Feb 8 () - Fitch Ratings has assigned an 'A' rating to AT&T Inc.'s (AT&T)
offering of $2.25 billion of senior unsecured notes due 2016. The offering
consists of $1 billion 0.9% fixed rate notes and $1.25 billion of floating rate
notes. Proceeds are expected to be used for general corporate purposes. AT&T's
Issuer Default rating (IDR) is 'A', and the Rating Outlook is Negative.
Key Rating Drivers
The rating is supported by:
--AT&T's financial flexibility;
--The company's diversified revenue mix;
--Its significant size and economies of scale as the largest telecommunications
operator in the U.S.; and
--Fitch's expectation that AT&T will benefit from continued growth in wireless
operating cash flows.
The following concern is embedded in the rating:
--The Negative Outlook reflects Fitch's expectation that AT&T's net leverage is
likely to move up to a 1.8x upper boundary for leverage, which represents a
notable increase from the 1.5x level over the past couple of years.
AT&T's increased leverage is expected to arise 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.
Prospective leverage expectations are subject to uncertainty caused by the rate
of stock repurchases, actual capital expenditure levels, possible acquisitions
(such as longer-term spectrum needs) and asset divestitures (of which there are
none in Fitch's expectations).
In January 2013, AT&T announced two transactions to improve its wireless
spectrum position. Subject to regulatory approval, AT&T will acquire certain
rural wireless assets and spectrum from Atlantic Tele-Network, Inc. for $780
million in cash. Additionally, the company has a pending transaction to acquire
certain B-block 700 MHz licenses from Verizon Wireless for $1.9 billion in cash
and certain Advanced Wireless Services spectrum licenses in several markets. In
Fitch's view, the proposed acquisitions are strategically sound as they are
supportive of wireless growth. The transactions, if completed, are not currently
expected to push the company's credit metrics above the 1.8x net leverage level.
For 2013, Fitch expects AT&T's gross leverage to approximate 1.7x, flat with
2012 (excluding the actuarial losses on its benefit plans). Net leverage in 2012
was 1.58x. Over the next few years, AT&T's continuation of stock repurchases
will require some borrowing as repurchases will be above FCF levels. Leverage
will rise, with net leverage expected to peak near a 1.8x upper boundary in
2014. Thereafter, leverage is expected to decline over time.
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 Dec. 31, 2012, total debt outstanding was
approximately $69.8 billion, a $5 billion rise from the $64.8 billion
outstanding at the end of 2011. Of the total amount outstanding, $3.5 billion
consists of debt due within one year, including debt that can be put to the
company. At Dec. 31, 2012, cash amounted to $4.9 billion, and for 2012, AT&T
produced $9.2 billion in FCF (net cash provided by operating activities less
capital expenditures and dividends), an amount short of the $12.8 billion in
stock repurchases during the year. Fitch expects FCF to decline from $9.2
billion in 2012 to $4 billion annually, on average, over the next three years.
At end of 2012, the company did not have any drawings on its revolving credit
facilities. 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 free cash flows, upcoming debt maturities are
manageable. In 2013, debt maturities approximate $3.4 billion, including
approximately $1.6 billion in debt that may be put to the company. Maturities
amount to $3.8 billion in 2014.
The Rating Outlook could be revised to Stable if:
--The company steadily manages net leverage down from Fitch's expected peak 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 above (or is expected to remain above) the 1.8x level for
several quarters, including expected leverage resulting from a material
--Fitch believes management has weakened its commitment to returning to, or
operating longer-term with, leverage at a level more reflective of the rating.
Additional information is available at 'www.fitchratings.com'. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 8, 2012);
--'Rating Telecom Companies - Sector Credit Factors' (Aug. 9, 2012).
Applicable Criteria and Related Research:
Corporate Rating Methodology
Rating Telecom Companies