Fitch Affirms Comcast's IDR at 'A-' Following Asset Divestiture

CHICAGO--()--Fitch Ratings has affirmed the 'A-' Issuer Default Ratings (IDRs) assigned to Comcast Corporation (Comcast) and its wholly owned subsidiaries included in Comcast's cross-guaranty structure. Fitch has also affirmed the 'A-' IDR assigned to NBCUniversal Enterprise, Inc. (Enterprise). The Rating Outlook on all of these ratings remains Stable.

Approximately $48.1 billion of Comcast's consolidated debt and preferred stock, including $11.2 billion outstanding at NBCUniversal Media, LLC (NBCUniversal Media) as of March 31, 2014, is affected by Fitch's action.

Fitch's action follows the company's announcement that it has entered into a series of agreements with Charter Communications, Inc. (Charter) whereby Comcast will divest approximately 3.9 million video subscribers following the closing of the Comcast and Time Warner Cable, Inc. (TWC) merger. The divestiture transaction is expected to enhance Comcast's ability to secure required regulatory approval in connection with its pending merger agreement with TWC. The Charter agreements consist of three separate transactions including: (1) an asset sale transaction, (2) a contribution and spin-off transaction, and (3) an asset exchange transaction. These transactions are subject to several closing conditions including closing the previously announced merger agreement between Comcast and TWC and the receipt of required regulatory and shareholder approvals. Comcast anticipates the merger with TWC will close by the end of 2014 and that the transactions with Charter and the spin-off transaction will be reviewed in parallel by the FCC and Department of Justice.

KEY RATING DRIVERS

--Fitch expects the asset divestiture transactions will not have a material impact on Comcast's operating profile pro forma for the TWC merger and will be executed in a leverage-neutral manner.

--Proceeds from the asset divestitures will total approximately $14 billion. Fitch expects Comcast to use the proceeds to reduce outstanding debt and to repurchase shares of its common stock.

--The transactions should lead to an improved subscriber clustering profile enabling the company to deliver improved technology deployments, greater operating efficiencies, and enhanced customer service.

--Comcast's merger with TWC remains strategically sound after considering the asset divestitures, creates significant opportunity to realize operating and capital spending efficiencies with minimal execution risk and enables the combined entity to effectively compete on a national scale for incremental commercial segment business. Fitch remains confident that Comcast can deliver operating efficiencies of $1.5 billion through its merger with TWC.

--Comcast's capital structure and financial strategy remain intact and centered on reducing leverage to its target of between 1.5x and 2.0x.

--Fitch does not expect any material change to Comcast's capital allocation strategy over the near term and believes there is sufficient capacity within the ratings to accommodate a contemplated expansion of Comcast's share repurchase authorization.

Fitch continues to believe that Comcast's leverage as of year-end 2014 pro forma for the TWC merger and the asset divestitures will approximate 2.2x, unchanged from previous expectations, and approach 2x by the end of 2015 in the absence of significant cost or operating synergies. The cable systems to be divested generate approximately $3 billion of EBITDA. The loss of EBITDA generation will be offset with approximately $9 billion of debt reduction.

Fitch's expectation that shareholder returns as a percentage of pre-dividend cash flow will increase over the medium term is incorporated into the ratings. Comcast previously indicated that share repurchases should total $5.5 billion during 2014 including $3 billion within its current plan and an additional $2.5 billion when shareholder approval of the TWC merger is obtained. Furthermore, the company expects to expand the share repurchase authorization by an additional $10 billion upon closing of the merger with TWC. The asset divestment transactions create additional capacity for share repurchase activity.

The pending merger with TWC enables Comcast to extend its operating strategies and technology roadmap into TWC's operations, creating the opportunity to realize material operating cost and capital spending efficiencies. Fitch points out that Comcast's cable-segment EBITDA margin was nearly 500 basis points higher than the comparable TWC EBITDA margin during the year ended 2013. Comcast's ability to successfully establish its key operating strategies within TWC's legacy operations creates the potential for a significant EBITDA benefit for the combined entity. Additionally, the national scope of the combined entity's cable infrastructure will position the company to effectively compete for a higher tier commercial business.

