May 8, 2013 / 6:46 PM / 5 years ago

Fitch Rates AT&T's Sr. Unsecured Notes Offering 'A'; Outlook Negative

(The following statement was released by the rating agency) CHICAGO, May 08 (Fitch) Fitch Ratings has assigned an 'A' rating to AT&T Inc.'s (AT&T) offering of GBP1 billion of 4.25% senior unsecured notes due 2043. Proceeds are expected to be used for general corporate purposes, including the repayment of maturing debt. Fitch's Issuer Default Rating (IDR) for AT&T 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.; --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 by 2014, which represents a notable increase from the 1.5x level which prevailed prior to a more aggressive financial policy disclosed in November 2012. The policy change centered on debt-financed share repurchases and elevated capital spending. For 2013, Fitch expects AT&T's gross leverage to be in the 1.7x-1.8x range, compared with 1.7x in 2012 (excluding the actuarial losses on its benefit plans). EBITDA growth, while solid, is expected to only partially offset the effect of the rise in debt on leverage. In addition to stock repurchases and higher capital spending expected in 2013, by the end of the year AT&T will also complete several spectrum purchases. Over the next few years, AT&T's continuation of stock repurchases will require some borrowing, as repurchases will be above free cash flow (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 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. In Fitch's view, liquidity is strong and provided by the company's free cash flow (FCF); additional financial flexibility is provided by availability on the company's revolving credit facilities. At March 31, 2013, total debt outstanding was approximately $74.1 billion, a $4.3 billion rise from the $69.8 billion outstanding at the end of 2012. Of the total amount outstanding, $3.4 billion consists of debt due within one year, including debt that can be put to the company. At March 31, 2013, cash amounted to $3.9 billion. Fitch believes AT&T's capital spending program as disclosed in November 2012 will strengthen its competitive position and is a positive rating factor. Spending in 2013 is expected to rise to $21 billion before reverting to $20 billion annually in 2014 and 2015. On average, Fitch expects AT&T's FCF (net cash provided by operating activities less capital expenditures and dividends) to decline to $5 billion-$6 billion annually over the next three years from $9.2 billion in 2012. At end of the first quarter of 2013, 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, long-term debt maturities principally reflect approximately $0.6 billion in debt that may be put to the company. Maturities amount to $4.8 billion in 2014. RATING SENSITIVITIES 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, 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 transaction; --If Fitch believes management has weakened its commitment to returning to - and operating longer term with- leverage at a level reflective of the 'A' rating. 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 Michael Weaver Managing Director +1-312-368-3156 Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: brian.bertsch@fitchratings.com. Additional information is available at 'www.fitchratings.com'. 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 Rating Telecom Companies here Corporate Rating Methodology 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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