S&P Affirms Raings on AbbVie (ABBV); Removes from CreditWatch Negative (SHPG) Oct 21, 2014 11:42AM

Standard & Poor's Ratings Services affirmed all of its ratings on AbbVie Inc. (NYSE: ABBV), including the 'A' corporate credit rating. We removed the corporate credit rating and the unsecured rating from CreditWatch with negative implications, where we placed them on July 18, 2014. The outlook is stable.

The removal from CreditWatch and stable outlook reflect the absence of the leveraged acquisition of Shire plc (Nasdaq: SHPG) and our belief that AbbVie will maintain a conservative financial policy with leverage sustained below 1.5x.

"AbbVie's financial risk profile reflects leverage of 1.2x and funds from operations (FFO) to total debt of 78% as of June 30, 2014. Absent Shire, we believe AbbVie will maintain a conservative financial policy and keep financial metrics consistent with "minimal" financial risk (leverage less than 1.5x)," said credit analyst Michael Berrian. "Although management announced a 16.7% increase in its dividend, and the Board authorized a $5 billion share repurchase program, we believe these actions are consistent with AbbVie's financial policy and do not impair financial risk. Moreover, it signals a more conservative position from the aggressiveness exhibited by its attempted Shire acquisition. We continue to view management and governance as fair, given the absence of tenure as a stand-alone company."

Our stable outlook reflects AbbVie's steady operating performance and good cash flows, offset by our belief that a commitment to shareholder returns will remain elevated.

Downside scenario

We could lower the rating if the company's leverage increases to more than 2x on a sustained basis. This would most likely occur through the pursuit of very aggressive shareholder returns, with greater than anticipated debt-financed acquisitions or share repurchases. Although less likely, this would occur because of significant challenges to Humira's market position.

Upside scenario

We could consider an upgrade once the company is less dependent on Humira and/or our perception of management and governance becomes stronger. This would prompt reconsideration of the management and governance and comparable rating analysis modifiers.


S&P Affirms Ratings on Tesoro Logistics L.P (TLLP); Rates Proposed Notes Offering at 'BB' Oct 20, 2014 04:49PM

Standard & Poor's Ratings Services said it affirmed its 'BB' corporate credit and senior unsecured debt ratings on San Antonio-based master limited partnership Tesoro Logistics L.P. (NYSE: TLLP). The outlook is stable. The stand-alone credit profile (SACP) is also 'bb' and we view the partnership as moderately strategic to its general partner, Tesoro Corp.

At the same time, we assigned our 'BB' issue-level rating to the partnership's proposed senior unsecured notes due 2019 and 2022. The partnership will use net proceeds from the notes to partly fund the purchase of QEPFS, fully repay outstanding amounts under the partnership's revolving credit facility, and for general partnership purposes. The recovery rating on the partnership's senior unsecured debt is '4', indicating our expectations of average (30% to 50%) recovery if a payment default occurs. Our recovery expectations are in the upper half of the 30% to 50% range.

"The rating action reflects our view that the transaction is neutral for TLLP's consolidated credit profile," said Standard & Poor's credit analyst Michael Grande.

The transaction will increase the partnership's size and scale, more than doubling EBITDA in 2015 to about $650 million, as well as provide additional asset, customer, and geographic diversity. These benefits are only partly offset by the slightly higher initial pro forma leverage of about 4.3x in 2015 and exposure to some commodity risk and volume risk.

The stable outlook reflects our expectation that TLLP will successfully integrate QEPFS' gathering, processing, and fractionation business, while largely maintaining stable, fee-based cash flow and financial leverage of 4x or less as it continues to pursue growth opportunities.

We could lower our ratings on TLLP if the partnership materially increases leverage such that debt to EBITDA exceeds 4.5x on a sustained basis, or if EBITDA becomes more volatile due to the partnership assuming a greater amount of volume or commodity price risk.

While unlikely in the near term, we could raise ratings on TLLP if the partnership achieves much greater scale, geographic, and asset diversity, while maintaining stable, fee-based cash flows and leverage of 4x or less.


