CHICAGO--(BUSINESS WIRE)--Fitch Ratings has maintained the Issuer Default Ratings (IDRs) of Time Warner Cable, Inc. (TWC) and its indirect wholly owned subsidiary Time Warner Cable Enterprises LLC on Rating Watch Positive. A complete list of rating actions follows at the end of this release. Approximately $23.7 billion of debt, including $%507 million of commercial paper is affected by today's rating action.
This release and the maintenance of the Rating Watch is in accordance with Fitch's guidelines related to the review of Rating Watch status following Fitch's placement of the companies' ratings on Rating Watch Positive on Feb. 13, 2014. TWC has a pending agreement to merge with Comcast Corporation whereby Comcast will acquire 100% of TWC's outstanding common equity for approximately $45.2 billion in an all-stock transaction. Fitch expects to finalize TWC's ratings following the receipt of required regulatory approvals and the close of the transaction with Comcast. The companies expect the merger to receive regulatory approval and close the transaction during the first half of 2015.
The Rating Watch reflects the strong strategic tie and ownership resulting from the pending merger closing. As in prior acquisitions, Fitch would expect that Comcast would ultimately include the TWC debt in its cross guaranty structure post-closing, which effectively renders the TWC indebtedness to rank pari passu with the debt currently included in the cross guaranty, and provides sound rationale for linking the ratings. As a result of the successful completion of the merger and anticipated inclusion in the existing guaranty structure is expected to lead to a two notch upgrade in TWC's ratings.
KEY RATING DRIVERS
--TWC's pending merger with Comcast and related transactions with Charter Communications, Inc. remain 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's ratings for TWC continue to be underpinned by the company's strong competitive position as the second largest cable multiple systems operator (fourth largest multi-channel video program distributor) in the United States and strong subscriber clustering profile. In addition, the ratings recognize the growing importance of TWC's Business Service segment to the company's overall revenue and cash flow growth prospects.
--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.
During the course of 2014 TWC generated approximately $1.4 billion of free cash flow (FCF, defined as cash flow from operations less capital expenditures and dividends) reflecting a 22% decline relative to year end 2013 FCF generation. FCF production was pressured by higher capital expenditures as the company invested in its cable plant, deployed new set-top-boxes and modems supporting the company's TWC Maxx initiative.
TWC's liquidity position and overall financial flexibility are strong owing to Fitch's expectation that the company will continue to generate material amounts of FCF. The liquidity position is further supported by cash on hand (which totaled $707 million as of Dec. 31, 2014) and $2.9 billion of available borrowing capacity (as of Dec. 31, 2014) from TWC's $3.5 billion revolver net of outstanding commercial paper and letters of credit. The commitments under TWC's $3.5 billion revolver will expire during April 2017.
TWC's debt maturity profile is well laddered and within Fitch's FCF expectation for the company. Maturities total approximately $1 billion during 2015 including outstanding commercial paper, followed by $2 billion during 2017.
RATING SENSITIVITIES:
Fitch expects that the Rating Watch will be resolved upon the successful closing of the pending merger between Comcast and TWC. Key considerations include the ultimate capital structure of the combined entity and the likelihood that Comcast will include the debt issued by TWC and its subsidiaries in Comcast's existing cross-guaranty structure. As a result, the successful completion of the merger and anticipated inclusion in the existing guaranty structure is expected to lead to a two notch upgrade in TWC's ratings.
Fitch maintains the following ratings on Rating Watch Positive:
Time Warner Cable, Inc.
--IDR 'BBB';
--Senior Unsecured debt 'BBB'.
Time Warner Cable Enterprises LLC
--IDR 'BBB';
--Senior Unsecured debt 'BBB'.
Fitch has affirmed the following ratings:
Time Warner Cable, Inc.
--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' (May 28, 2014).
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=749393
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=980005
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