Fitch Ratings has affirmed the 'A-' Issuer Default Ratings (IDRs)
assigned to Comcast Corporation (Comcast) and its wholly owned
subsidiaries included in Comcast's cross-guaranty structure. Fitch has
also affirmed the 'A-' IDR assigned to NBCUniversal Enterprise, Inc.
(Enterprise). The Rating Outlook on all of these ratings remains Stable.
Approximately $48.6 billion of Comcast's consolidated debt, including
$11.2 billion outstanding at NBCUniversal as of Dec. 31, 2013 is
affected by Fitch's action.
Fitch has placed the 'BBB' IDR assigned to Time Warner Cable, Inc. (TWC)
and certain of its subsidiaries on Rating Watch Positive. Approximately
$25 billion of debt outstanding at TWC as of Dec. 31, 2013 is affected
by Fitch's action.
Fitch's action follows the company's announcement that it has entered
into a definitive agreement for TWC to merge with Comcast whereby
Comcast will acquire 100% of TWC's outstanding common equity for
approximately $45.2 billion in an all-stock transaction.
KEY RATING DRIVERS
--Comcast's merger with TWC is strategically sound and creates
significant opportunity to realize operating and capital spending
efficiencies with minimal execution risk and enables the combined entity
to effectively compete on a national scale for incremental commercial
--The all-stock consideration structure of the merger with TWC is not
expected to have a material impact on Comcast's credit protection
--Comcast's capital structure and financial strategy remains intact and
centered on reducing leverage to its target of between 1.5x and 2.0x.
--Fitch does not expect any material change to Comcast's capital
allocation strategy over the near term and believes there is sufficient
capacity within the ratings to accommodate a contemplated expansion of
Comcast's share repurchase authorization.
Fitch estimates that approximately $73.6 billion of debt and preferred
stock was outstanding as of Dec. 31, 2013 on a pro forma basis
translating into pro forma leverage of 2.5x. The pro forma leverage
represents a modest increase relative to Comcast's actual leverage of
2.2x (Fitch calculation). Fitch expects Comcast's credit profile will
strengthen on a pro forma basis with consolidated pro forma leverage of
2.2x by year-end 2014, approaching 2x by the end of 2015 in the absence
of significant cost or operating synergies.
The TWC rating action reflects the strong strategic tie and ownership
resulting from the merger closing. As in prior acquisitions, Fitch would
expect that Comcast would ultimately include the TWC debt in its cross
guaranty structure post-closing, which effectively renders the TWC
indebtedness to rank pari passu with the debt currently included in the
cross guaranty, and provides sound rationale for linking the ratings. As
a result of the successful completion of the merger and anticipated
inclusion in the existing guaranty structure is expected to lead to a
two notch upgrade in TWC's ratings.
The merger with TWC enables Comcast to extend its operating strategies
and technology roadmap into TWC's operations creating the opportunity to
realize material operating cost and capital spending efficiencies. Fitch
points out that Comcast's cable segment EBITDA margin was nearly 500
basis points higher than the comparable TWC EBITDA margin during the
year ended 2013. Comcast's ability to successfully establish its key
operating strategies within TWC's legacy operations creates a potential
$1 billion EBITDA benefit for the combined entity. Additionally the
national scope of the combined entities cable infrastructure will
position the company to effectively compete for a higher tier commercial
business. Combined commercial segment revenues totaled approximately
$5.5 billion during 2013 representing the second fastest growing
business segment of the combined entity.
FCF (defined as cash flow from operations less capital expenditures and
dividends) amounted to approximately $7.4 billion during the year-ended
Dec. 31, 2013 on a pro forma basis. Going forward Fitch anticipates that
the company will consistently generate consolidated FCF in excess of 10%
of consolidated revenues.
In Fitch's estimation, the company will continue to maintain an
appropriate balance between returning capital to shareholders, in the
form of dividends and share repurchases, repaying debt, and investing in
the strategic needs of its business. Fitch's expectation that
shareholder returns as a percentage of pre-dividend cash flow will
increase over the medium term is incorporated into the ratings. Comcast
previously indicated that share repurchases should total $3 billion
during 2014 as part of a $7.5 billion share repurchase authorization.
