TEXT - Fitch affirms Comcast Corp 'BBB+' issuer default rating
Nov 8 - Fitch Ratings has affirmed the 'BBB+' Issuer Default Ratings (IDRs) assigned to Comcast Corporation (Comcast) and its wholly owned subsidiaries included in Comcast's cross-guaranty structure that hold all of the company's cable businesses. Fitch has also affirmed the 'BBB' IDR assigned to NBCUniversal Media, LLC (NBCUniversal), a direct wholly owned subsidiary of NBCUniversal, LLC. NBCUniversal, LLC is a joint venture between Comcast and General Electric Company (GE). Comcast manages and owns 51% of NBCUniversal, LLC. In addition Fitch has affirmed specific issue ratings assigned to Comcast and its subsidiaries as outlined below. The Rating Outlook for all of Comcast's ratings is Stable. Approximately $38.6 billion of debt, including $9.7 billion outstanding at NBCUniversal as of Sept. 30, 2012 is affected. Fitch believes Comcast's strong operating profile and solid free cash flow metrics afford the company a high degree of financial flexibility at the current rating category. The company generated approximately $8.3 billion of consolidated free cash flow (defined as cash provided by operating activities less capital expenditures and dividends) during the LTM period ended Sept. 30, 2012. Fitch anticipates that the company will consistently generate consolidated free cash flow in excess of $7 billion annually after considering higher cash taxes due to the absence of further economic stimulus legislation. Fitch does not expect any material change to Comcast's capital allocation strategy over the near term. The company maintains 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. Cash generated from the cable business will be used to return cash to Comcast shareholders while cash generated at NBCUniversal will build-up in anticipation of obligations related to GE's ownership put rights. Cash returned to shareholders (dividends plus buybacks) totaled $3.4 billion or approximately 48% of cash flow before dividends during the first nine months of 2012. As of Sept. 30, 2012 approximately $4.25 billion of capacity remains under Comcast's share repurchase authorization. Comcast's leverage declined to 1.94x on a consolidated basis as of the LTM period ended Sept. 30, 2012 when compared to 2.11x as of year-end 2011 and 2.35x for the LTM period ended Sept. 30, 2011. The company is operating at the lower end of Comcast's leverage target ranging between 2x and 2.5x. NBCUniversal's leverage was 2.4x (2.9x pro forma for NBCUniversal's $2.0 billion issuance of senior notes during October 2012). Both leverage metrics are within Fitch's expectations given the current ratings. After considering NBCUniversal's recent debt issuance, Fitch expects consolidated debt levels will remain relatively constant during 2013. On a consolidated basis, Fitch anticipates Comcast's leverage metric will remain at the lower end of the company's leverage target and approach 1.9x as of year-end 2013, while NBCUniversal's leverage metric will range between 2.5x and 2.75x by year-end 2013. Fitch's ratings incorporate Comcast's strong competitive position as one of the largest video, high speed internet and phone providers to residential and business customers in the United States and the company's compelling subscriber clustering profile with operations in 39 states and the District of Columbia. 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, lowers the business risk attributable to Comcast's credit profile and creates new avenues for revenue and cash flow growth while limiting the near-term impact on Comcast's balance sheet and credit profile. Fitch believes Comcast's competitive position of its cable business will remain strong during the current ratings horizon. Fitch does not expect the competitive pressure associated with the service overlap of the different telecommunications service providers to materially change. Comcast's residential cable operating profile strengthened during the course of 2012 notwithstanding the competitive pressure, and weak employment and housing market conditions. Comcast continues to make appropriate investment in technology and other strategic product initiatives to improve competitive position and change the way consumers utilize video, voice, and high-speed-data services. These investments have contributed to a reduction of video service subscriber losses during the year and the solidification of the company's high-speed data market share lead. Demonstrating the operating leverage inherent in the cable business, Comcast has maintained its cable EBITDA margins while experiencing consistent video service gross margin pressure brought on by persistent programming cost increases. Comcast offsets higher operating expenses by realizing operating efficiencies and improving its revenue mix to higher margin services (high-speed data and commercial services) and improving penetration of advanced video services. NBCUniversal's portfolio of leading cable networks is a key consideration supporting Fitch's ratings and a key 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 free cash flow generation. Fitch acknowledges that increasing programming expense will weigh on cable network operating margins. NBCUniversal's 'BBB' IDR reflects its stand alone credit profile while incorporating the company's strong strategic tie with Comcast. NBCUniversal's debt is not guaranteed by either Comcast or GE, and Comcast's debt does not contain cross default provisions. NBCUniversal's ratings are enhanced by a key corporate governance provision between Comcast and GE limiting NBCUniversal from incurring additional indebtedness if the company's leverage is greater than 2.75x. 