TEXT - Fitch affirms Comcast Corp 'BBB+' issuer default rating
Feb 13 - 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 upgraded the IDR assigned to NBCUniversal Media, LLC (NBCUniversal, a direct wholly owned subsidiary of NBCUniversal, LLC) to 'BBB+' from 'BBB'. In addition, Fitch has affirmed specific issue ratings assigned to Comcast and its subsidiaries and upgraded NBCUniversal's senior unsecured issue ratings to 'BBB+' from 'BBB'. Lastly, the Rating Outlook for all of Comcast's ratings has been revised to Positive from Stable. Approximately $43.4 billion of Comcast's consolidated debt, including $11.2 billion outstanding at NBCUniversal as of Dec. 31, 2012 (pro forma for Comcast's $2.95 billion issuance of senior unsecured notes during Jan. 2013) is affected by Fitch's action. KEY RATING DRIVERS --Comcast's pending acquisition of the remaining 49% ownership stake in NBCUniversal it does not own from General Electric Corporation (GE) is neutral to Comcast's current ratings. --Amendment of the existing cross guaranty structure to include the debt issued by NBCUniversal leads to linkage of the ratings. --The adoption of a more conservative 1.5x to 2x leverage target signals leverage will further strengthen during ratings horizon. Fitch believes Comcast has sufficient capacity within the current ratings to accommodate the modest increase in leverage expected in connection with the redemption of GE's ownership interest. The proposed transaction is viewed as a positive event because it provides Comcast with unfettered access to NBCUniversal's strong cash flow generation and removes the ownership overhang from Comcast's credit profile. However, Comcast's redemption of GE's ownership interest in NBCUniversal does not change the company's or NBCUniversal's operating profile. Fitch expects a large portion of the transaction will be funded with existing cash. Comcast and NBCUniversal have executed several capital market and asset sale transactions that have built the company's consolidated cash balance to approximately $13.9 billion as of Dec. 31, 2012(pro forma for Comcast's $2.95 billion issuance of senior unsecured notes during January 2013). The balance of the funding requirement will be satisfied through the issuance of $6 billion of incremental debt, including $4 billion of senior notes issued to GE. Comcast's leverage increases to 2.4x pro forma for the transaction from an estimated 2x as of year-end 2012. Fitch anticipates consolidated leverage to improve to 2.2x by year-end 2013 and strengthen to 2x by the end of 2014. The Positive Outlook reflects the foreseen improvement of Comcast's credit protection metrics over the near term along with the more conservative leverage target adopted by management. In Fitch's opinion, the company's strong cable operating profile along with the margin improvement opportunities within NBCUniversal's broadcasting segment and modest debt reduction will enable Comcast to drive leverage within its new target during the current ratings horizon. The upgrade of NBCUniversal's IDR and senior unsecured ratings follows the inclusion of NBCUniversal into Comcast's cross guaranty structure, which effectively renders the NBCUniversal indebtedness to rank pari passu with the debt currently included in the cross guaranty. Fitch estimates 88% of consolidated debt will be included in the cross guaranty structure pro forma for the GE redemption transaction. Comcast's and NBCUniversal's IDRs will be linked by Fitch going forward. Comcast's addition of NBCUniversal Media's debt into the cross guaranty structure together with the strong strategic tie and ownership consolidation provide sound rationale for linking the ratings. 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 in Fitch's estimation. Cash returned to shareholders (dividends plus buybacks) totaled $4.6 billion or approximately 58% of cash flow before dividends during 2012. Comcast has elected to pull back from $3 billion to $2 billion on share repurchases during 2013 to facilitate the GE redemption transaction. However Fitch expects the company's pre-dividend pay-out ratio will increase over the medium term. As of Dec. 31, 2012 approximately $3.5 billion of capacity remains under Comcast's share repurchase authorization. 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 $7.5 billion of consolidated free cash flow (defined as cash provided by operating activities less capital expenditures and dividends) during the latest-12-month (LTM) period ended Dec. 31, 2012. Fitch anticipates that the company will consistently generate consolidated free cash flow in excess of $7 billion. 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 is further supported by cash on hand (which totaled $11.0 billion on a consolidated basis as of Dec. 31, 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 debt maturity profile on a consolidated basis is well laddered and within Fitch's free cash flow (FCF) expectation for the company. Scheduled maturities during 2013 total approximately $2.4 billion followed by $2 billion during 2014 including approximately $900 million at NBCUniversal. 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. 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. 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. 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. While the Filmed Entertainment business has a level of volatility, Fitch believes there is sufficient capacity within NBCUniversal's current ratings to accommodate the 'hit natured' fluctuation of the Filmed Entertainment segment operating profile. RATING SENSITIVITIES: --Positive rating action would likely coincide with Comcast achieving leverage below 2x 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 an event driven merger and acquisition activity, that drive leverage beyond 2.75x in the absence of a credible de-leveraging plan. Fitch affirms the following ratings with a Positive Outlook: 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 upgrades the following ratings for NBCUniversal with a Positive Outlook: NBC Universal Media, LLC --IDR to 'BBB+' from 'BBB'; --Senior unsecured debt to 'BBB+' from 'BBB'; --Senior Unsecured Revolver to 'BBB+' from 'BBB'.
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