Furthermore, the company expects to expand the share repurchase
auhorization by an additional $10 billion upon closing of the merger
Comcast's liquidity position and overall financial flexibility are
strong owing to Fitch's expectation that the company will continue to
generate material amounts of FCF. Fitch acknowledges that Comcast's
share repurchase program represents a significant use of cash; however,
Fitch believes that the company would reduce the level of share
repurchases should the operating environment materially change in order
to maximize financial flexibility. The liquidity position is further
supported by cash on hand (which totaled $1.7 billion on a consolidated
basis as of Dec. 31, 2013) and $4.7 billion of collective available
borrowing capacity (as of Dec. 31, 2013) from Comcast's two revolving
credit facilities. Commitments under Comcast's $6.25 billion revolver
will expire during June 2017 while the commitments related to
NBCUniversal Enterprise's $1.35 billion revolver expire during March
Comcast's debt maturity profile is well laddered and within Fitch's FCF
expectation for the company. Maturities total approximately $1.9 billion
during 2014 (including $900 million at NBCUniversal Media) excluding
outstanding commercial paper, followed by $3.4 billion during 2015.
Comcast's ratings reflect its strong competitive position as one of the
largest video, high-speed Internet and phone providers to residential
and business customers in the U.S. and the company's compelling
subscriber clustering profile. In Fitch's view, NBCUniversal's size,
scale, leading brand positions, and diversity of operations and business
risk as one of the world's leading media and entertainment companies,
lower the business risk attributable to Comcast's credit profile. These
factors also create new avenues for revenue and cash flow growth while
limiting the near-term impact on Comcast's balance sheet and credit
NBCUniversal's portfolio of leading cable networks as well as the
growing importance of its theme parks business are key considerations
supporting Fitch's ratings and a strength of the company's credit
profile. Fitch considers cable networks one of the strongest subsectors
in the media and entertainment industry, providing NBCUniversal with a
revenue base largely consisting of stable, recurring and high-margin
affiliate fee revenue generated from multichannel video programming
distributors as well as a significant source of NBCUniversal's FCF
generation. Fitch acknowledges that increasing programming expense may
weigh on cable network operating margins.
The company's strategy to continually invest in new attractions within
its theme park business drive strong attendance and per capita spending
metrics, which translate into high-margin, recurring cash flows.
Outside of a change to Comcast's financial strategy or event-driven
merger and acquisition activity, rating concerns center on Comcast's
ability to adapt to the evolving operating environment while maintaining
its relative competitive position, given the challenging competitive
environment and soft housing and employment trends. Considering the
mature nature of video services and growing penetration of high-speed
data services, Comcast's ability to grow consumer revenues while
maintaining operating margins remains a key rating consideration.
--A positive rating action would likely coincide with Comcast achieving
and committing to a financial policy consistent with an 'A' rating,
including maintaining its leverage below 1.5x on a sustained basis.
Comcast would need to demonstrate that its operating profile will not
materially decline in the face of competition and less than robust
housing and employment conditions.
--Negative rating actions would likely coincide with discretionary
actions of Comcast's management including, but not limited to, the
company adopting a more aggressive financial strategy, or event-driven
merger and acquisition activity, that drive leverage beyond 2.5x in the
absence of a credible deleveraging plan.
Fitch has affirmed the following ratings with a Stable Outlook:
--IDR at 'A-';
--Short-term IDR at 'F2';
--Commercial Paper at 'F2';
--Senior unsecured debt at 'A-';
--$6.25 billion revolving bank facility (co-borrower with Comcast Cable
Communications LLC) at 'A-'.
Comcast Holdings Corporation
--Subordinated exchangeable notes at 'BBB'.
Comcast Cable Communications, LLC
--$6.25 billion revolving bank facility (co-borrower with Comcast) at
Comcast Cable Holdings, LLC
--Senior unsecured debt at 'A-'.
Comcast MO Group, Inc.
Comcast MO of Delaware, LLC
--IDR at 'A-'.
NBC Universal Media, LLC
NBCUniversal Enterprise, Inc.
--$1.35 billion revolving bank facility at 'A-';
--Series A preferred stock at 'BBB';
--Commercial Paper at 'F2'.
Fitch has placed the following ratings on Rating Watch Positive:
Time Warner Cable, Inc.
--IDR of 'BBB'.
--Senior Unsecured debt of 'BBB'.
Time Warner Cable Enterprises LLC
Fitch affirmed the following ratings:
--F-2 Short Term IDR
--F-2 Commercial Paper Rating
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 5, 2013);
--'Rating Telecom Companies' (Aug. 9, 2012).
Rating Telecom Companies
Corporate Rating Methodology: Including Short-Term Ratings and Parent
and Subsidiary Linkage
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