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Fitch Affirms AT&T's IDR at 'A'; Outlook Negative
November 11, 2013 / 2:41 PM / 4 years ago

Fitch Affirms AT&T's IDR at 'A'; Outlook Negative

(The following statement was released by the rating agency) CHICAGO, November 11 (Fitch) Fitch Ratings has affirmed the 'A' Issuer Default Ratings (IDRs) and debt security ratings of AT&T Inc. (AT&T) (NYSE: T) and its subsidiaries. The company's short-term IDR and commercial paper ratings have been affirmed at 'F1'. The Rating Outlook, which Fitch only applies to long-term debt securities, remains Negative. A full rating list is shown below. KEY RATING DRIVERS The 'A' rating assigned to AT&T is supported by its diversified revenue mix, its significant size and economies of scale as the largest telecommunications operator in the U.S., strong free cash flows (FCFs), and Fitch's expectation that AT&T will benefit from continued growth in wireless operating cash flows. The Negative Outlook reflects Fitch's expectation that AT&T's net leverage is likely to approximate 1.8x before declining after 2014. This level was articulated by the company in November 2012 and is temporarily the upper boundary of its targeted net leverage. The higher level represents a notable increase from the 1.5x net leverage maintained by the company prior to its temporary change in policy. For the latest 12 months (LTM) ended Sept. 30, 2013, AT&T's net leverage as calculated by Fitch was 1.8x, an increase from the 1.6x at year-end 2012 (excluding the actuarial losses on its benefit plans). Higher leverage arose from the combined effects of a moderate increase in wireless and wireline capital spending and the continuation of the company's share repurchase program as announced in early November 2012. Following a peak in share repurchases in the first quarter of 2013, repurchases have continued at a lower level. For 2013, Fitch expects AT&T's year-end net leverage to approximate 1.7x to 1.8x. Leverage levels over the coming quarters may be modestly affected by the timing of the sale of its wireless towers for approximately $4.85 billion (expected to close in the fourth quarter of 2013) and the acquisition of Leap Wireless International, Inc. for about $4 billion (expected to be completed in the first quarter of 2014). In Fitch's view, liquidity is strong and provided by the company's FCF; additional financial flexibility is provided by availability on the company's revolving credit facilities. At Sept. 30, 2013, total debt outstanding was approximately $76.2 billion, a $6.4 billion rise from the $69.8 billion outstanding at the end of 2012. Of the total amount outstanding, $7.9 billion consists of debt due within one year, including debt that can be put to the company. At Sept. 30, 2013, cash amounted to $1.4 billion and for the LTM ended Sept. 30, 2013, AT&T produced $5.9 billion in FCF (net cash provided by operating activities less capital expenditures and dividends), an amount short of the $15.5 billion in stock repurchases over the course of the same period. Fitch expects FCF to range from $5 billion to $6 billion annually, on average, over the next three years. At Sept. 30, 2013, the company did not have any drawings on either its $5 billion revolving credit facility due 2016 or its $3 billion revolving credit facility due 2017. The principal financial covenant for the 2016 and 2017 facilities requires debt to EBITDA, as defined, to be no more than 3x. Relative to the company's expected FCFs, upcoming debt maturities are manageable. For the remainder of 2013, debt maturities are nominal. Maturities amount to $5.4 billion in 2014 including debt putable to the company. RATING SENSITIVITIES The Rating Outlook could be revised to Stable if: --The company steadily manages net leverage down from Fitch's expected peak of just under 1.8x in 2014; --Fitch believes leverage will not reach peak levels as a result of the outcome of the following factors, including, but not limited to, stronger operating results, lower capital spending, and the effect of any acquisitions or divestitures that may occur. A negative rating action could occur if: --Net leverage remains near or above (or is expected to remain near or above) the 1.8x level for several quarters after its peak, including expected leverage resulting from a material transaction; --Fitch believes management has weakened its commitment to returning to, or operating longer term with, leverage at a level more reflective of the 'A' rating. Fitch has affirmed the following ratings with a Negative Outlook for the long term ratings: AT&T, Inc. --Long-term IDR at 'A'; --Senior unsecured debt at 'A'; --$5 billion revolving credit facility due December 2016 at 'A'; --$3 billion revolving credit facility due December 2017 at 'A'; --Short-term IDR at 'F1'; --Commercial paper at 'F1'. AT&T Corp. --Long-term IDR at 'A'; --Senior unsecured at 'A'. BellSouth Corp. --Long-term IDR at 'A'; --Senior unsecured at 'A'. BellSouth Capital Funding Corp. --Senior unsecured at 'A'. BellSouth Telecommunications, Inc. --IDR at 'A'; --Senior unsecured at 'A'. AT&T Mobility LLC (formerly Cingular Wireless, LLC) --Long-term IDR at 'A'; --Senior unsecured at 'A'. New Cingular Wireless Services, LLC (formerly AT&T Wireless Services, Inc.) --Long-term IDR at 'A'; --Senior unsecured at 'A'. Ameritech Capital Funding --Long-term IDR at 'A'; --Senior unsecured at 'A'. Indiana Bell Telephone Company --Long-term IDR at 'A'; --Senior unsecured at 'A'. Michigan Bell Telephone Company --Long-term IDR at 'A'; --Senior unsecured at 'A'. Pacific Bell Telephone Company --Long-term IDR at 'A'; --Senior unsecured at 'A'. Wisconsin Bell Telephone Company --Long-term IDR at 'A'; --Senior unsecured at 'A'. Southwestern Bell Telephone Company --Long-term IDR at 'A'; --Senior unsecured at 'A'. Contact: Primary Analyst John C. Culver, CFA Senior Director +1-312-368-3216 Fitch Ratings, Inc. 70 W. Madison Street Chicago, IL 60602 Secondary Analyst Bill Densmore Senior Director +1-312-368-3125 Committee Chairperson David Peterson Senior Director +1-312-368-3177 Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: elizabeth.fogerty@fitchratings.com. Additional information is available at 'www.fitchratings.com'. Applicable Criteria and Related Research: --'Corporate Rating Methodology' (Aug. 5, 2013); --'Rating Telecom Companies - Sector Credit Factors' (Aug. 9, 2012). Applicable Criteria and Related Research: Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage here Rating Telecom Companies here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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