Fitch: Time Warner's Ratings Unaffected by New Leverage Target

  Fitch: Time Warner's Ratings Unaffected by New Leverage Target

Business Wire

CHICAGO -- February 5, 2014

Time Warner, Inc.'s (Time Warner) 'BBB+' Issuer Default Rating (IDR) is not
affected by the company's decision to increase its net leverage target to up
to 2.75x from 2.5x, according to Fitch Ratings. A full list of Fitch's ratings
on Time Warner follows at the end of this release. The company had
approximately $20.2 billion of debt outstanding as of Dec. 31, 2013.

KEY RATING DRIVERS

--Time Warner's consistent financial policy and capital allocation strategy
continues to focus on investing in its business while maintaining a strong
balance sheet;

--The contemplated spin-off of Time Inc. will benefit the company's operating
profile but is not expected to have a material impact on the company's credit
profile;

--Time Warner's strong portfolio of cable networks anchors the ratings.

Time Warner's new leverage target remains within the context of Fitch's 3.5x
total leverage target for the current rating. In Fitch's opinion the positive
operating momentum coupled with predictable, recurring free cash flow (FCF)
generated by Time Warner's strong portfolio of businesses is leverageable,
providing a sound basis to accommodate Time Warner's revised net leverage
target within the context of the current 'BBB+' rating. Time Warner generated
approximately $2.2 billion of FCF (Fitch defined as cash flow from operations
less capital expenditures and dividends adjusted for one-time acquisition
costs) during the year-ended 2013 led by the revenue, operating margin, and
low capital requirement characteristics of the company's cable networks
business segment. Fitch expects the company to generate annual FCF in excess
of $1.9 billion during the ratings horizon. The FCF generation affords the
company significant financial flexibility. Fitch acknowledges that the
contemplated level of share repurchases is expected to exceed annual FCF
generation; however, the company maintains the ability to reduce share
repurchases to maximize financial flexibility should the need occur.

Fitch anticipates that Time Warner will gradually increase leverage over the
ratings horizon to meet its new leverage target. Shareholder returns that
exceed free cash flow generation are incorporated into current ratings to the
extent that leverage remains below Fitch's 3.5x total leverage threshold which
remains unchanged.

Fitch remains convinced that Time Warner is well positioned to address the
threats and opportunities presented the evolving media landscape, including
the growing prominence of alternative distribution platforms, providing
sufficient flexibility within the current ratings to accommodate the company's
revised leverage target. Fitch also believes demand for high-quality content
remains strong across all major end-markets (broadcast, cable networks and
subscription video on demand) and that large, well-capitalized content
providers, such as Time Warner, will remain crucial to the industry.

Time Warner's capital allocation strategy remains consistent and is centered
on investing in its business to strengthen its product portfolio, maintaining
a strong balance sheet and returning excess capital to its shareholders. The
company returned approximately $4.8 billion of capital to its shareholders
during 2013 including $3.7 billion of share repurchases. Time Warner maintains
an appropriate balance between returning capital to shareholders, in the form
of dividends and share repurchases, and investing in the strategic needs of
its business in Fitch's estimation.

Total debt outstanding as of Dec. 31, 2013 was approximately $20.2 billion,
reflecting a modest 1.5% increase relative to year-end 2012. Consolidated
leverage was 2.5x (calculated on a gross basis) and 2.3x (calculated on a net
debt basis) as of year-end 2013.

Overall, Fitch's ratings on Time Warner reflect strong and consistent FCF,
solid credit protection measures, sound liquidity, leading market positions in
core businesses, and strong content brands. In addition, Time Warner's lower
exposure to cyclical advertising revenues relative to its peer group, and lack
of exposure to the hyper-cyclical local advertising markets, provides
incremental support to the ratings.

Fitch's ratings incorporate the strong competitive position of Time Warner's
film and television studios at Warner Bros. The size and scale of Warner Bros.
television studio enables Time Warner to capitalize on strong demand for
television content while providing meaningful diversification of revenue
sources. Fitch is cognizant of the inherent volatility of hit-driven content
in the film and television production business. Fitch also acknowledges Time
Warner's strong track record of consistently generating desirable content.

Fitch believes Time Warner's decision to spin off Time Inc. to its
shareholders will benefit the company's operating profile but is not expected
to have a material impact on Time Warner's credit profile. The proposed
transaction, expected to be completed by the end of second-quarter-2014
(2Q'14), enables Time Warner to moderately de-risk its business profile while
increasing strategic focus on its Networks, and Film and TV Entertainment
segments. Time, Inc's initial capitalization is expected to include
approximately $1.3 billion of net debt.

Outside of a material change to its financial strategy or event-driven merger
and acquisition activity, rating concerns center on Time Warner's ability to
balance escalating programming expense and production costs with the
requirement to consistently deliver programming that drives incremental share
of viewing audience while maintaining or expanding operating margins.

Time Warner's liquidity is strong and supported by $1.9 billion of cash on
hand, $5 billion in available credit facilities (nearly all of which was
available as of Dec. 31, 2013), and expected FCF generation. Time Warner's
revolver commitments mature on Dec. 18, 2018. Time Warner has no debt
scheduled to mature during 2014 and $1 billion during 2015.

RATING SENSITIVITIES:

Fitch does not contemplate additional positive rating actions over the current
ratings horizon. That notwithstanding, positive rating action would likely
coincide with Time Warner adopting a more conservative financial policy.
Meanwhile, Time Warner will need to demonstrate that its operating profile is
sustainable amid ongoing competitive pressures, changing media consumption
patterns and evolving technology platforms.

Negative rating actions are more likely to coincide with discretional actions
of Time Warner's management including, but not limited to, the company
adopting a more aggressive financial strategy or event-driven merger and
acquisition activity that drives leverage beyond 3.5x in the absence of a
creditable de-leveraging plan. Additionally, negative rating actions could
result should Fitch begin to observe a weakening of Time Warner's ability to
produce desired film and television content or secure programming on its cable
networks that consistently delivers viewing audience ratings, leading to lower
subscription fee or adverting revenues. Further, a weakening of Time Warner's
competitive position due to its failure to adopt to emerging distribution
platforms could prompt Fitch to take negative rating actions.

Fitch currently rates Time Warner as follows:

Time Warner Inc.

--Long-term IDR at 'BBB+';

--Short-term IDR at 'F2';

--Senior unsecured revolving credit facility at 'BBB+';

--Senior unsecured notes and debentures at 'BBB+',

--Commercial paper at 'F2'.

Time Warner International Finance Limited

--Long-term IDR at 'BBB+',

--Short-term IDR at 'F2';

--Commercial paper at 'F2'.

The Rating Outlook is Stable.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 5, 2013).

Applicable Criteria and Related Research:

Corporate Rating Methodology: Including Short-Term Ratings and Parent and
Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715139

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Contact:

Fitch Ratings
Primary Analyst
David Peterson, +1-312-368-3177
Senior Director
Fitch Ratings, Inc., 70 W. Madison, Chicago, IL 60602
or
Secondary Analyst
Rolando Larrondo, +1-212-908-9189
Director
or
Committee Chairperson
Mike Simonton, +1-312-368-3138
Managing Director
or
Media Relations:
Brian Bertsch, New York, +1 212-908-0549
brian.bertsch@fitchratings.com
 
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