Fitch Comments on Time Warner Bond Consent Solicitation

Business Wire, Oct 19, 2006

NEW YORK -- Time Warner Cable Inc. (TWC), 'BBB' (Stable Outlook), as subsidiary of Time Warner Inc. 'BBB' (Stable Outlook), announced today that its subsidiary, Time Warner Entertainment, L.P. (TWE) has commenced a consent solicitation to amend the indentures governing the debt securities at TWE in an effort to amend reporting obligations under the indentures and simplify the guarantee structure. Fitch's ratings on TWC and Time Warner Inc. are unaffected by this announcement.

Specifically, the proposed amendments would simplify the guarantee structure for the cable entities by providing a direct guaranty of the TWE debt securities by TWC and terminating the existing TW Partners Guarantees currently provided by American Television and Communications Corp(ATC) and Warner Communications Inc.(WCI). While Fitch recognizes that the ATC/WCI guarantee structurally tied the content portion of the business to the distribution side (WCI includes certain filmed entertainment and network assets) Fitch has also historically assigned limited benefit to the guarantee by WCI/ATC of TWE's public debt and the TWC bank facilities' ratings, due to the lack of asset transfer restrictions at WCI and ATC. Removal of the WCI/ATC guarantees has reporting benefits to Time Warner and TWC in the event TWC issued registered debt securities requiring quarterly and annual reporting with the SEC, resulting in incremental legal and audit costs.

Time Warner is further soliciting consents to amend the reporting requirements under the TWE indenture to allow TWE to provide Holders of TWE Bonds with TWC quarterly and annual reports. Under the post-consent structure, the company only has to file one set of consolidated financial statements for TWC since all involved entities and subsidiaries will be wholly-owned under SEC requirements. As such, the company will not file separate financials for TWE. However, when TWC does issue registered debt securities there will be consolidating financial statements filed that will show financials of the guarantors.

Of note, the company issued a 10 supplement to the TWE Indenture on October 18, 2006, that essentially eliminated any liability for TWE bonds by TW NY Cable LLC and issued a guarantee of TWE bonds by TW NY Cable Holding Inc., the 100% parent of TW NY Cable LLC. The purpose of this was also for simplification of financial reporting requirements.

Overall, Fitch's ratings on Time Warner continue to reflect the company's strong and consistent free cash flow, solid credit protection measures, significant subscription based-revenue (at TWC), leading market positions in core businesses, strong brands, and content and distribution network, in addition to sound liquidity. Rating concerns include the company's exposure to cyclical advertising, which is less significant relative to industry peers, as advertising represents approximately 17% of total revenues in 2005 while peers are at an average of 40%-50%, and the inherent volatility of the filmed entertainment and television production businesses. While Fitch recognizes the recent increase in share price, the potential for additional shareholder friendly initiatives remains a concern.

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