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Rating Action:

Moody's Changes Time Warner Cable (Baa2) rating review to review for upgrade from review for downgrade following agreement to merge with Comcast (A3); Comcast's ratings affirmed

13 Feb 2014

About $73 billion of debt affected.

NOTE: On February 18, 2014, the press release was revised as follows: In the RATINGS RATIONALE section, corrected the principal methodology used in rating Time Warner Cable, Inc. and subsidiaries to the Global Pay Television - Cable and Direct-to-Home Satellite Operators published in April 2013, and corrected the principal methodology used in rating Comcast Corporation and subsidiaries to the Large Global Diversified Media Industry published in December 2010. Revised release follows.

New York, February 13, 2014 -- Moody's Investor Service changed Time Warner Cable, Inc.'s (TWC) ratings (Baa2 senior unsecured) review direction to review for upgrade from review for downgrade following the announced definitive agreement to merge with Comcast Corporation (Comcast) (A3 senior unsecured) via an all stock merger. In addition, Moody's affirmed Comcast's A3 ratings and is maintaining its positive rating outlook. All other existing ratings for Comcast were also affirmed. TWC's ratings were on review for downgrade following the attempts by Charter Communications Inc. (Ba3 CFR) to acquire TWC via a debt financed leverage buy out.

RATINGS RATIONALE

The agreement, which has been approved by both companies' board of directors, is for a stock swap merger between both companies, creating a consolidated company with about $87 billion in 2013 pro forma revenues, with TWC shareholders owning approximately 23% of the combined entity. The merger is subject to approval by both sets of shareholders as well as regulatory approvals. There is no break up fee obligation for either company if the deal is not completed.

The change in the review direction for TWC is because we do not anticipate an increase in debt beyond what currently resides on each balance sheet (approximately $73 billion as of 12/31/13), significant potential for cost savings, opportunity for operational gains including scale in the commercial business and stronger retention in the residential business. The review will focus on the various benefits and flexibility that may come with larger scale, including the potential for cost savings, stronger customer retention and revenue opportunities. It will also focus on integration risks, though Comcast has significant successful integration experience. It will also consider the potential for lower leverage and particularly the likelihood that Comcast will replicate its past strategy of putting cross guarantees in place between it and the acquired debt issuers to simplify the legal credit structure into a single lower leveraged credit.

Moody's anticipates that this is a bondholder white-knight transaction as TWC's bonds have traded down to high-yield levels over the past several quarters. Given the somewhat higher leverage at TWC, there may be a modest increase in combined leverage as compared to Comcast on a standalone basis. We believe that pro forma leverage will increase by approximately 0.2x. However, this does not take into consideration what we believe will be significant cost saving opportunities over the initial 12 to 24 months, which we estimate will be greater than the $500 million that we contemplated could be saved by a Charter-TWC combination. We believe that the benefit may be as much as $1 billion given that Comcast's cable operating cash flow margins exceeded TWC's by over 500 basis points for 2013. Improving TWC's margins to Comcast's 2013 level would add over $1 billion to operating cash flow assuming Comcast's stronger retention initiatives, as indicative of its recent video and HSD subscriber trends, can be instituted at TWC. It also does not contemplate other important opportunities that we believe will exist in a Comcast-TWC tie up, such as the benefit of Comcast's innovative technology development. This includes proprietary home premises equipment - the X1 and X2 set top box technology, which will likely be deployed in TWC subscriber homes. We also believe that the commercial opportunity in a Comcast-TWC merger is significant. We believe that the merger creates a scaled footprint that will rival that of either AT&T Inc. or Verizon Communications, Inc., covering some of the country's most heavily trafficked corridors. The commercial segment at both Comcast and TWC have been the fastest growth engine for each company separately, each exceeding 20% a year for several years, and as they enter into larger corporate markets, these growth rates should be sustained for some time despite the larger growing base. Within the combined cable business (excluding NBCUniversal), commercial revenues account for around 9% of total revenues.

The principal methodology used in rating Time Warner Cable, Inc. and subsidiaries to the Global Pay Television - Cable and Direct-to-Home Satellite Operators published in April 2013. The principal methodology used in rating Comcast Corporation and subsidiaries to the Large Global Diversified Media Industry published in December 2010. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Comcast Corporation, with its headquarters in Philadelphia, Pennsylvania, is a global diversified media company with two primary businesses - Comcast Cable and NBCUniversal. The company derives revenues from five business segments: Cable communications, Cable Networks, Broadcast Television, Filmed Entertainment and Theme Parks. Consolidated revenue for the year ended 12/31/2013 was about $65 billion, with approximately 64% from its cable system operations and 36% from NBCU's businesses.

Time Warner Cable, Inc. with its headquarters in New York, New York, is the second-largest cable operator in the United States based on basic-video subscribers. The company provides video, high-speed data and phone services to residential and commercial customers. Revenues for the year ended 12/31/2013 were $22 billion.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Neil Begley
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

John Diaz
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Changes Time Warner Cable (Baa2) rating review to review for upgrade from review for downgrade following agreement to merge with Comcast (A3); Comcast's ratings affirmed
No Related Data.
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