Comcast's liquidity position and overall financial flexibility are strong based on Fitch's expectation that the company will continue to generate material amounts of free cash flow (FCF). 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. Comcast's liquidity position is further supported by cash on hand (which totaled $3.1 billion on a consolidated basis as of March 31, 2014) and $6.3 billion of collective available borrowing capacity (as of March 31, 2014) from Comcast's two revolving credit facilities. Commitments under Comcast's $6.25 billion revolver will expire June 2017 while the commitments related to Enterprise's $1.35 billion revolver expire March 2018.

Comcast's debt maturity profile is well-laddered and within Fitch's FCF expectation. Maturities total approximately $1.9 billion during 2014 (including $900 million at NBCUniversal Media) excluding outstanding commercial paper, followed by $3.4 billion during 2015.

Comcast's ratings reflect its strong competitive position as one of the largest video, high-speed Internet and phone providers to residential and business customers in the U.S. and the company's compelling subscriber clustering profile. NBCUniversal's portfolio of leading cable networks as well as the growing importance of its theme parks business are key considerations supporting Fitch's ratings and a strength of the company's credit profile.

Outside of a change to Comcast's financial strategy or additional event-driven M&A activity, rating concerns center on Comcast's ability to adapt to the evolving operating environment while maintaining its relatively 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.

RATING SENSITIVITIES:

--A positive rating action would likely coincide with Comcast achieving and committing to a financial policy consistent with an 'A' rating, including maintaining its leverage below 1.5x 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 employment conditions.

--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 additional event-driven merger and acquisition activity, that drive leverage beyond 2.5x in the absence of a credible deleveraging plan.

Fitch has affirmed the following ratings with a Stable Outlook:

Comcast Corporation

--IDR at 'A-';

--Short-term IDR at 'F2';

--Commercial Paper at 'F2';

--Senior unsecured debt at 'A-';

--$6.25 billion revolving bank facility (co-borrower with Comcast Cable Communications LLC) at 'A-'.

Comcast Holdings Corporation

--IDR at 'A-';

--Subordinated exchangeable notes at 'BBB'.

Comcast Cable Communications, LLC

--IDR at 'A-';

--Senior unsecured debt at 'A-';

--$6.25 billion revolving bank facility (co-borrower with Comcast Corporation) at 'A-'.

Comcast Cable Holdings, LLC

--IDR at 'A-';

--Senior unsecured debt at 'A-'.

Comcast MO Group, Inc.

--IDR at 'A-';

--Senior unsecured debt at 'A-'.

Comcast MO of Delaware, LLC

--IDR at 'A-'.

NBC Universal Media, LLC

--IDR at 'A-';

--Senior unsecured debt at 'A-'.

NBCUniversal Enterprise, Inc.

--IDR at 'A-';

--Senior unsecured debt at 'A-';

--$1.35 billion revolving bank facility at 'A-';

--Series A preferred stock at 'BBB';

--Short-term IDR at 'F2';

--Commercial Paper at 'F2'.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 5, 2013);

--'Rating Telecom Companies' (Aug. 9, 2012).

Applicable Criteria and Related Research:

Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715139

Rating Telecom Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682323

Additional Disclosure

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Contacts

Fitch Ratings
Primary Analyst:
David Peterson, +1-312-368-3177
Senior Director
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst:
John Culver, CFA, +1-312-368-3216
Senior Director
or
Committee Chairperson:
Bill Densmore, +1 312-368-3125
Senior Director
or
Media Relations:
Brian Bertsch, New York, +1 212-908-0549
brian.bertsch@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst:
David Peterson, +1-312-368-3177
Senior Director
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst:
John Culver, CFA, +1-312-368-3216
Senior Director
or
Committee Chairperson:
Bill Densmore, +1 312-368-3125
Senior Director
or
Media Relations:
Brian Bertsch, New York, +1 212-908-0549
brian.bertsch@fitchratings.com