|[February 08, 2013]
Fitch Rates AT&T's Senior Unsecured Notes Offering 'A'; Outlook Negative
CHICAGO --(Business Wire)--
Fitch Ratings has assigned an 'A' rating to AT&T (News - Alert) Inc.'s (AT&T) offering
of $2.25 billion of senior unsecured notes due 2016. The offering
consists of $1 billion 0.9% fixed rate notes and $1.25 billion of
floating rate notes. Proceeds are expected to be used for general
corporate purposes. AT&T's Issuer Default rating (IDR) is 'A', and the
Rating Outlook is Negative.
Key Rating Drivers
The 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 following concern is embedded in the rating:
--The Negative Outlook reflects Fitch's expectation that AT&T's net
leverage is likely to move up to a 1.8x upper boundary for leverage,
which represents a notable increase from the 1.5x level over the past
couple of years.
AT&T's 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
In January 2013, AT&T announced two transactions to improve its wireless
spectrum position. Subject to regulatory approval, AT&T will acquire
certain rural wireless assets and spectrum from Atlantic Tele-Network (News - Alert),
Inc. for $780 million in cash. Additionally, the company has a pending
transaction to acquire certain B-block 700 MHz licenses from Verizon
Wireless for $1.9 billion in cash and certain Advanced Wireless Services
spectrum licenses in several markets. In Fitch's view, the proposed
acquisitions are strategically sound as they are supportive of wireless
growth. The transactions, if completed, are not currently expected to
push the company's credit metrics above the 1.8x net leverage level.
For 2013, Fitch expects AT&T's gross leverage to approximate 1.7x, flat
with 2012 (excluding the actuarial losses on its benefit plans). Net
leverage in 2012 was 1.58x. Over the next few years, AT&T's continuation
of stock repurchases will require some borrowing as repurchases will be
above FCF levels. Leverage will rise, 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 Dec. 31, 2012, total debt
outstanding was approximately $69.8 billion, a $5 billion rise from the
$64.8 billion outstanding at the end of 2011. Of the total amount
outstanding, $3.5 billion consists of debt due within one year,
including debt that can be put to the company. At Dec. 31, 2012, cash
amounted to $4.9 billion, and for 2012, AT&T produced $9.2 billion in
FCF (net cash provided by operating activities less capital expenditures
and dividends), an amount short of the $12.8 billion in stock
repurchases during the year. Fitch expects FCF to decline from $9.2
billion in 2012 to $4 billion annually, on average, over the next three
At end of 2012, the company did not have any drawings on its revolving
credit facilities. The principal financial covenant for the 2016 and
2017 facilities requires debt to EBITDA, as defined, to be no more than
Relative to the company's expected free cash flows, upcoming debt
maturities are manageable. 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.
The Rating Outlook could be revised to Stable if:
--The company steadily manages 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
--Fitch believes management has weakened its commitment to returning to,
or operating longer-term with, leverage at a level more reflective of
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
Rating Telecom Companies
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