S&P Raises Outlook on QEP Resources (QEP) to Stable; Ratings Affirmed at 'BB+' Oct 20, 2014 03:09PM

Standard & Poor's Ratings Services said it revised its rating outlook on Denver-based QEP Resources (NYSE: QEP) to stable from negative and affirmed all of its ratings, including the 'BB+' corporate credit rating, on the company.

The rating action reflects the expected improvement in QEP's credit protection measures due to the use of a portion of proceeds from the sale of its midstream business to fund debt reduction and capital spending. The ratings on QEP reflect our view of the company's "fair" business risk and "intermediate" financial risk.

"We think QEP's credit protection measures will be adequate for the ratings over the next 12 months as the company uses asset sale proceeds to repay debt and fund capital spending," said Standard & Poor's credit analyst Ben Tsocanos.

We would consider a downgrade if we expected the company's FFO to debt to remain below 45% and debt to EBITDA to remain above 2x. This could occur if QEP increases capital spending without achieving significant production growth, especially in the context of falling commodity prices. This could also occur if the company buys back significantly more stock than we anticipate.

We could consider an upgrade if QEP increases its oil and gas reserves and production to a scale commensurate with higher-rated peers without a significant deterioration in its operating costs or capital structure.


AECOM Technology (ACM) Assigned 'BB' Rating by S&P Following URS Acquisition Oct 20, 2014 01:54PM

Standard & Poor's Ratings Services said that it assigned its 'BB' corporate credit rating to Los Angeles-based engineering and construction (E&C) company AECOM Technology Corp. (NYSE: ACM). The outlook is stable.

At the same time, we assigned our 'BB+' issue rating and '2' recovery rating to the company's senior secured credit facilities. The '2' recovery rating indicates our expectation for substantial recovery (70%-90%) in a payment default scenario. The senior secured credit facilities include a $1.050 billion revolver, a $1.925 billion term loan A, a $500 million performance letter of credit facility, and a $1.1875 billion term loan B.

We also assigned our 'BB-' issue rating and '5' recovery rating to the company's $800 million senior unsecured notes due 2022 and $800 million senior unsecured notes due 2024. The '5' recovery rating indicates our expectation for modest recovery (10%-30%) in a payment default scenario.

The company used the debt proceeds to partly finance its acquisition of URS.

"Our 'BB' corporate credit rating on AECOM reflects the company's participation in the volatile and competitive E&C industry," said Standard & Poor's credit analyst Robyn Shapiro. "We expect pro forma debt leverage of about 4.5x as of the fiscal year ended September 2014."

The company has good scale and diversity--pro forma for the acquisition of URS--as a provider of engineering, construction, professional technical, and management support services for public and private clients globally. Pro forma for the acquisition, the company also has good geographic diversification across North America. But the pro forma revenues are concentrated (at about 76%) in the U.S. and Canada as of June 30, 2014, while Europe, the Middle East, and Africa account for 15% and Asia-Pacific the remaining 9%.

The stable outlook reflects our view that AECOM will successfully integrate the URS acquisition along with our expectations for good near-term operating prospects buoyed by the combined company's large backlog. We believe that these factors will keep leverage well below 5x and allow the company free cash flow to debt of 5% or more.

We could raise the rating during the next 12 months if, as a result of good operating performance and debt reduction from free cash flow, we expect adjusted debt leverage below 4x and free cash flow to debt above 10% on a sustained basis.

Although unexpected, we could lower the rating during the next 12 months if AECOM's operating performance weakens and it appears that debt to EBITDA would rise above 5x on a sustained basis or that FOCF to debt will fall to less than 5%. A downgrade could also occur if, for example, the integration does not proceed as planned or if the company experiences large cost overruns in several of its larger contracts.


Moody's Weighs Positives, Negatives of CBS Corp.'s (CBS) New Digitial Subscription Service Oct 17, 2014 02:03PM

CBS Corp. (NYSE: CBS) (Baa2, Stable Outlook) announced that it has launched a new multi-platform digital subscription service called CBS All Access, another media conglomerate in the growing list to announce an over-the-top (OTT) subscription offering targeting segments of the population who do not subscribe to cable/satellite television or those who have discontinued their service. For $5.99 per month, the subscription service will allow users to stream CBS owned television stations live in 14 large markets, as well as watch full current seasons of 15 primetime shows and full past seasons of eight major current series, including Survivor, Blue Bloods and The Good Wife. The package also includes access to thousands of episodes from CBS's library and to exclusive additional content for CBS's special events such as the Grammy Awards.

