MOODY'S CONTINUES REVIEW FOR DOWNGRADE OF COMCAST CORPORATION'S DEBT RATINGS (Baa3 SR. UNSEC.) FOLLOWING AGREEMENT TO ACQUIRE AT&T BROADBAND
New York, December 20, 2001 -- Moody’s Investors Service is continuing its review for potential downgrade, of the debt ratings of Comcast Corporation (Baa3 senior unsecured) and its subsidiary, Comcast Cable Communications (Baa2 senior unsecured). The review follows the AT&T Corporation's announcement that it has agreed to combine its cable TV system operations (AT&T Broadband) with Comcast for a transaction that values AT&T Broadband at about $72 billion.
The review for possible downgrade was originally initiated on July 9, 2001 when Comcast launched a bid for AT&T Broadband valued at about $58 billion. It was initiated due to the potential for future adjustments to the offer terms, which we expected could arise upon an auction by AT&T and ensuing negotiations between Comcast and AT&T. In light of the acceptance of Comcast's increased bid, which includes an increase for the addition of AT&T's Time Warner Entertainment, L.P. (TWE) stake, the review will focus on the new company's credit metrics and its intermediate-term ability to reduce debt and leverage given the significant capex requirements for the operations, and particularly for the AT&T Broadband systems. It will also consider the legal and debt structure of the organization and managements plans to simplify it to eliminate certain structural subordination issues. The review will continue as before, to focus on the integration challenges that we believe could face AT&T Comcast, as well as any contingent regulatory hurdles, if any, that could arise. Those potential integration challenges would result from merging an operation with a cable footprint which is currently over 150% larger than that of Comcast's today and clearly the largest acquisition by far in the company's history. In addition, Comcast faces the challenge of improving the profit margins of the acquired cable systems through implementing cost savings and synergies, while at the same time stemming the degradation of, if not improving, AT&T Broadband's basic subscriber penetration. Moody's will also focus on the significant benefits of the transaction including cost reductions and new scaling opportunities for increasing revenues.
The transaction will consist of a tax-free spin off of AT&T Broadband to AT&T shareholders and simultaneous merger with Comcast to form AT&T Comcast Corporation. AT&T shareholders will own a 56% economic stake and a 66% voting interest in the new company. The new company will own both companies' cable TV systems, as well as AT&T's interests in cable TV joint ventures and its 25.5% interest in TWE, and Comcast's interests in QVC, E! Entertainment, The Golf Channel, and other entertainment properties. In addition, the new company will assume nearly $25 billion in debt and liabilities, including $5 billion of AT&T subsidiary trust convertible preferred securities held by Microsoft Corporation. The Microsoft preferreds are anticipated to be converted into equity in the new company, resulting in $20 billion of net debt and liability assumption before any other asset sales or monetization.
The combined cable operations, with about 22 million cable subsidiaries, would be the largest in the US, with cable operating clusters in 17 of the nation's 20 largest markets, and nearly double that of its next closest peer, Time Warner Cable. The company will be the world's leading provider of broadband video, voice and data services with annual pro forma revenues of about $19 billion. The merger is subject to regulatory review, which we believe is likely to result in approval, and approval by both companies' shareholders. The transactions are expected to close at the end of 2002.
Comcast Corporation, with its headquarters in Philadelphia, Pennsylvania, is one of the nation's largest cable television system operators, owns and operates cable television programming and a major electronic retailer, owns sports teams and arenas and owns other material related but non-core investments.
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