S&P Places AT&T (T) on CreditWatch Negative Following Move to Acquire Time Warner

October 24, 2016 2:53 PM EDT

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S&P Global Ratings today said it placed its ratings on Dallas-based telecommunications provider AT&T Inc. (NYSE: T), including its 'BBB+' corporate credit rating and 'BBB+' senior unsecured debt rating, on CreditWatch with negative implications. The CreditWatch placement follows AT&T's announcement that it has entered into an agreement to acquire New York City-based diversified media company Time Warner Inc. for about $85.4 billion, which will be funded with a mix of 50% equity and 50% cash, with the cash component to be financed through a combination of cash and debt financing. We did not place the 'A-2' short-term rating on CreditWatch because we believe any potential downgrade of AT&T is limited to one notch.

"We believe the acquisition has some strategic merits in that it will bring together Time Warner's vast library of content assets with AT&T's distribution capabilities," said S&P Global Ratings credit analyst Chris Mooney.

It will also help AT&T diversify its base of business at a time when it faces secular challengess in the pay-TV segment as more consumers opt for Internet-based over-the-top (OTT) video services and intense competitive pressures in the wireless and wireline businesses. Moreover, we believe the transaction could lead to other direct-to-consumer and enhanced wireless offerings.

We aim to resolve the CreditWatch once we have assessed the impact of the proposed acquisition on AT&T's credit metrics. We will resolve the CreditWatch at transaction close but will likely provide guidance on the ultimate rating outcome beforehand. Given the likely increase in leverage at transaction close, a downgrade, if any, will depend on the company's financial policy and its commitment to debt reduction, our view of the combined business, and its ability to grow EBITDA and improve FOCF generation. However, we believe a downgrade is likely limited to one notch.



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