CBS's announcement comes a day after Time Warner announced that it plans to offer an OTT HBO product in 2015, allowing consumers to directly access the top-rated premium network's content over the internet without necessarily buying through the required tiers as is currently required via a cable or satellite subscription, which can require subscribers to pay at least around $90 per month plus equipment charges and taxes even if they only want the HBO programming. CBS All Access is a significant move for the company as it derives considerable revenues from multi-year licensing deals with OTT SVOD service providers for a number of its popular television library titles. The development yet again alludes to the fact that premium content owners have significant leverage points to capitalize their brands by means of multiple delivery systems and grow revenues from new media as the U.S. pay-TV market approaches saturation. We believe that over the intermediate term, the launch of an online product will help the company reach an untapped audience of millennials and add to its revenue streams through subscriptions and online advertising, as the live streams will be tracked by Nielsen's measurement systems.

However, since the digital product will offer only CBS shows and does not include the company's marquee asset, Showtime, we believe that customers looking for a low-cost bundle with a broader selection of content, such as DISH's prospective OTT service, would be less likely to be lured into subscribing to the service. CBS broadcasts live over the air for free in most populous portions of the country, so in addition to millennials and "cord nevers", it would most likely be attractive to people that are interested in accessing CBS programming in mobile settings. However, the digital package currently being offered by the company does not include live NFL games, which in our opinion significantly undermines the appeal of the product for consumers who wish to stream live games and sports events on the go. The company may add Showtime to the package in the future to beef up the offering but it would come at a higher price tag as it is possible that the company's agreements with some MVPDs, like the lengthy one with Comcast could complicate such a move.

On the other hand, viewers who just primarily watch the network's content out of the entire line-up of channels bundled in a traditional cable package, would be inclined to switch from their existing cable/satellite subscriptions to CBS's online offering at $5.99 per month and combine that with over-the-air content and one or two other OTT services to create a customized bundle that meets their viewing preferences at a much lower price point. Additionally, Netflix (Ba3, Positive) subscribers who covet CBS's shows that are available on Netflix's platform could also be tempted to switch to the company's new digital service. However, based on Netflix's incredibly extensive library of shows and movies and the narrow price differential between CBS and Netflix's or Amazon's digital subscriptions, we believe that CBS's OTT product alone will not have a material impact on these SVOD providers' subscription trends.

Nevertheless, the rise in OTT service adoption by cable/broadcast network owners is certainly fostering an environment that embraces technological advancements in content delivery but also allows cost conscious consumers an a la carte system where they can select channels and content based on their viewing tastes without having to pay for a bundle consisting of an array of channels which they do not regularly watch. Accordingly, we believe that in the short-run these OTT arrangements will attract consumers who do not currently subscribe to a cable service but over the long-term there is risk that a broader section of the population would be attracted to subscribing to cheaper skinnier bundles of channels, which in turn could hurt affiliate/retransmission fees and advertising revenues for the networks as overall distribution declines. Such declines will likely be mitigated by the higher subscription fees that CBS will receive from its OTT service.

Since content owners have the ultimate say in how content is delivered, they will likely set restrictions on the OTT platforms - such as limit the service to one stream per subscription at a time, disable the ad-skipping features or even hold back some of the premium content exclusively for the traditional television platform. Hence, we believe that intensifying competition for audience time and ad dollars along with the threat of new virtual entrants is expediting migration of video to OTT delivery but content providers have the ability to protect their lucrative traditional business models by setting limitations on the type of programming available online and streaming capabilities.

Also, Moody's does not expect consumers to realize significant cost savings from moving to OTT services from traditional MVPDs unless they forgo a significant number of channels that they typically get from MVPDs as the OTT fees will be greater and since broadband providers are likely to increase rates to high users of OTT video due to their growing consumption.


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