Time Warner (TWX) Ratings Placed on Review for Upgrade by S&P Amid AT&T Merger Plans

October 24, 2016 3:15 PM EDT

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S&P Global Ratings said today that it placed its 'BBB corporate credit rating and 'BBB' issue-level ratings on Time Warner Inc. on CreditWatch with positive implications. We did not place our 'A-2' short-term rating on Time Warner on CreditWatch because we don't expect to lower the long-term corporate credit rating to below 'BBB'.

"The rating action follows AT&T Inc.'s announcement that it has reached a definitive agreement to acquire Time Warner in a stock and cash transaction for $107.50 per share, or an implied equity value of $85.4 billion," said S&P Global Ratings' credit analyst Naveen Sarma. "AT&T plans to fund the transaction with a mix of roughly 50% equity and 50% cash (the stock component will be subject to a collar), with the cash component to be financed through cash on hand and debt financing."

The CreditWatch placement reflects the possibility that we could raise or affirm our corporate credit rating and unsecured debt ratings on Time Warner. The ultimate outcome will partially depend on AT&T's financing plans, including whether it will guarantee Time Warner's roughly $24.6 billion of existing debt, and at which company the new debt financing will be raised (we consider the likelihood that it will be issued at Time Warner as very low).

How we resolve AT&T's CreditWatch placement will determine our ratings on Time Warner. If AT&T guarantees Time Warner's debt (which we view as unlikely), we would equalize our ratings on Time Warner with those on AT&T. Absent parent guarantees, which we view as a more likely, the ratings on Time Warner will depend on our view of the strategic importance of its assets to AT&T, although we expect that the combined company will be rated no lower than 'BBB' and no higher than 'BBB+'. Resolution of both CreditWatch placements will require greater clarity around AT&T's financing plans and could extend for a prolonged period.



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