Science & Technology
Wed, December 21, 2011 
CHICAGO--([ BUSINESS WIRE ])--Fitch Ratings has affirmed the 'A' Issuer Default Ratings (IDRs) and debt security ratings of AT&T Inc. (AT&T) (NYSE: T) and its subsidiaries. The ratings have been removed from Rating Watch Negative and a Stable Rating Outlook has been assigned. In addition, Fitch has assigned an 'A' rating to AT&T's new $5 billion, 364-day revolving credit facility. A full rating list is shown below.
Fitch had 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 (DT) in a $39 billion cash and stock transaction. On Dec. 19, 2011, AT&T and DT mutually agreed to terminate the transaction following actions by the Federal Communications Commission and the Department of Justice to block the transaction. AT&T will incur a fourth quarter 2011 charge of $4 billion and pay T-Mobile USA a break up fee consisting of $3 billion in cash and $1 billion book value of spectrum.
In Fitch's view, the current 'A' rating is supported by AT&T's financial flexibility, which will enable it to maintain leverage in a 1.5 times (x) to 1.7x range appropriate for the current rating category. Additional key factors considered in AT&T's ratings include the company's diversified revenue mix, its significant size and economies of scale as the largest telecommunications operator in the U.S., and Fitch's expectation that AT&T will benefit from continued growth in wireless operating cash flows.
The primary concern for AT&T remains its need to address intermediate spectrum needs to support continued wireless growth now that the acquisition of T-Mobile USA has been terminated. In Fitch's view, AT&T will continue to seek spectrum to address its needs. Fitch believes AT&T has up to a two-year window before such needs become a pressing concern and Fitch will assess the effect of efforts to gain access to spectrum on AT&T's credit profile as the financial implications become known. Fitch also notes that AT&T did not engage in stock repurchase activities while the T-Mobile USA transaction was being reviewed, and that stock repurchases could be reviewed in light of the company's strong FCF. In Fitch's opinion, repurchases could have an effect on the company's credit profile if they were to exceed expected FCF levels.
For the last 12 months (LTM) ending Sept. 30, 2011, AT&T's gross leverage was 1.8x but was only 1.5x on a net debt basis. Fitch expects yearend 2012 gross leverage to approximate 1.5x, which takes into account the payment of the break-up fee and the acquisition of the wireless spectrum from Qualcomm. In 2011, Fitch estimates FCF will approximate $5 billion, prior to the payment of the break up fee, and in 2012 FCF could approximate a similar level.
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 Sept. 30, 2011, total debt outstanding was approximately $71.2 billion, an increase from approximately $66.2 billion at the end of 2010. Of the total, $8.9 billion consists of debt maturing within one year. At Sept. 30, 2011, cash amounted to $10.8 billion, and in the LTM ending Sept. 30, 2011, AT&T produced $5.4 billion in FCF (net cash provided by operating activities less capital expenditures and dividends).
The company did not have any drawings on its four-year $5 billion revolving credit facility on Sept. 30, 2011. The facility's maturity was extended one year to December 2015 on Dec. 19, 2011. At the end of the third quarter, there were no outstanding amounts on the previous $3 billion 364-day revolving credit facility. The latter facility was replaced by a new $5 billion, 364-day facility on Dec. 19, 2011. 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 pre-dividend FCF is expected to grow from the $14.7 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.
As of Nov. 28, 2011, AT&T had $2 billion in maturing debt in 2011, consisting of a May 2012 issue that was called and will be repaid on Dec. 28, 2011. Maturing debt in 2012, including amounts that could be put to the company, approximates $3.4 billion.
The following rating has been withdrawn due to the termination of the T-Mobile USA transaction:
AT&T, Inc.
--$20 billion bridge financing facility 'A'.
The following ratings have been affirmed:
AT&T, Inc.
--Long-Term IDR at 'A';
--Senior unsecured debt at 'A';
--$5 billion four-year revolving credit facility at 'A';
--Short-Term IDR at 'F1';
--Commercial paper at 'F1'.
AT&T Corp.
--Long-term IDR at 'A';
--Senior unsecured at 'A'.
BellSouth Corp.
--Long-term IDR at 'A';
--Senior unsecured at 'A'.
BellSouth Capital Funding Corp.
--Senior unsecured at 'A'.
BellSouth Telecommunications, Inc.
--IDR at 'A';
--Senior unsecured at 'A'.
AT&T Mobility LLC (formerly Cingular Wireless, LLC)
--Long-term IDR at 'A';
--Senior unsecured at 'A'.
New Cingular Wireless Services, LLC (formerly AT&T Wireless Services, Inc.)
--Long-term IDR at 'A';
--Senior unsecured at 'A'.
Ameritech Capital Funding
--Long-term IDR at 'A';
--Senior unsecured at 'A'.
Indiana Bell Telephone Company
--Long-term IDR at 'A';
--Senior unsecured at 'A'.
Michigan Bell Telephone Company
--Long-term IDR at 'A';
--Senior unsecured at 'A'.
Pacific Bell Telephone Company
--Long-term IDR at 'A';
--Senior unsecured at 'A'.
Wisconsin Bell Telephone Company
--Long-term IDR at 'A';
--Senior unsecured at 'A'.
Southwestern Bell Telephone Company
--Long-term IDR at 'A';
--Senior unsecured at 'A'.
Additional information is available at '[ www.fitchratings.com ]'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
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 ]
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: [ HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS ]. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE '[ WWW.FITCHRATINGS.COM ]'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.
