Moody's cuts Comcast to junk

Moody's cut Comcast Corp.'s senior unsecured long-term rating to Ba1 from Baa3 and assigned a Baa3 long-term senior unsecured rating to AT&T Comcast Corp.'s new $12.8 billion bank facilities.

Moody's downgraded Comcast Cable and AT&T Broadband subsidiaries to Baa2 from Baa3.

The outlook is stable.

The rating action is based on Moody's view that Comcast faces a significant challenge in integrating a cable multiple system operator that is over 1.5 times its own size in the midst of significant subscriber erosion with the lowest margins in the industry and requires significant network upgrade.

But the rating considers the strength of Comcast's management and a track record of successfully integrating much smaller cable acquisitions and swaps, Moody's said.

At Comcast, capex is expected to run at about the level of depreciation.

Deleveraging by debt reduction would be significant as a result of anticipated $4.5 to $5 billion of asset sales in the first two years.

At the outset of the merger, there will be slightly more debt than revenues.

Once the AT&T systems are upgraded, the cash spent on extraordinary enhancements to plant should be available to reduce debt.

The new rating level anticipates a steady reduction in leverage over the medium-term and best practices to quickly and materially grow free cashflow, which is the basis for the stable outlook, Moody's said.

Moody's expects 2003 pro forma revenues of more than $24 billion and EBITDA of more than $7 billion.

Moody's believes that the turn around will be a two to three year undertaking, with the rebuild of the AT&T Broadband systems substantially completed by yearend 2004 at a cost of about $2 billion.

The new company will assume more than $30 billion in debt and exchangeable notes and liabilities. Moody's considers the net result of the convertibles is nearly $20 billion of net debt and liability assumption.

Moody's added that it believes that the pro forma credit metrics at the close of the transaction are weak for an investment-grade rating.

However, with expected sharp improvement in cashflow and debt reduction, meaningful conversion ratio of EBITDA into free cashflow, leverage ratios improve significantly over the next two years.

Moody's cuts Sempra ratings

Moody's downgraded the ratings of Sempra Energy (senior unsecured to Baa1 from A2 and convertible trust preferreds to Baa2 from A3) and its San Diego Gas & Electric Co. The outlook is stable.

The downgrade reflects a continuing shift in business mix to a greater reliance on non-regulated cash flows that are significantly more volatile than cash flow historically generated from regulated businesses, Moody's said.

Sempra's non-regulated businesses have increased in importance, representing 30% of net income in 2001 from 5% in 1999. Sempra's marketing and trading business has been the biggest source of growth of unregulated activity.

The rating outlook reflects the financial stability of its regulated subsidiaries, as well as its business plan to grow non-regulated businesses.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.