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
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
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
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
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.
--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
--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
Fitch affirms the following ratings with a Positive Outlook:
--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'.