Science & Technology
Science and Technology
Science and Technology
Tue, September 20, 2011
Mon, September 19, 2011
CHICAGO--([ BUSINESS WIRE ])--Fitch Ratings is maintaining the Issuer Default Ratings (IDRs) of AT&T Inc. (AT&T) (NYSE: T) and its subsidiaries on Rating Watch Negative. AT&T's IDR and its senior unsecured debt rating is 'A'. A full rating list is shown below.
Fitch placed AT&T's ratings on Rating Watch Negative on March 21, 2011 following the company's announcement of a definitive agreement to acquire T-Mobile USA, Inc.'s (T-Mobile USA) assets from Deutsche Telekom AG in a $39 billion cash and stock transaction. On Aug. 31, 2011, the Department of Justice (DoJ) filed a lawsuit to halt the transaction. AT&T plans to defend the acquisition agreement, although there remains the possibility of a settlement. Assuming there are no material changes to either AT&T's or T-Mobile USA's credit profiles, Fitch does not expect to resolve - at the earliest - the Rating Watch status until regulatory approvals are obtained and the effects of likely concessions reviewed or, if AT&T's defense of the transaction in court is unsuccessful, the transaction is terminated. AT&T had expected the merger to be completed by the end of the first quarter of 2012, but Fitch believes this will now be delayed.
For the last 12 months (LTM) ending June 30, 2011, AT&T's gross leverage was 1.7 times (x) on a stand-alone basis. Pro forma for the T-Mobile USA transaction, AT&T's leverage for the last 12 months (LTM) ended June 30, 2011, would have been 1.8 times (x) after considering nearly $20 billion in additional debt and T-Mobile USA's $5.1 billion of EBITDA for the LTM period, as well as the nearly $2 billion purchase of wireless spectrum from Qualcomm Inc. The increase in leverage is relatively modest and reflects AT&T's FCF generation prior to the close of the transaction, as well as the transaction's $14 billion in equity consideration. Leverage could be modestly higher or lower depending on the ultimate cash portion and the potential effects of divestitures. To finance the cash portion of the transaction, AT&T has obtained a one-year unsecured bridge financing commitment for $20 billion, although Fitch expects the company to enter the long-term debt markets for a portion of the transaction prior to its close.
Fitch believes, pending final review of the T-Mobile USA transaction, that a downgrade, if necessary, would be limited to one notch. To maintain the current rating, Fitch would like to see a near-term path for AT&T's debt to EBITDA metric to be solidly within a 1.5x to 1.7x gross debt to EBITDA range appropriate for this rating category.
On a current basis, liquidity is provided by cash and free cash flow (FCF), and additional financial flexibility is provided by availability on the company's revolving credit facilities. At June 30, 2011, total debt outstanding was approximately $66.6 billion, a slight increase from approximately $66.2 billion at the end of 2010. Of the total, $7.9 billion consists of debt maturing within one year. At June 30, 2011, cash amounted to $3.8 billion, and in the LTM ending June 30, 2011, AT&T produced $4.4 billion in FCF (net cash provided by operating activities less capital expenditures and dividends). The company did not have any drawings on its $5 billion revolving credit facility that matures in December 2014 or its $3 billion 364-day revolving credit facility. The principal financial covenant, which is only in the four-year agreement, requires debt to EBITDA, as defined in the agreement, to be no more than 3x.
AT&T increased guidance for capital spending in 2011 to the $20 billion range compared to earlier 2011 guidance in the low to mid $19 billion range. This compares to the $20.3 billion spent in 2010. The increase in capital spending guidance is due primarily from wireless. The company indicates FCF is still expected to grow from the $5 billion achieved in 2010. Fitch believes reinforcing its strong competitive position in the wireless business and wireless fiber backhaul related spending will remain priorities of AT&T's 2011 capital spending.
Maturing debt, including amounts that could be put to the company, approximates $3.2 billion and $6.4 billion in the remainder of 2011 and 2012, respectively.
The following ratings are maintained on Rating Watch Negative:
AT&T, Inc.
--Long-Term IDR 'A';
--Senior unsecured debt 'A';
--$5 billion four-year revolving credit facility 'A';
--$3 billion 364-day revolving credit facility 'A';
--$20 billion bridge financing facility 'A';
--Short-Term IDR 'F1';
--Commercial paper 'F1'.
AT&T Corp.
--Long-term IDR 'A';
--Senior unsecured 'A'.
BellSouth Corp.
--Long-term IDR 'A';
--Senior unsecured 'A'.
BellSouth Capital Funding Corp.
--Senior unsecured 'A'.
BellSouth Telecommunications, Inc.
--IDR 'A';
--Senior unsecured 'A'.
AT&T Mobility LLC (formerly Cingular Wireless, LLC)
--Long-term IDR 'A';
--Senior unsecured 'A'.
New Cingular Wireless Services, LLC (formerly AT&T Wireless Services, Inc.)
--Long-term IDR 'A';
--Senior unsecured 'A'.
Ameritech Capital Funding
--Long-term IDR 'A';
--Senior unsecured 'A'.
Indiana Bell Telephone Company
--Long-term IDR 'A';
--Senior unsecured 'A'.
Michigan Bell Telephone Company
--Long-term IDR 'A';
--Senior unsecured 'A'.
Pacific Bell Telephone Company
--Long-term IDR 'A';
--Senior unsecured 'A'.
Wisconsin Bell Telephone Company
--Long-term IDR 'A';
--Senior unsecured 'A'.
Southwestern Bell Telephone Company
--Long-term IDR 'A';
--Senior unsecured 'A'.
Additional information is available at '[ www.fitchratings.com ]'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 12, 2011);
--'Rating Global Telecoms Companies' (Sept. 16, 2010).
Applicable Criteria and Related Research:
Corporate Rating Methodology
[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229 ]
Rating Global Telecoms Companies - Sector Credit Factors
[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=550205 ]
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