Fitch Rates Time Warner Cable's Sr. Unsecured Notes Issuance 'BBB'; Outlook Stable

CHICAGO--(BUSINESS WIRE)--Fitch Ratings has assigned a 'BBB' rating to Time Warner Cable's (TWC) benchmark size senior unsecured notes due 2013, 2018, and 2038. The proceeds from the offering are expected to be used to fund part of the $10.9 billion special dividend payment that is expected to be paid prior to the completion of TWC's separation from its parent Time Warner, Inc. The notes will be guaranteed by Time Warner Entertainment Company, LP and TW NY Cable Holding, Inc.

Overall Fitch's ratings reflect TWC's strong competitive position as the second largest cable multiple systems operator (fourth largest multi channel video program distributor) in the United States, strong subscriber clustering profile and the company's growing revenue diversity owing to the success of TWC's triple play service offering. Within the context of escalating competitive pressures, the ratings incorporate Fitch's expectation that the company will continue to generate solid operating metrics, sustainable EBITDA and free cash flow growth over Fitch's rating horizon. The expected turn around of the company's Los Angeles and Dallas cable systems will contribute to TWC's solid operating performance. From Fitch's perspective TWC's scale and system clustering provide the company with competitive advantages in terms of driving higher operating efficiencies through its cable plant, taking cost out of customer premise equipment, lowering programming costs, and positioning the company to develop enhance its product offerings that can differentiate the company's offering from competition.

Ratings concerns center on TWC's ability to maintain its relative competitive position given the changing competitive and economic environment, growing retail revenues beyond its core 'Triple Play' service offering, expanding into the commercial services market, efficiently managing its cable plant bandwidth to maximize desirable high-definition (HD) content and continuing to balance investing in its business with improving its overall credit profile.

After considering the additional debt TWC expects to incur to fund the special dividend, TWC's credit protection metrics will be relatively weak within the rating category when the separation transaction closes later in 2008. TWC's leverage metric as of the end of the first quarter was 2.3 times (x), however, Fitch anticipates TWC's leverage will increase to approximately 3.75x by year-end 2008. Fitch expects that TWC will use a substantial amount of its free cash flow generation to reduce leverage to a level more reflective of the current rating. Fitch believes that TWC is positioned to generate material amounts of free cash flow during the ratings horizon and by year-end 2009, TWC's leverage metric will improve to the company's longer term target of approximately 3.25x.

The terms of TWC's $9.0 billion senior unsecured bridge loan arranged to finance the special dividend stipulate that commitments under the $9.0 billion bridge facility will be reduced by an amount equal to the proceeds from any debt securities issued prior to the draw from the bridge facility.

The Stable Rating Outlook reflects Fitch's expectation that the company's credit protection metrics will strengthen following the closing of the separation transaction and that TWC's financial policy will continue to reflect a 'BBB' rating. Additionally, the Stable Outlook also incorporates Fitch's expectation that the company's operating profile will not materially decline during the near term in the face of competition and slowing economic conditions.

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