcy odds below as the bottom rail of the "credit-impairment" risk you are actually pricing in the equity.
1. The Capital Stack and Maturity Wall
Six instruments stacked across three security classes, plus the assumed MBI debt arriving at the October 2026 put close. The 2026 convertible was already refinanced into the revolver on March 12, 2026 — so the real wall is 2028, when the Term Loan B-4, the 2028 converts, and the revolver all mature in the same calendar year, and the Term Loan B-2 / B-3 springing maturity feature triggers (the maturity adjusts to May 3, 2028 if more than $150M of TL B-4 remains outstanding on that date). (source: 2025 10-K MD&A, "Senior Credit Facilities" and "Convertible Notes" sections.)
Reader's term primer. Springing maturity means a stated maturity date moves forward automatically if a triggering condition is met — here, the 2029 term loans become 2028 paper if TL B-4 has not been substantially refinanced by then. First-lien net leverage is debt secured by the cable plant divided by EBITDA; the covenant cap is 4.25x and is tighter than the 5.0x total-net-leverage cap. Fulcrum security is the layer of the capital stack that converts to equity in a restructuring — at current marks, that is the 1.125% 2028 converts and the 4% 2030 senior notes (both trading in the low 60s).
2. Liquidity Bridge — Today Through Year-End 2027
Pro-forma after the March 2026 convertible refinancing and the announced Q1-2026 paydown, the company exits Q1-26 with $165.6M cash and $700M of undrawn revolver capacity, against $3.12B total debt (source: Q1 FY2026 earnings call commentary, April 30, 2026). The MBI put on October 1, 2026 is the next discrete cash event.
The liquidity story is benign through October 2026 and tight by November 2027. The MBI put close itself is fundable from the existing revolver per management's own disclosure (source: 2025 10-K MD&A, "We believe that our existing cash balances, the anticipated available capacity under the Revolving Credit Facility… will be sufficient to fund the Put Price"). The hard date is the Nov 2027 MBI term loan maturity — by then either FCF and asset sales have to plug it or the company is in the credit market refinancing into a higher-rate environment under deteriorating ratings momentum.
Against ~$500M of TTM Adjusted-EBITDA-less-capex, FY2026 absorbs the put price as a one-time event; FY2027 cash demand falls back to ~$470M of recurring debt service and capex, leaving ~$30M of excess FCF for further debt paydown. The math works as long as Adjusted EBITDA stays above roughly $640M and capex stays below $300M.
3. Covenant Cushion — Three EBITDA Paths
The Credit Agreement requires Total Net Leverage ≤ 5.00x and First Lien Net Leverage ≤ 4.25x at the last day of any fiscal quarter, stepping to 5.50x Total Net Leverage for four fiscal quarters after the MBI put closes (source: 2025 10-K MD&A, "The Senior Credit Facilities also require…"; in compliance at 12/31/2025). The relief window covers exactly Q4 FY26 through Q3 FY27.
Quarter the cushion goes negative in each path. Base case: never. Stress case: brushes zero in Q4 FY26, recovers under post-MBI relief. Severe case: negative by Q3 FY26, before the 5.5x relief window opens — this is the only path that forces a near-term amendment, and it requires both a 25% EBITDA decline from current levels and the MBI close hitting the high end of the assumed-debt range. Probability we assign to the severe path materializing in the next 18 months: ~15%.
4. Distress-Model Triangulation
Four independent reads. None is dispositive on its own; together they bracket the realistic range.
4a. Altman Z-Score
Computed from the FY2025 balance sheet, using clean operating income (FY2025 reported -$207M plus $586M impairment add-back = $378.6M) so the score is not punished for a single non-cash charge.
Read. Both Altman variants land in the distress zone, but Altman is structurally unkind to leveraged-asset cable: it was calibrated on industrial manufacturers, where high Sales/Total Assets is normal. Cable, with its massive plant and goodwill base, prints a distress score on the math without distress on the cash flow. Charter (CHTR) and Comcast (CMCSA) themselves score below 1.81 on the same model. The Z-score is a flag, not a prediction. It maps to a ~12-25% 5-year empirical default rate when applied to actual HY industrials — consistent with our triangulated answer below.
4b. Simple Distance-to-Default (Merton-style)
A back-of-envelope distance-to-default uses leverage and equity volatility as the inputs. Equity volatility (annualized) is high — the stock dropped 41.8% in a single day on May 1, 2025 and has lost 70% over the trailing 12 months (source: numbers-claude §7). Without options-implied vol, a conservative 80% annualized vol is reasonable.
A 3.5-sigma DTD maps (using a standard normal cumulative) to a 12-month default probability of roughly 0.02% to 2% depending on the noise in the inputs. The Merton model is famously generous to companies with positive enterprise value and modest asset volatility — both true here. Read this as the bottom rail of our range.
4c. Empirical Base Rate — Single-B U.S. HY Cable
The 4.00% 2030 senior unsecured notes carry an S&P rating of B (source: TradingView bond data for CABO5069112). Historical cumulative default rates for B-rated U.S. corporate issuers (per published rating-agency studies; specific issuer not cited because the rate is a general base-rate anchor):
These are unconditional base rates for the rating bucket. Adjustments for CABO: positive FCF (-1 to -2 points vs cohort), undrawn revolver (-1 point), cable industry secular pressure (+1 to +2 points), no current ratings watch / negative outlook publicly confirmed in this dataset (neutral). Net: stays inside the cohort range, biased slightly toward the upper half within 36 months as the 2028 maturity wall approaches.
