Moody's Puts Time Warner Cable (TWC) on Review for Downgrade
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Moody's Investors Service placed Time Warner Cable, Inc's (NYSE: TWC) Baa2 senior unsecured and Prime-2 commercial paper ratings on review for downgrade. The review is prompted by Charter Communications, Inc's ("Charter Communications" -- Ba3 Corporate Family rating, stable outlook) announced offer to merge the two companies in a cash-and-stock transaction.
On Review for Downgrade:
..Issuer: Time Warner Cable Enterprises LLC
....Senior Unsecured Regular Bond/Debenture, Placed on Review for Downgrade, currently Baa2
..Issuer: Time Warner Cable, Inc.
....Multiple Seniority Shelf, Placed on Review for Downgrade, currently (P)Baa2/(P)Baa3
....Senior Unsecured Commercial Paper, Placed on Review for Downgrade, currently P-2
....Senior Unsecured Regular Bond/Debenture, Placed on Review for Downgrade, currently Baa2
..Issuer: Time Warner Cable Enterprises LLC
....Outlook, Changed To Rating Under Review From Stable
..Issuer: Time Warner Cable, Inc.
....Outlook, Changed To Rating Under Review From Stable
RATINGS RATIONALE
Based on currently available information, we estimate that the proposed deal could leave the combined entity with a debt burden in excess of $60 billion (incorporating Moody's standard adjustments) and pro forma debt to EBITDA leverage of greater than 5.0x, compared to TWC's current outstanding debt of $26.7 billion and debt-to-EBITDA of 3.3x as of 9/30/2013. While the ultimate outcome of the deal is uncertain at this point, and TWC's board of directors have unanimously rejected the offer, Moody's believes that the company is officially in play with a reasonably good probability that a deal will be negotiated. Consolidation with the lower rated and more highly leveraged Charter Communications, would weaken TWC's credit profile, including balance sheet strength and financial flexibility. Accordingly, the proposed merger poses significant downgrade risks to TWC's long term debt ratings and should the acquisition be successful in its current form, the review will likely result in a multi-notch downgrade of TWC's credit ratings due to a highly leveraged combined capital structure and deterioration of credit metrics, indicative of a speculative grade rating.
The review for downgrade will focus on whether a definitive agreement is reached and if so, the acquisition terms, financing plans, execution risks and capital structure, including pro forma credit metrics of the combined entity. The review for downgrade will also focus on the closing of the announced transaction and should the acquisition not close, TWC's business and financial strategies going forward. Further, Moody's will also continue to monitor the likelihood of other competing bids emerging. Moody's notes that a take-over by an investment grade cable company, such as Cox Communications, Inc. (Baa2 senior unsecured; Prime-2) or Comcast Corporation (A3 senior unsecured; Prime 2), or a combination of both, could potentially have neutral or even positive credit implications and under such scenarios Moody's would consider changing its negative review to review with direction uncertain, pending greater clarity surrounding the likelihood of such a bid winning over the more leveraged offer. At some point however, if no deal is reached and it appears than none is in the offing, TWC's debt ratings would likely be confirmed at their current levels assuming that the company remains committed to sustaining moderate leverage consistent with the Baa2 rating level.
The principal methodology used in this rating was the Global Pay Television - Cable and Direct-to-Home Satellite Operators published in April 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
On Review for Downgrade:
..Issuer: Time Warner Cable Enterprises LLC
....Senior Unsecured Regular Bond/Debenture, Placed on Review for Downgrade, currently Baa2
..Issuer: Time Warner Cable, Inc.
....Multiple Seniority Shelf, Placed on Review for Downgrade, currently (P)Baa2/(P)Baa3
....Senior Unsecured Commercial Paper, Placed on Review for Downgrade, currently P-2
....Senior Unsecured Regular Bond/Debenture, Placed on Review for Downgrade, currently Baa2
..Issuer: Time Warner Cable Enterprises LLC
....Outlook, Changed To Rating Under Review From Stable
..Issuer: Time Warner Cable, Inc.
....Outlook, Changed To Rating Under Review From Stable
RATINGS RATIONALE
Based on currently available information, we estimate that the proposed deal could leave the combined entity with a debt burden in excess of $60 billion (incorporating Moody's standard adjustments) and pro forma debt to EBITDA leverage of greater than 5.0x, compared to TWC's current outstanding debt of $26.7 billion and debt-to-EBITDA of 3.3x as of 9/30/2013. While the ultimate outcome of the deal is uncertain at this point, and TWC's board of directors have unanimously rejected the offer, Moody's believes that the company is officially in play with a reasonably good probability that a deal will be negotiated. Consolidation with the lower rated and more highly leveraged Charter Communications, would weaken TWC's credit profile, including balance sheet strength and financial flexibility. Accordingly, the proposed merger poses significant downgrade risks to TWC's long term debt ratings and should the acquisition be successful in its current form, the review will likely result in a multi-notch downgrade of TWC's credit ratings due to a highly leveraged combined capital structure and deterioration of credit metrics, indicative of a speculative grade rating.
The review for downgrade will focus on whether a definitive agreement is reached and if so, the acquisition terms, financing plans, execution risks and capital structure, including pro forma credit metrics of the combined entity. The review for downgrade will also focus on the closing of the announced transaction and should the acquisition not close, TWC's business and financial strategies going forward. Further, Moody's will also continue to monitor the likelihood of other competing bids emerging. Moody's notes that a take-over by an investment grade cable company, such as Cox Communications, Inc. (Baa2 senior unsecured; Prime-2) or Comcast Corporation (A3 senior unsecured; Prime 2), or a combination of both, could potentially have neutral or even positive credit implications and under such scenarios Moody's would consider changing its negative review to review with direction uncertain, pending greater clarity surrounding the likelihood of such a bid winning over the more leveraged offer. At some point however, if no deal is reached and it appears than none is in the offing, TWC's debt ratings would likely be confirmed at their current levels assuming that the company remains committed to sustaining moderate leverage consistent with the Baa2 rating level.
The principal methodology used in this rating was the Global Pay Television - Cable and Direct-to-Home Satellite Operators published in April 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
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