CHICAGO - (Business Wire) Fitch Ratings has affirmed the long- and short-term Issuer Default Ratings (IDRs) for AT&T Inc. (AT&T) (NYSE:T) as follows:
--Long-term IDR at 'A';
--Short-term IDR at 'F1'.
In addition, Fitch has affirmed the ratings assigned to AT&T's debt classes and the IDRs and ratings of the other AT&T-related issuers listed at the end of this release. The Rating Outlook is Stable.
In addition, Fitch has placed the ratings for Centennial Communications Corp. (Centennial) (Nasdaq: CYCL) and its subsidiaries on Rating Watch Positive as follows:
Centennial Communications Corp.
--IDR 'B';
--Senior unsecured notes 'CCC+/RR6'.
Centennial Cellular Operating Co.
--IDR 'B';
--Senior secured credit facility to 'BB/RR1';
--Senior unsecured notes to 'BB/RR1'.
The rating actions reflect AT&T's Nov. 7, 2008 announcement that it will acquire Centennial for $944 million in cash. Including the value of Centennial's debt, the total value of the acquisition is approximately $2.8 billion. Centennial provides wireless services to 1.1 million subscribers in the Midwest and Southeast U.S., as well as Puerto Rico and the U.S. Virgin Islands. The companies have not disclosed potential synergies but they could be large, given existing roaming arrangements in the Southeast and Midwest properties. In addition, Centennial has a backbone network in Puerto Rico that would provide further synergies to AT&T's business customers.
The transaction is subject to regulatory approvals and the approval of Centennial's shareholders, among other closing conditions. Centennial's largest shareholder, Welsh, Carson, Anderson & Stowe, has agreed to vote in favor of the transaction. Approvals are expected to be obtained by the end of the second quarter of 2009.
Centennial's ratings were placed on Rating Watch Positive owing to the pending acquisition by AT&T. Fitch expects Centennial's term-loan facility to be repaid at the close of the transaction, and will monitor AT&T's intentions with respect to the remainder of Centennial's outstanding debt. Fitch anticipates resolving the Rating Watch status at, or prior to, the closing of the transaction.
AT&T's rating incorporates Fitch's expectations that, on a long-term basis the company has the financial flexibility to maintain leverage in a range appropriate for the current rating category. At the end of third-quarter 2008 (3Q'08), leverage was 1.75 times (x), toward the high end of Fitch's expectations for the rating category and higher than AT&T's target level of 1.3x to 1.5x. Importantly, AT&T ceased repurchasing common stock in 3Q'08, and reduced debt by $3.4 billion in the quarter. Due to the continued stress in the credit and banking markets, the company's current plans are to continue to direct free cash flow toward debt reduction during the remainder of 2008. Fitch notes that the periodic nature of spectrum acquisitions, which are needed to support continued strong wireless growth, has contributed to the temporary higher leverage level. Fitch expects that EBITDA growth and potential debt reduction will return AT&T's credit-protection metrics back into AT&T's target range.
AT&T's ratings also reflect its diversified revenue mix, its significant size and economies of scale as the largest wireless, wireline and enterprise services operator in the U.S., as well as Fitch's expectation that AT&T will benefit from continued growth in wireless operating cash flows. In 3Q'08, wireless segment revenues grew 15.4% while generating approximately 39% of total segment revenues. In order to support the growth needs of its wireless business and to remain competitive in future years through the deployment of fourth-generation wireless technologies, in the first half of 2008 AT&T spent approximately $9.1 billion on wireless spectrum in the 700 megahertz (MHz) frequency band.
Issues to monitor regarding AT&T's ratings include competition in the consumer line of business and the pressure of economic weakening on its lines of business during the remainder of 2008 and in 2009. To offset the effects of these factors 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 3Q'08, AT&T had $76.8 billion in debt outstanding, and cash amounted to $1.6 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 an estimated $9.4 billion of availability (Lehman Brothers Bank, Inc. composed $595 million of the original $10 billion facility). The principal financial covenant in both agreements requires debt-to-EBITDA, as defined in the agreements, to be no more than 3x. For the last 12 months ending Sept. 30, 2008, AT&T produced $2.9 billion in free cash flow after dividends. There has been expense pressure on free cash flow in 2008 owing to subsidies AT&T is providing in marketing the latest version of Apple Inc.'s iPhone, but the iPhone's strong sales should contribute to improved revenues and profitability in 2009.
AT&T's debt maturities in 2009 and 2010 are approximately $7.5 billion and $3.8 billion, respectively. The maturities incorporate debt that can be put to AT&T, where appropriate.
Fitch has affirmed the following ratings with a Stable Outlook:
AT&T Inc.
--Long-term IDR at 'A';
--Senior unsecured at 'A';
--Bank credit facilities at 'A';
--Short-term IDR at 'F1';
--Commercial paper at 'F1'.
AT&T Corp.
--Long-term IDR at 'A';
--Senior unsecured at 'A'.
BellSouth Corp.
--Long-term IDR at 'A';
--Senior unsecured at 'A'.
BellSouth Capital Funding Corp.
--Senior unsecured at 'A'.
BellSouth Telecommunications, Inc.
--IDR at 'A';
--Senior unsecured at 'A'.
AT&T Mobility LLC (formerly Cingular Wireless, LLC)
--Long-term IDR at 'A';
--Senior unsecured at 'A'.
New Cingular Wireless Services, LLC (formerly AT&T Wireless Services, Inc.)
--Long-term IDR at 'A';
--Senior unsecured at 'A'.
SBC Communications Capital Corp.
--Senior unsecured at 'A'.
Ameritech Capital Funding
--Long-term IDR 'A';
--Senior unsecured 'A'.
Indiana Bell Telephone Company
--Long-term IDR at 'A';
--Senior unsecured at 'A'.
Michigan Bell Telephone Company
--Long-term IDR at 'A';
--Senior unsecured at 'A'.
Pacific Bell Telephone Company
--Long-term IDR at 'A';
--Senior unsecured v'A'.
Wisconsin Bell Telephone Company
--Long-term IDR at 'A';
--Senior unsecured at 'A'.
Southwestern Bell Telephone Company
--Long-term IDR at 'A';
--Senior unsecured at 'A'.
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.
Fitch Ratings
John Culver, CFA, +1-312-368-3216 (Chicago)
Bill Densmore, +1-312-368-3125 (Chicago)
Cindy Stoller, +1-212-908-0526 (Media Relations,
New York)
cindy.stoller@fitchratings.com