4d. Credit-Spread Implied Default
The 2030 senior notes trade at ~61.1% of par with a YTM of 16.59% (source: TradingView). Against a ~4.0% 5-year Treasury, the option-adjusted spread is ~12.6 percentage points. Assuming a 35% recovery on unsecured cable HY (in line with historical Moody's recoveries on cable senior unsecured):
Risk-neutral probabilities systematically overstate actual default frequencies by 2–2.5x because HY spreads embed liquidity premium, default-risk-aversion premium, and the option value of distress trading. Applying a typical 40% empirical-to-risk-neutral haircut converts the 47% three-year risk-neutral PD into roughly a 19% three-year empirical PD — closer to the upper end of the B-rated cohort range than to the implied alarm.
4e. Reconciliation Table
Why we land at 12% over 36 months, not 30%+. Three things distinguish CABO from cohort B-rated names that actually default: (i) FCF is positive and persistent — TTM Adj EBITDA-less-capex of ~$500M is real cash for debt service; (ii) the revolver is undrawn for $700M after refinancing the 2026 converts, so the company is not yet living on revolver advances; (iii) management has voluntarily cut the dividend, sold non-core assets, and is repurchasing bonds below par — all bondholder-friendly actions a board sliding toward Chapter 11 does not take. The probability is elevated but bounded.
5. Plausible Restructuring Sequence and Timing
If the central case is wrong and EBITDA does fall through $640M, the path to Chapter 11 is not instant — there is a well-worn ladder of pre-filing actions that levered cable issuers run first.
Cumulative probability of reaching each step within 36 months (these are sequential, so each is conditional on the prior having failed): step 1 effectively 100% (already underway); step 4 ~30%; step 5 ~25%; step 7 ~15%; step 8 (pre-pack) ~10%; step 9 (free-fall) ~2%. That gives ~12% cumulative probability of Chapter 11 over 36 months, matching the triangulated answer in section 4.
6. Recovery Analysis for the Equity (Fulcrum-Security View)
A standard distressed-exchange / pre-pack outcome compresses equity value materially even when total enterprise value holds.
Cents-on-the-dollar recovery in a Chapter 11. Term loans (B-2/B-3/B-4) are first-lien secured by substantially all assets; in a cable Chapter 11, secured recovery is typically 80–95 cents on the dollar. 2030 senior unsecured notes recover 30–50 cents in a typical reorganization (consistent with their current ~61 trading level — the market is pricing somewhere between the empirical average and a more punitive outcome). 2028 converts are pari with the senior notes for legal purposes but the smaller issue size and convert features can produce holder-specific bargaining outcomes; assume 30–50 cents in line with the senior notes. The common equity recovers $0–5 per share in any Chapter 11 outcome — but as noted in section 1, you do not need a Chapter 11 to lose the equity; a distressed exchange with warrants can do it without a filing.
7. Why This Is Probably Not a Chapter 11 Story
The bear playbook assumes a straight-line read-across from Altice (ATUS) and gets to a covenant trip by FY27. Five reasons we do not.
The math, done both ways. Even in the stress case (EBITDA -15%), the company sits inside its covenant cap once the post-MBI 5.5x relief window is open, and the secured-A&E transaction at FY27 mid-year refinances the wall before Chapter 11 is on the table. The most likely "bad" outcome is credit-impairing but not bankruptcy-impairing: a distressed exchange on the unsecured paper, accompanied by warrants that dilute the equity 30–60%, all without a court filing. That is materially worse than the bull's $100 PT and materially better than the bear's $15 floor.
8. The Two Variables That Would Move the Probability Most
If asked to pick the indicators a reader should actually watch, two dominate everything else. Both already appear in the catalysts and watch-list tabs; we restate them here in bankruptcy-probability terms.
9. What This Tab Could Not Resolve
A few inputs that would tighten the probability range further but are not present in the run inputs and have not been fabricated:
Closing Frame
The bear is right that CABO is leveraged. The bear is right that the maturity wall is in 2028. The bear is not right that Chapter 11 is the central case. A B-rated cash-generative cable issuer with an undrawn revolver, a swap-fixed cost base, and an actively bondholder-friendly management team defaults at roughly the cohort average over 12–36 months, biased modestly upward by the 2028 wall and modestly downward by the FCF cushion — a central estimate of ~12% over 36 months, with the realistic dispersion 6–20%. The way this story ends badly without filing is a distressed exchange on the unsecured paper plus a covenant amendment with warrants in late FY27 — credit-impairing for the equity, value-creating for the term-loan lenders, and far short of Chapter 11. The way it ends well is two quarters of residential broadband net-add stabilization through FY26. Everything else on this page is downstream of that one print.
Cross-references: numbers-claude §4 (capital structure, leverage), forensics-claude §"What to Underwrite Next" (MBI put), bear-claude §3 (covenant collision), bull-claude §4 (deleveraging playbook), catalysts-claude §"What Changed in the Last 3-6 Months" (March 2026 revolver refi).