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Fitch Affirms Comcast's IDR at 'A-'; Outlook Stable
April 3, 2017 / 10:09 PM / 9 months ago

Fitch Affirms Comcast's IDR at 'A-'; Outlook Stable

(The following statement was released by the rating agency) CHICAGO, April 03 (Fitch) Fitch Ratings has affirmed the 'A-' Issuer Default Ratings (IDRs) assigned to Comcast Corporation (Comcast) and the wholly owned subsidiaries included in its cross-guaranty structure. Fitch has also affirmed the 'A-' IDR assigned to NBCUniversal Enterprise, Inc. (NBCUniversal Enterprise) and to NBCUniversal Media, LLC (NBCUniversal). The Rating Outlook on all of these ratings is Stable. As of Dec. 31, 2016, Comcast had approximately $61.8 billion of debt and preferred stock outstanding, including $8.3 billion at NBCUniversal and $4 billion outstanding at NBCUniversal Enterprise. KEY RATING DRIVERS Consistent Capital Structure Policy: Comcast's capital structure and financial strategy remains balanced between investing in its businesses, maintaining leverage at its target range of low 2x, and returning capital to shareholders. Significant Financial Flexibility: Fitch believes Comcast's strong operating profile and solid free cash flow (FCF) metrics afford the company a high degree of financial flexibility at the current rating category. Comcast generated approximately $5.6 billion of FCF (calculated as cash flow from operations less capital expenditures, intangibles, and dividends) during the latest 12 month (LTM) period ended Dec. 31, 2016. Going forward, Fitch anticipates the company will consistently generate material levels of FCF during our rating horizon in excess of $6 billion. Consistent Capital Allocation Strategy: Comcast's capital allocation policy is expected to remain relatively consistent and focused on returning capital to its shareholders while continuing to invest in the strategic needs of its businesses. Fitch expects that share repurchases will total approximately $5 billion during 2017, in line with management guidance, and that total shareholder returns are expected to be in line with FCF generation before dividends. Leading Market Positions: Fitch's ratings incorporate Comcast's strong competitive position as one of the largest video, high-speed data and voice providers to residential and business customers in the U.S. and the company's compelling subscriber clustering profile with operations in 39 states and the District of Columbia. In Fitch's view, NBCUniversal's size, scale, leading brand positions and diversity of operations and business risk, and position as one of the world's most prominent media and entertainment companies, lowers the business risk attributable to Comcast's credit profile. The company also creates new avenues for revenue and cash flow growth while limiting the impact on Comcast's balance sheet and credit profile. Strength of Cable Networks: NBCUniversal's portfolio of leading cable networks as well as the growing importance of its theme parks business are key considerations supporting our ratings and are a strength of the company's credit profile. Fitch considers cable networks one of the strongest subsectors in the media and entertainment industry, one which provides NBCUniversal with a revenue base largely consisting of stable, recurring and high-margin affiliate fee revenue generated from multichannel video programming distributors as well as being a significant source of NBCUniversal's FCF generation. Evolving Competitive Environment: Fitch believes that over-the-top (OTT) can become a persistent, long-term drag on the pay-television sector. The internet is becoming another platform for distributing video content. Fitch expects that OTT will have a broad impact on the sector affecting the size of pay-television and cable network subscriber bases, advertising and affiliate fee revenues, and programming costs. However, in Fitch's view, OTT and its impact on the pay-television subscriber base will not materially affect Comcast's operating or credit profile over the current ratings horizon. Comcast has sufficient flexibility within the current ratings to withstand modest subscriber losses due to cord cutting, which is not anticipated over the short term. However, the largest offset to the threat of OTT to Comcast's cable business is that regardless of how a subscriber consumes video content - through the internet or with a traditional video service - the subscriber will still need to pay for network access (video or high-speed data service). Fitch recognizes the ongoing secular shifts within the pay-television industry, including changing media consumption patterns, a growing preference for time-shifted viewing, and intensifying competition from emerging distribution platforms that continue to drive audience fragmentation and mute multichannel video subscription growth as subscribers migrate away from the traditional pay-television ecosystem. These factors, along with the potential shift to the skinny-bundles video service offerings from cable MSOs, have the capacity to hamper anticipated affiliate fee revenue growth over the longer term. Fitch anticipates a growing bifurcation among cable networks with "have and have nots" cable networks emerging across the media landscape. Companies with cable network portfolios characterized with strong brands, scale, compelling content and limited exposure to weaker cable networks will be better positioned to address secular challenges. Fitch remains convinced that NBCUniversal is well positioned to address the threats and opportunities present in the evolving media landscape. Comcast will launch a wireless service within its existing service footprint during 2017, which will position the operators to capture brand recognition and existing distribution capabilities. Incremental expenses related to the wireless initiative are not expected to materially impact Comcast's operating profile. In addition, the company made a $1.76 billion deposit to participate in the FCC's recently concluded auction of 600 MHz wireless spectrum. Fitch would expect such an acquisition to be executed in a manner neutral to the company's credit and operating profile. Fitch expects the initial wireless plans offered by Comcast will focus on existing customers and be aimed at improving subscriber churn and overall customer lifetime value. While recognizing the growth of video consumption by wireless devices both inside and outside the home, generally Fitch views cable's entry into wireless as more of a defensive strategy to preserve existing market share rather than an attempt to disrupt the wireless