TEXT-Fitch rates AT&T's snr unsecured note offering

(The following statement was released by the rating agency)

June 11 - Fitch Ratings has assigned an 'A' rating to AT&T Inc.'s (AT&T) proposed offering of $2 billion five- and 10-year senior unsecured notes. Fitch expects proceeds from the offering, along with proceeds from a GBP1.25 billion offering in May 2012, to be used to fund the redemption in June 2012 of approximately $4.8 billion of debt maturing in 2012 and 2013. The Rating Outlook is Stable. In Fitch's view, the 'A' rating is supported by AT&T's financial flexibility, which will enable the company to maintain leverage around 1.5 times (x), which Fitch believes is 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. An intermediate-term risk for AT&T concerns its need to address spectrum requirements to support continued wireless growth, an element that has come to the forefront following the December 2011 termination of the acquisition of T-Mobile USA. In the meantime, AT&T is making smaller acquisitions of spectrum, as well as increasing capacity through efforts including cell-splitting, distributed antenna systems solutions and wi-fi solutions. Fitch will assess the effect of efforts to gain access to larger amounts of spectrum on AT&T's credit profile as the financial implications become known. In January 2012, AT&T announced that it would restart its common stock repurchase program which had been halted while the T-Mobile USA transaction was under consideration. Fitch's December 2011 affirmation of the rating following the termination of the transaction incorporated expectations that AT&T would return to stock repurchases. In Fitch's opinion, AT&T's strong free cash flow (FCF), which is expected to approximate $5 billion (after dividends) provides the company with the flexibility to repurchase stock while maintaining relatively stable credit metrics. AT&T has stated it will repurchase stock in the context of maintaining a net leverage metric of approximately 1.5x. As part of a plan to divest or restructure low performing assets or noncore assets over the next couple of years, in April 2012 the company announced plans to sell its Advertising Solutions and Interactive businesses to Cerberus Capital Management, L.P. (Cerberus). Cerberus has acquired a 53% stake in the businesses for $750 million cash and a $200 million note. Fitch believes additional assets likely to be reviewed include its rural access lines base, given it is not economic to upgrade such lines to its U-verse video and broadband product. Fitch expects AT&T's year-end 2012 leverage metrics to be flat with 2011. For 2011, AT&T's gross leverage was 1.56x and 1.49x on a net debt basis, with both ratios adjusted to exclude the T-Mobile USA termination payment, a write-down in the directory business, and the actuarial losses on its benefit plans. Liquidity is provided by cash and FCF, and additional financial flexibility is provided by availability on the company's revolving credit facilities. At March 31, 2012, total debt outstanding was approximately $65.7 million, a moderate rise from the $64.8 billion outstanding at the end of 2011. Of the total, $6.8 billion consists of debt due within one year. At March 31, 2012, cash amounted to $2.4 billion, and for the last 12 months ending March 31, 2012, AT&T produced $4 billion in FCF (net cash provided by operating activities less capital expenditures and dividends). At end of the first 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. AT&T's guidance for capital spending in 2012 calls for spending to remain stable relative to the $20 billion spent in 2011. Although the overall total spending level is stable, within the mix higher wireless spending will offset a decline in wireline-related spending. The company indicates pre-dividend FCF is expected to be in the $15 billion to $16 billion range from the $14.4 billion achieved in 2011. Following the redemption at the end of June 2012 of $800 million of 4.75% notes due 2012 issued by BellSouth Corp., there will be no material debt maturities in 2012. An additional $4 billion of AT&T Inc. debt will be redeemed at the end of June, reducing 2013 maturities, including debt that can be put to the company, to $3.4 billion. (Caryn Trokie, New York Ratings Unit)