Market Snapshot
  • U.S.
  • Europe
  • Asia
Ticker Volume Price Price Delta
DJIA 16,424.85 162.29 1.00%
S&P 500 1,862.31 19.33 1.05%
NASDAQ 4,086.22 52.06 1.29%
Ticker Volume Price Price Delta
STOXX 50 3,125.90 -13.36 -0.43%
FTSE 100 6,581.82 -2.35 -0.04%
DAX 9,299.50 -18.32 -0.20%
Ticker Volume Price Price Delta
NIKKEI 14,417.53 -0.15 -0.00%
TOPIX 1,166.59 0.04 0.00%
HANG SENG 22,760.24 64.23 0.28%

Fitch Rates AT&T's Senior Unsecured Notes Offering 'A'; Outlook Negative



  Fitch Rates AT&T's Senior Unsecured Notes Offering 'A'; Outlook Negative

Business Wire

CHICAGO -- December 11, 2012

Fitch Ratings has assigned an 'A' rating to AT&T Inc.'s (AT&T) offering of
EUR1 billion 3.55% senior unsecured notes due 2032. Proceeds are expected to
be used for general corporate purposes. The Rating Outlook is Negative.

The current 'A' rating is supported by AT&T's financial flexibility, 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 Negative Outlook reflects Fitch's expectation that AT&T's net leverage is
likely to move up to its recently disclosed 1.8x upper boundary for leverage,
which represents a notable increase from the 1.47x at the end of the third
quarter of 2012 on a last 12 month (LTM) basis. The increased leverage is
expected to arise from the combined effects of a moderate increase in wireless
and wireline capital spending and the continuation of the company's share
repurchase program as announced in early November 2012. Prospective leverage
expectations are subject to uncertainty caused by the rate of stock
repurchases, actual capital expenditure levels, possible acquisitions (such as
longer-term spectrum needs) and asset divestitures (of which there are none in
Fitch's expectations).

Fitch believes increased capital spending will strengthen the company's
competitive position and is a positive rating factor. Over the next three
years, Fitch believes capital spending will increase about 10%-12% over prior
baseline levels to $22 billion annually and then revert to mid-teen historical
levels. The investment program will expand the population covered by AT&T's 4G
LTE network by approximately 20% to 300 million, and enable the company to
provide higher broadband speeds over its wireline network in more rural areas.
By comparison, the company's original capital spending guidance for 2012 was
about $20 billion, although the company reduced guidance to the low end of a
$19 billion to $20 billion range in October 2012.

Over the 2013-2015 period, AT&T will spend approximately $8 billion to
increase its 4G LTE network coverage from 250 million to 300 million pops
(persons of population). This coverage is expected to be completed by the end
of 2014. In addition to increasing 4G LTE coverage, AT&T will be increasing
capacity through the addition of 10,000 new macro cell sites, 1,000
distributed antenna systems and 40,000 small cells. Up to nearly 30MHz of new
spectrum in the wireless communications spectrum (WCS) band will be deployed
nationwide, with service to be commercial in 2015. Approximately $6 billion
will be spent to upgrade the broadband speeds available to 75% of the customer
locations in the company's wireline footprint. In the remaining 25% of the
customer locations where it will not be economical to upgrade the wireline
network to faster broadband speeds, the company will offer a 4G LTE solution.
These customer locations are scattered across 65% of the company's geography.

In early 2012, AT&T started repurchasing common stock under a December 2010
authorization (the company did not repurchase stock while the T-Mobile USA
transaction was under consideration in 2011). Through the first nine months of
2012, AT&T's strong free cash flow (FCF) and operating results have enabled
the company to maintain its net leverage metric at around 1.5x even while
repurchasing nearly $9 billion of common stock. Fitch expects FCF to decline
from the $8 billion to $9 billion expected in 2012 to $4 billion annually, on
average, over the next three years.

For 2012, Fitch expects AT&T's leverage to be flat with 2011, when gross
leverage was 1.56x as adjusted for non-recurring items and the actuarial
losses on its benefit plans. After 2012, AT&T's continuation of stock
repurchases requiring some borrowing as repurchases will be above FCF levels,
will push leverage up over time, with net leverage expected to peak near a
1.8x upper boundary in 2014. Thereafter, leverage is expected to decline over
time.

In Fitch's view, liquidity is strong and provided by the company's FCF;
additional financial flexibility is provided by availability on the company's
revolving credit facilities. At Sept. 30, 2012, total debt outstanding was
approximately $63.7 billion, a moderate decline from the $64.8 billion
outstanding at the end of 2011. Of the total, $3.4 billion consists of debt
due within one year, including debt that can be put to the company. At Sept.
30, 2012, cash amounted to $2.2 billion, and for the LTM ending Sept. 30,
2012, AT&T produced $7 billion in FCF (net cash provided by operating
activities less capital expenditures and dividends).

At end of the third quarter of 2012, the company did not have any drawings on
its $5 billion revolving credit facility due 2015, nor on its $3 billion,
364-day facility due December 2012. The principal financial covenant for the
2015 facility requires debt to EBITDA, as defined in the agreement, to be no
more than 3x. The identical financial covenant is only applicable in the
364-day facility if advances are converted into a term loan.

Relative to the company's expected FCFs, upcoming debt maturities are
manageable. There are no material debt maturities remaining in 2012. In 2013,
debt maturities approximate $3.4 billion, including approximately $1.6 billion
in debt that may be put to the company. Maturities amount to $3.8 billion in
2014.

What Could Trigger A Rating Action

The Rating Outlook could be revised to Stable if:

--The company begins to manage net leverage down from Fitch's expected peak
just under 1.8x in 2014;

--Fitch believes leverage will not reach peak levels as a result of the
outcome of the following factors, including, but not limited to, stronger
operating results, lower capital spending, and the effect of any acquisitions
or divestitures that may occur.

A negative rating action could occur if:

--Net leverage remains above (or is expected to remain above) the 1.8x level
for several quarters, including expected leverage resulting from a material
transaction;

--Fitch believes management has weakened its commitment to returning to, or
operating longer term with, leverage at a level more reflective of the rating.

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. 8, 2012);

--'Rating Telecom Companies - Sector Credit Factors' (Aug. 9, 2012).

Applicable Criteria and Related Research:

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460

Rating Telecom Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682323

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.

Contact:

Fitch Ratings
Primary Analyst
John C. Culver, CFA
Senior Director
+1-312-368-3216
Fitch, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Bill Densmore
Senior Director
+1-312-368-3125
or
Committee Chairperson
Michael Weaver
Managing Director
+1-312-368-3156
or
Media Relations:
Brian Bertsch, +1-212-908-0549 (New York)
brian.bertsch@fitchratings.com
Sponsored Links
Advertisement
Advertisements
Sponsored Links
Advertisement