TEXT-S&P: Discovery Communications ratings unchanged

Tue Dec 18, 2012 10:40am EST

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Dec 18 - Standard & Poor's Ratings Services said today that its rating
Silver Spring, Md.-based cable network operator Discovery Communications Inc.
 (BBB/Stable/--) are unchanged after the company's recent
announcements. Discovery will purchase SBS Group's television and radio
operations in Sweden, Norway, Denmark, Finland, and England for EUR1.325
billion, and it is in negotiations with TF1 over a strategic alliance including
the purchase of a 20% interest in Eurosport for EUR170 million. We regard the
two transactions as potentially risky: While they expand Discovery's
international assets, helping it develop its international expertise, it also
exposes it to content with higher risk and lower margins, specifically scripted
programming and sports. It also modestly increases the revenue and EBITDA
contribution from advertising, which we expect to result in somewhat more
cyclical operating performance. We estimate pro forma debt to last-12-months'
EBITDA could rise to about 3.3x if Discovery fully funds these transactions with
debt. However, we expect Discovery to use its sizeable cash balance ($1.553
billion as of Sept. 30, 2012) to reduce the necessary debt 
funding so that leverage, pro forma for the transaction, remains under 3x. Our 
'BBB' corporate credit rating is predicated on Discovery maintaining leverage 
below 3x on a sustained basis, and exhibiting a high degree of operating 
stability.

RELATED CRITERIA AND RESEARCH
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