Fitch Comments On AT&T Comcast's Indicative 'BBB' Rating

Business Wire, Sept 26, 2002

Business Editors

NEW YORK--(BUSINESS WIRE)--Sept. 26, 2002

Fitch Ratings reiterates its March 4, 2002 indicative 'BBB' rating on the senior unsecured debt obligations of AT&T Comcast, the holding company for the newly merged entity, Comcast and AT&T Broadband. Likewise affirmed are the indicative 'BBB' senior unsecured ratings assigned to the proposed restricted group, which represents Comcast Cable Communications, AT&T Broadband LLC (f.k.a. TCI Communications) and MediaOne Group. The indicative commercial paper rating of 'F2' is also affirmed. The Rating Outlook is expected to be Stable. However, the Negative Watch will continue pending the successful completion of the transaction with the stated terms and conditions.

An important consideration in this rating is the expected deleveraging through the monetization of ATT Comcast's 27% interest in Time Warner Entertainment (TWE),(a partnership between AOL Time Warner (AOLTW) and AT&T). The restructuring of the partnership will ultimately result in a cash outlay by AOLTW of $2.1 billion and issuance of $1.5 billion in AOLTW stock to AT&T/Comcast. Additionally, ATT Comcast will also retain a 21% economic interest in Time Warner Cable (TWC), representing approximately nine million cable subscribers, in exchange for its stake in TWE. Fitch expects that the upfront proceeds of $3.6 billion in cash and stock will be used to reduce debt. Furthermore, the company intends to monetize its 21% stake in Time Warner Cable (TWC), which Fitch also expects to be used for further debt reduction.

Financial flexibility for AT&T Comcast is provided by a new credit agreement totaling $12.8 billion available on the date of the closing, which will be used to fund approximately $9 billion of AT&T intercompany debt, near-term debt maturities and other liabilities. The facilities consist of a $7.0 billion bridge, maturing 1 year from the merger closing date, a $3.2 billion term loan maturing two years from the closing date, and a $2.6 billion revolving credit facility maturing in 5 years. The facilities are guaranteed by Comcast Cable Communications, Inc. AT&T Broadband LLC (TCI), MediaOne group, Inc and AT&T Broadband Corp. The covenants consist of a maximum leverage ratio of 6.25x at the first quarterly reporting period reducing to 5.5 times by the third and an interest coverage ratio of 2.0x at the closing date and increasing to 2.5x by the third quarterly reporting period. The new credit facility will provide the company with ample funding to complete the transaction, and Comcast Cable's current $4.2 billion credit facilities will remain outstanding, providing an additional source of future liquidity.

The amount of AT&T Broadband intercompany debt due to AT&T Corp and to be repaid by Comcast with the close of the merger will be reduced as a result of a successful bond exchange offering. The exchange offer gives certain AT&T bondholders the chance to exchange their bonds for similar bonds issued at AT&T Broadband, which will be assigned to AT&T Comcast, as part of the consent process. AT&T needs to obtain consent from bondholders to allow them to amend the Sept 1990 indenture ($11.76 billion of bonds to waive the covenant regarding asset sales).

In addition, as expected, Comcast has completed some non-core asset monetizations with the sale $541 million in AT&T common stock as well as AT&T Broadband's pending sale of cable systems to Bresnan Communications for $735 million and it is also anticipated its Charter partnership interests will be sold in 2003 for approximately $700. Fitch expects an additional $600 million of monetizations from shares of AT&T Corp and Sprint PCS, and $400 million from PCS collars with proceeds used for debt reduction.

This rating level also reflects approximately $400-500 million of cost (programming and operational) synergies expected in 2003 due to the efficiencies and scale associated with AT&T Comcast's larger subscriber base. Fitch has also assumed the putable obligations (based on a downgrade, not below investment grade and/or change of control) of AT&T Broadband and Comcast will be exercised.

Primary rating concerns include the risks associated with the integration and performance of the AT&T Broadband properties and the event risk associated with the IPO of the company's 21% interest in TWC. A downgrade of TCI Communications debt to a rating level below 'BBB-' would trigger the put options associated with approximately $3.8 billion of TCI MTNs and term loans, potentially forcing the company to undertake additional issuances/refinancing in the capital markets. Given the proposed guarantee and organizational structure and the proceeds obtained from the TWE resolution, Fitch believes this risk is remote.

AT&T Comcast will be a holding company with AT&T Broadband LLC, Comcast Cable Communications and Media One Group as sister companies. After the merger closes, the new holding company, AT&T Comcast Corp will serve as the primary funding vehicle for the combined company. The restricted group includes only the cable companies, which includes Comcast Cable Communications, MediaOne Group and AT&T Broadband LLC (f.k.a. TCI Communications). The entertainment and content assets, including QVC, of Comcast Corporation will not be included in the restricted group. However, the proposed structure provides no restriction of payments from Comcast Cable to Comcast Corp. Unconditional guarantees will exist between the holding company and the restricted group and include downstream, upstream and cross guarantees within the restricted group. As a result of this proposed guarantee structure and the lack of restricted payments, Fitch has assigned equal ratings to the senior unsecured debt at each operating company. In addition, given the strategic importance and implicit support from the parent, Fitch has also assigned equivalent ratings for MediaOne Group of Delaware (f.k.a. Continental Cablevision).