• E-mail
• Print
• Comment
• Font Size
• Digg
• del.icio.us
• Discuss article

Fitch Rates AT&T's Proposed Debt Offering 'A'; Outlook Stable

Posted on: Tuesday, 29 January 2008, 15:00 CST

Fitch Ratings assigns an 'A' rating to AT&T Inc.'s (AT&T) (NYSE: T) proposed $4 billion offering of senior unsecured debt. The offering is expected to have 5-year, 10-year and 30-year tranches. Proceeds from the offering are expected to be used for general corporate purposes. The Rating Outlook is Stable.

AT&T's ratings reflect its diversified revenue mix, its significant size and economies of scale as the largest wireline, wireless and enterprise services operator in the United States, as well as Fitch's expectation that AT&T will benefit from continued growth in wireless operating cash flows. AT&T's revenue mix is diversified among three key lines of business. In 2007, wireless segment revenues grew 13.7% while generating approximately 35% of total segment revenues and enterprise line of business, which returned to growth in 2007, produced more than 15% of total segment revenues. Both the wireless segment and the enterprise line of business are expected to continue to grow revenues in 2008. The consumer segment, facing rising competition from cable operators, continued wireless substitution and a weakening economic environment, approximated 18% of total segment revenues in 2007.

Fitch believes in-region consumer revenues should remain stable in 2008, if not grow modestly, due to continued deployment of video and broadband services. Revenues are also derived from in-region business (small and medium-sized business), wholesale services, national mass markets (which are declining rapidly), as well as the advertising and publishing businesses. The 2006 BellSouth Corp. (BellSouth) and 2005 AT&T Corp. mergers have provided increased scale, as AT&T achieved approximately $4.0 billion in synergies in 2007 (approximately 75% expense and 25% capital), and Fitch expects additional synergies in 2008 and 2009 as it continues integration. By 2010, synergies--plus additional operational cost initiatives--are expected to reach $7.0 billion.

The ratings also incorporate Fitch's expectations that AT&T has the financial flexibility to maintain leverage in a range appropriate for the current rating category. Fitch expects AT&T to maintain credit-protection metrics, in the form of debt-to-EBITDA, of 1.5 times (x) or lower over Fitch's rating horizon.

Issues to monitor regarding AT&T's ratings include competition in the consumer segment, the execution risk posed by the integration of BellSouth's operations into AT&T's business and the effect of AT&T's stock-repurchase activities on debt levels. To offset the effects of competition on cash flow, AT&T must continue to be successful in controlling costs, achieve merger-related synergies and successfully implement its network-based video strategy.

At the end of 2007, AT&T had $64.1 billion in debt outstanding and cash amounted to $2.0 billion. AT&T's liquidity is strong. To back its commercial paper program, AT&T currently has a five-year credit facility that expires in July 2011 with $10 billion of availability. AT&T has an option to increase the $10 billion amount to $12 billion, with agreement by the lending banks. The principal financial covenant requires debt-to-EBITDA, as defined in the agreement, to be no more than 3x. In 2007, AT&T produced $7.6 billion in free cash flow, after revising it upward twice during the year from the original guidance provided at the start of the year in the $4 billion - $5 billion range.

Fitch believes free cash flow could be at a similar level in 2008, given potential additional merger synergies and continued growth in wireless and enterprise service revenues. In 2008, some borrowing is likely to be needed due to the $2.5 billion spectrum purchase from Aloha Partners, L.P., to complete other acquisitions, to fund potential spectrum acquisitions as well as to make further share repurchases.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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.

Source: Business Wire

More News in this Category