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TEXT-Fitch report:Third quarter review of U.S. telecommunications & cable sector
Jan 10 - According to a new report issued today by Fitch Ratings, the U.S. Telecom and Cable sector's liquidity has remained strong and margins have remained solid in the face of competitive pressures.
Third-quarter liquidity has remained strong, with 88% of committed facilities available for borrowing and total liquidity exceeding aggregate 2011, 2012, and 2013 maturities. Latest 12 months (LTM) free cash flow (FCF) generated in the third quarter was $25 billion, and issuers maintained balance sheet cash of approximately $44 billion. This compares with a Fitch-estimated 2012 maturity schedule of $21 billion.
Margins have remained strong in the face of persistent competitive pressures, coupled with minimal organic growth opportunities, leading issuers to pursue growth opportunities through acquisition. Industry consolidation has resulted in margin improvement via expense synergies offsetting modest top-line growth. Fitch expects a modest EBITDA margin improvement in 2012 of 20-25 basis points.
Capital expenditures have normalized from recession lows, and issuers have continued to invest to maintain competitive positions, resulting in steady capital intensity, defined as capital expenditures to revenue, of 14% in the third quarter of 2011. Fitch expects capital intensity to be stable in 2012. However, wireless capital spending is expected to grow, primarily driven by Sprint Nextel Corp.'s significant network investment and the majority of operators continuing their LTE footprint expansion.
Continued margin improvement, strong liquidity positions, and extended maturity profiles should provide a sufficient buffer to material negative rating changes in the face macroeconomic headwinds. Of Fitch-rated issuers, 90% have a Stable Outlook, 5% have a Positive Outlook, and 5% have a Negative Outlook.
The full report 'Telecommunications and Cable Stats Quarterly' is available at 'www.fitchratings.com'. It provides a summary of four years of operating performance, credit metrics, and liquidity positions of the companies in this sector of Fitch's rating universe over the past four years, as well as key credit strengths and concerns as of the end of third quarter of 2011.
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