Fitch Rates Time Warner Cable's Sr. Unsecured Notes 'BBB'; Outlook Stable

Business Wire, Nov 13, 2008

CHICAGO -- Fitch Ratings has assigned a 'BBB' rating to Time Warner Cable's (TWC) benchmark size senior unsecured notes maturing February 2014 and 2019. The proceeds from the offering are expected to be used to fund part of the $10.9 billion special dividend payment that is expected to be paid prior to the completion of TWC's separation from its parent Time Warner, Inc. Fitch expects the separation transaction to close early in 2009. The notes will be guaranteed by Time Warner Entertainment Company, LP and TW NY Cable Holding, Inc.

In accordance with the terms of TWC's $9 billion senior unsecured bridge loan, lender commitments under the bridge facility will be reduced by the amount of the net cash proceeds that the company receives in connection with this offering and by any subsequent debt securities issued prior to the draw from the bridge facility. As of Sept. 30, 2008, the commitment under the bridge facility was $3.771 billion reflecting TWC's bond issuance during June 2008.

TWC's leverage metric as of the end of the third quarter was 2.6 times (x) on a gross debt basis (2.1x on a net debt basis). Fitch expects TWC's leverage will increase to approximately 3.8x by year end 2008 after considering the incremental debt TWC expects to incur to fund the special dividend. TWC's credit protection metrics will be relatively weak within the rating category when the separation transaction closes; however, Fitch expects that TWC will use a substantial amount of its free cash flow generation to reduce leverage to a level more reflective of the current rating. Fitch believes that TWC is positioned to generate material amounts of free cash flow during the ratings horizon, and TWC's leverage metric will improve to the company's longer-term target of approximately 3.25x within a year from the close of the separation transaction. Year-to-date as of Sept. 30, 2008, TWC generated approximately $1.3 billion of free cash flow (defined as cash flow from operations less capital expenditures) reflecting a nearly 53% increase relative to the same period last year.

Overall Fitch's ratings reflect TWC's strong competitive position as the second largest cable multiple systems operator (fourth largest multi channel video program distributor) in the United States, strong subscriber clustering profile and the company's growing revenue diversity owing to the success of TWC's triple play service offering and growing commercial business. Within the context of escalating competitive pressures and weakening economic conditions, the ratings incorporate Fitch's expectation that the company will continue to generate solid operating metrics, sustainable EBITDA and free cash flow growth over Fitch's rating horizon. From Fitch's perspective TWC's scale and system clustering provide the company with competitive advantages in terms of driving higher operating efficiencies through its cable plant, taking cost out of customer premise equipment, lowering programming costs, and positioning the company to enhance its product offerings so that it can differentiate them from the competition's offering.

Ratings concerns center on TWC's ability to maintain its competitive position given the changing competitive and economic environment, growing retail revenues beyond its core "Triple Play" service offering, expansion into the commercial services market, efficiently manage its cable plant bandwidth to maximize desirable high-definition (HD) content and continuing to balance investing in its business with improving its overall credit profile.

The Stable Rating Outlook reflects Fitch's expectation that the company's credit protection metrics will strengthen following the closing of the separation transaction and that TWC's financial policy will continue to reflect a 'BBB' rating. Additionally the Stable Outlook also incorporates Fitch's expectation that the company's operating profile will not materially decline during the near term in the face of competition and slowing economic conditions.

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