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 weak 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. Within NBCUniversal, rating concerns center on the secular issues challenging NBCUniversal's Broadcast Television segment, including time-shifting technologies and internet based content, as well as the cyclicality of advertising revenues. Fitch believes that on a total company basis NBCUniversal generates less than half of its revenues from advertising - in line with its media peer group. The operating margins generated by NBCUniversal's Broadcast Television segment lag its peer group. The company believes that improved programming and scheduling can improve operating margins. However there is sufficient capacity within NBCUniversal's current ratings to accommodate the 'hit natured' fluctuation of the Filmed Entertainment segment operating profile. 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 free cash flow. 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 if further supported by cash on hand (which totaled $8.9 billion on a consolidated basis as of Sept. 30, 2012) and available borrowing capacity from Comcast's $6.25 billion revolver (of which approximately $5.8 billion was available for borrowing). Comcast's revolver will expire during June, 2017. Comcast's cash balance is high relative to historical norms and reflects $3 billion of cash proceeds received from the sale of NBCUniversal's 15.8% economic stake in A&E Television Networks, LLC as well as $2.3 billion of cash received by Comcast in connection with the company's share of cash proceeds generated from SpectrumCo's sale of its advance wireless services spectrum to Verizon Wireless. NBCUniversal held approximately $4.2 billion of cash as of Sept. 30, 2012, which supports the company's strong liquidity position. The company's high conversion of EBITDA into free cash flow is a key liquidity consideration supporting the 'F2' rating. NBCUniversal's $1.5 billion senior unsecured revolving credit facility provides a 100% liquidity back-up to its CP program. Commitments under the revolver expire during June 2016, and as of Sept. 30, 2012 approximately $1.4 billion was available for borrowing. While earlier than anticipated, Fitch believes the company is beginning to accumulate cash to fund an anticipated future redemption of GE's interest in NBCUniversal, LLC. Under the terms of the joint venture operating agreement, GE has the right to cause NBCUniversal, LLC to redeem for cash one-half of its remaining 49% non-controlling equity interest during a six-month period beginning July 28, 2014. GE's then remaining stake in NBCUniversal, LLC can be redeemed during a six-month period starting Jan. 28, 2018. Comcast's debt maturity profile on a consolidated basis is well laddered and within Fitch's FCF expectation for the company. Scheduled maturities during 2013 total approximately $2.4 billion followed by $2 billion during 2014 including $907 million at NBCUniversal. What Could Trigger a Positive Rating Action: --Positive rating action would likely coincide with Comcast committing to reduce leverage below 2x on a sustained basis after considering Comcast's potential funding obligations related to GE's ownership put rights related to NBCUniversal. --Comcast would need to demonstrate that its operating profile will not materially decline in the face of competition and poor housing and employment conditions. --While Fitch expects improving operating trends will strengthen NBCUniversal's credit profile, positive rating actions are unlikely given the company's obligations related to GE's ownership put rights. --Strengthening of the implicit linkage of NBCUniversal's ratings to Comcast Corporation as evidenced by Comcast increasing its ownership stake in NBCUniversal and NBCUniversal's growing strategic importance to Comcast. What Could Trigger a Negative Rating Action: --Negative rating actions are more likely to coincide with discretional actions of Comcast's management including, but not limited to the company adopting a more aggressive financial strategy or an event driven merger and acquisition activity, that drive leverage beyond 2.75x in the absence of a credible de-leveraging plan. --A downgrade of NBCUniveral's rating could result from the adoption of a more aggressive financial policy that increases leverage beyond 3.25x on a sustained basis. Fitch affirms the following ratings: Comcast Corporation --IDR at 'BBB+'; --Senior unsecured Debt at 'BBB+'; --$6.25 billion revolving bank facility (co-borrower with Comcast Cable Communications LLC) at 'BBB+'; --Short-term IDR at 'F2'; --Commercial Paper at 'F2'. Comcast Holdings Corporation --IDR at 'BBB+'; --Subordinated Exchangeable Notes at 'BBB-'. Comcast Cable Communications, LLC --IDR at 'BBB+'; --Senior unsecured debt at 'BBB+'; --$6.25 billion revolving bank facility (co-borrower with Comcast) at 'BBB+'. Comcast Cable Holdings, LLC --IDR at 'BBB+'; --Senior unsecured debt at 'BBB+'. Comcast MO Group, Inc. --IDR at 'BBB+'; --Senior unsecured debt at 'BBB+'. Comcast MO of Delaware, LLC --IDR at 'BBB+'. Fitch affirms the following ratings for NBCUniversal with a Stable Outlook: NBC Universal Media, LLC --IDR at 'BBB'; --Senior unsecured debt at 'BBB'. --Senior Unsecured Revolver at 'BBB'; --Short-term IDR at 'F2' --Commercial Paper at 'F2' Universal City Development Partners, Ltd. --IDR at 'BBB'; --Senior unsecured debt at 'BBB'; --Senior subordinated debt at 'BBB-'.
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