market. The asset-light business model will leverage existing extensive Wi-Fi capabilities along with a MVNO agreement with Verizon that reduces capital risk. Comcast's success is predicated on its ability to disrupt the market with innovative, value-creating service offerings similar to T-Mobile. However, new innovative services can typically be replicated relatively quickly by the competition. Consequently, Fitch believes that a lower-cost wireless build-out by cable companies in their respective service territories would be hardpressed to effectively compete from a quality perspective against the four national wireless operators that have invested billions of dollars in wireless infrastructure over a long timeframe. KEY ASSUMPTIONS --Reflecting the overall maturity of Comcast's services, Fitch's base case assumes overall primary service unit (PSU) additions continue to slow, reflecting increasing penetration of the company's service offering portfolio. Fitch forecasts that Comcast's video subscriber base will grow during 2017 as the X1 platform continues to scale. However the base case calls for flat growth during 2018 and 2019. High-speed data subscriber growth remains in mid-single digits while telephony subscriber growth is in low-single digits. --Comcast's cable business will continue to report low- to mid-single-digit revenue growth during the forecast period as service ARPUs continue to grow in light of the favorable revenue mix shift of subscribers taking more advanced video services and higher speed (higher-priced) high-speed data service tiers, as well as increased overall service penetration. --Cable segment margins decline modestly during the forecast period reflecting ongoing programming cost increases. The increased costs are offset somewhat by Comcast's ability to shift its revenue mix to higher-margin services such as high-speed data services and business services, as well as improving operational efficiencies. Consolidated margins will be pressured somewhat by launch and other startup costs related to the company's wireless initiative. --Cable-segment capital intensity remains relatively consistent over the near term before moderating somewhat as the deployment of the X1 platform and related cloud DVR and wireless gateway spending winds down. Capital expenditures related to the launch of Comcast's wireless service is expected to be minimal. --Fitch's base case assumes no change in Comcast's financial policy or capital allocation strategy. In line with company guidance, we expect Comcast will repurchase $5 billion of its common stock during 2017. RATING SENSITIVITIES A positive rating action would likely coincide with Comcast committing to and achieving a financial policy consistent with an 'A' rating, including maintaining its leverage below 1.5x on a sustained basis. Comcast would need to demonstrate that its operating profile will not materially decline in the face of competition. Negative rating actions would likely coincide with discretionary actions of Comcast's management including, but not limited to, adopting a more aggressive financial strategy, or event-driven merger and acquisition activity that drive leverage beyond 2.5x in the absence of a credible deleveraging plan. LIQUIDITY Comcast's liquidity position and overall financial flexibility are strong based on Fitch's expectation that the company will continue to generate material amounts of FCF. Comcast generated approximately $5.6 billion of FCF during the LTM ended Dec. 31, 2016. Going forward, Fitch anticipates that the company will consistently generate consolidated FCF in excess of $6 billion. We acknowledge that Comcast's share repurchase program represents a significant use of cash. However, Fitch believes the company would reduce the level of share repurchases should the operating environment materially change, in order to maximize financial flexibility. The liquidity position is further supported by cash on hand, which totaled approximately $3.3 billion on a consolidated basis as of Dec. 31, 2016, and $5.5 billion of collective available borrowing capacity, as of Dec. 31, 2016, from Comcast's two revolving credit facilities. Commitments under Comcast's $7 billion revolver as well as NBCUniversal Enterprise's $1.5 billion revolver will expire on May 26, 2021. The credit facilities provide a liquidity back-stop to the company's two commercial paper (CP) programs. Comcast maintains a $6.25 billion CP program ($1.7 billion outstanding as of Dec. 31, 2016) while NBCUniversal Enterprise has established a $1.35 billion CP program under which approximately $1 billion was outstanding as of Dec. 31, 2016. Comcast's debt maturity profile is well-laddered and within Fitch's FCF expectation. The company's maturities total approximately $1.6 billion during the remainder of 2017 followed by $4.2 billion and $2.5 billion during 2018 and 2019, respectively. FULL LIST OF RATING ACTIONS Fitch affirms the following ratings with a Stable Outlook: Comcast Corporation --Long-Term IDR affirmed at 'A-'; --Senior unsecured debt at 'A-'; --$7 billion revolving bank facility at 'A-'; --Short-Term IDR at 'F2'; --Commercial paper at 'F2'. Comcast Holdings Corporation --IDR at 'A-'; --Subordinated exchangeable notes at 'BBB'. Comcast Cable Communications, LLC --IDR at 'A-'; --Senior unsecured debt at 'A-'; NBC Universal Media, LLC --IDR at 'A-'; --Senior unsecured debt at 'A-'. NBCUniversal Enterprise, Inc. --IDR at 'A-'; --Senior unsecured debt at 'A-'; --$1.5 billion revolving bank facility at 'A-'; --Series A preferred stock at 'BBB'; --Short-Term IDR at 'F2'; --Commercial paper at 'F2'. In addition, Fitch withdraws the following ratings: DreamWorks Animation SKG, Inc. --IDR 'A-'; Comcast Cable Holdings, LLC --IDR 'A-'; Comcast MO Group, Inc. --IDR 'A-'; Comcast MO of Delaware, LLC --IDR 'A-'. Fitch assigns the following rating: Comcast Corporation --Senior Unsecured Notes due August 2046 - 'A-' Contact: Primary Analyst David Peterson Senior Director +1-312-368-3177 Fitch Ratings, Inc. 70 W. Madison Street Chicago, IL 60602 Secondary Analyst John Culver, CFA Senior Director +1-312-368-3216 Committee Chairperson Mark Sadeghian Senior Director +1-312-368-2090 Date of Relevant Rating Committee: March 31, 2017 Summary of Financial Statement Adjustments - Financial statement adjustments that depart materially from those contained in the published financial statements of the relevant rated entity or obligor are disclosed below: --No material adjustments have been made that have not been disclosed in public fillings of this issuer. 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