CHICAGO--(BUSINESS WIRE)--Fitch Ratings has assigned an 'A-' rating to Comcast Corporation's (Comcast) benchmark size, senior unsecured notes maturing 2025 and 2034. Proceeds from the offering are expected to be used for general corporate purposes which may include the repayment of debt scheduled to mature during 2015. The notes will be guaranteed by Comcast's subsidiaries included in the company's cross-guaranty structure. The Rating Outlook for all of Comcast's ratings is Stable. As of June 30, 2014 Comcast had approximately $47.3 billion of debt and preferred stock outstanding, including $10.3 billion outstanding at NBCUniversal Media, LLC (NBCUniversal).
KEY RATING DRIVERS
--Comcast's pending merger with TWC and related transactions with Charter Communications, Inc. remains strategically sound after considering the asset divestitures and 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 cost synergies of $1.5 billion through its merger with TWC.
--Fitch expects the asset divestiture transactions with Charter 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.
--Comcast's capital structure and financial strategy remains 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.
Comcast's leverage metric through the LTM period ended June 30, 2014 was 2.1x reflecting a modest improvement from 2.2x as of year-end 2013. 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.
Fitch expects that share repurchases will total approximately $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. Fitch believes the current ratings have sufficient capacity to accommodate a growing percentage of pre-dividend cash flow being allocated to shareholder returns. Furthermore, the company expects to expand the share repurchase authorization by an additional $10 billion upon closing of the merger with TWC.
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. The pending merger with TWC and divestiture transactions with Charter 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.
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, all lower the business risk attributable to Comcast's credit profile. These factors also create new avenues for revenue and cash flow growth while limiting the near-term impact on Comcast's balance sheet and credit profile.
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). Comcast generated approximately $3.2 billion of FCF during the first six months of 2014 marking a 17% decline versus the same period last year. Higher programming and production costs as well as higher capital expenditures have pressured FCF generation during the first half of 2014, however Fitch anticipates working capital pressure should alleviate somewhat during the second half of 2014.
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 approximately $1.5 billion on a consolidated basis as of June 30, 2014) and $7.3 billion of collective available borrowing capacity (as of June 30, 2014) from Comcast's two revolving credit facilities. Commitments under Comcast's $6.25 billion revolver will expire during June 2017 while the commitments related to NBCUniversal Enterprise's $1.35 billion revolver expire during March 2018.
Comcast's debt maturity profile is well-laddered and within Fitch's FCF expectation. Maturities total approximately $3.4 billion during 2015 (including $1 billion at NBCUniversal Media) excluding outstanding commercial paper, followed by $3.5 billion during 2016.
--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.
--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 event-driven merger and acquisition activity, that drive leverage beyond 2.5x in the absence of a credible deleveraging plan.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (May 28, 2014);
--'Rating Telecom Companies' (Aug. 9, 2012).
Applicable Criteria and Related Research:
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage
Rating Telecom Companies