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Rating Action:

Moody's affirms Comcast's A3 rating following announcement of possible offer to acquire 100% of Sky plc

28 Feb 2018

New York, February 28, 2018 -- Moody's Investors Service (Moody's) affirmed Comcast Corporation's (Comcast or the company) A3 long-term senior unsecured ratings following its announced proposal of a possible offer to acquire 100% of Sky plc's (Baa2, developing outlook) equity for approximately $31 billion, or $41 billion when including Sky's net debt. This possible offer price represents an approximately 16% premium to 21st Century Fox America, Inc.'s (Baa1, on review for upgrade) ("Fox") December 2016 offer to acquire the portion of Sky that it does not own. All subsidiary ratings of Comcast were also affirmed as part of today's action. The outlook remains stable.

A summary of today's action follows:

Outlook Actions:

..Issuer: Comcast Cable Communications Holdings, Inc.

....Outlook, Remains Stable

..Issuer: Comcast Cable Communications, LLC

....Outlook, Remains Stable

..Issuer: Comcast Cable Holdings, LLC

....Outlook, Remains Stable

..Issuer: Comcast Corporation

....Outlook, Remains Stable

..Issuer: Comcast Holdings Corporation

....Outlook, Remains Stable

..Issuer: NBCUniversal Enterprise, Inc

....Outlook, Remains Stable

..Issuer: NBCUniversal Media, LLC

....Outlook, Remains Stable

Affirmations:

..Issuer: Comcast Cable Communications Holdings, Inc.

....Senior Unsecured Regular Bond/Debenture, Affirmed A3

..Issuer: Comcast Cable Communications, LLC

....Senior Unsecured Regular Bond/Debenture, Affirmed A3

..Issuer: Comcast Cable Holdings, LLC

....Senior Unsecured Regular Bond/Debenture, Affirmed A3

..Issuer: Comcast Corporation

....Senior Unsecured Shelf, Affirmed (P)A3

....Preferred Shelf, Affirmed (P)Baa2

....Subordinate Shelf, Affirmed (P)Baa1

....Senior Secured Regular Bond/Debenture, Affirmed A3

....Senior Unsecured Bank Credit Facility, Affirmed A3

....Senior Unsecured Commercial Paper, Affirmed P-2

....Senior Unsecured Regular Bond/Debenture, Affirmed A3

..Issuer: Comcast Holdings Corporation

....Subordinate Conv./Exch. Bond/Debenture, Affirmed Baa2

....Subordinate Conv./Exch. Bond/Debenture, Affirmed Baa1

..Issuer: NBCUniversal Enterprise, Inc

....Pref. Stock Preferred Stock, Affirmed Baa3

....Senior Unsecured Commercial Paper, Affirmed P-2

....Senior Unsecured Regular Bond/Debenture, Affirmed A3

..Issuer: NBCUniversal Media, LLC

....Senior Unsecured Commercial Paper, Affirmed P-2

....Senior Unsecured Regular Bond/Debenture, Affirmed A3

..Issuer: U S WEST Capital Funding, Inc. (Old)

....Senior Unsecured Regular Bond/Debenture, Affirmed A3

RATINGS RATIONALE

Comcast's possible all-cash offer of $31 billion to acquire 100% of Sky, which we expect would be financed entirely with debt, would result in temporarily elevated gross debt/EBITDA leverage of around 3.0x (including Moody's adjustments) pro forma for the first year of combined operations assuming it closes January 1, 2019. However, we believe that the company has the financial capacity and commitment to bring leverage back down to below 2.75x within 18 to 24 months of the close of the transaction assuming no material changes to the proposed possible offer. "We believe that Comcast will continue its financial policies and will therefore remain committed to its stated leverage target range and its A3 long term debt ratings," stated Neil Begley, a Moody's Senior Vice President. Post tax-reform, we expect standalone Comcast to generate between $8 and $9 billion of annual free cash flow, which should enable the company to pay down debt to get leverage back in line with its A3 credit rating.

A potential acquisition of Sky would give Comcast more geographic diversification, while also increasing its global distribution footprint. "We believe that a combination would increase efficiencies associated with scale, including doubling the content footprint which has become extremely important in the current competitive television landscape, and enable the combined company to spread content production costs over the larger subscriber and territory base," stated Begley. The potential combination would create a more competitive bidder for future sports rights. The two companies could share library content and could share technology, spreading technology development costs over a larger base (Comcast and SKY are leaders in Pay TV technology innovation already). "We believe that such a transaction would better enable Comcast to expand in SVOD using SKY/Star established brands to compete with Netflix and others," added Begley.

As proposed, the possible offer would temporarily elevate leverage for Comcast's A3 rating (upper threshold of 2.75x) and Comcast has stated that it plans to repurchase at least $5 billion of its shares during 2018 (the period of the potential regulatory and shareholder approval process). We believe that the risk of a higher bid by The Walt Disney Company (A2) and/or Fox exists which in turn might result in an even higher possible offer by Comcast. This affirmation does not take into account such a higher potential offer. We believe that the cost of the potential offer by Comcast is already a full value as it represents a 12.2x enterprise value to estimated 2018-EBITDA multiple for SKY, so any potentially higher offer would pose moderately higher risk, and could cause Moody's to review Comcast's ratings.

Comcast's potential offer is contingent on gaining control of SKY. However, Fox already owns just under 40% of SKY today and may decide not to sell. In such a scenario, we believe that pro forma proportionate leverage would be lower. However, in such a scenario, it would complicate the prospect of unifying the credit via cross guarantees as Comcast has typically done in the past. The lack of cross guarantees would result in structurally subordinated opco debt when Comcast bondholders look at SKY. We believe that Comcast's access to cash flows could be more limited and we believe that synergy opportunities that specifically accrue to SKY could be more limited.

The stable outlook reflects our expectation that Comcast's consolidated EBITDA will grow in the mid-single digit range and debt-to-EBITDA will be sustained in the 2.25x to 2.75x range (including Moody's standard adjustments). The outlook also assumes the company will continue to maintain robust liquidity and prudent financial policies over the long term.

Ratings could be upgraded if adjusted debt-to-EBITDA leverage is sustained under 2.25x (including Moody's standard adjustments) and conversion of EBITDA to FCF remains at materially higher levels due to the tax reform, and management is committed to maintaining a higher rating. Ratings could be downgraded if there were an erosion of margins and operating cash flow, or a significant decline in subscribers from a more competitive environment. Also, adjusted leverage above 2.75x (including Moody's standard adjustments) could also result in a downgrade.

Comcast, with its headquarters in Philadelphia, Pennsylvania, is a global diversified media company with two primary businesses - Comcast Cable and NBCU. The company derives revenues from five business segments: Cable Communications, Cable Networks, Broadcast Television, Filmed Entertainment and Theme Parks. Consolidated revenue for FY 2017 was $84.5 billion, with approximately 62% from its cable system operations and 39% from NBCU's businesses.

The principal methodology used in these ratings was Global Pay Television - Cable and Direct-to-Home Satellite Operators published in January 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

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 credit rating action on the support provider and in relation to each particular credit 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 credit rating action, and whose ratings may change as a result of this credit 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: 1 212 553 0376
Client Service: 1 212 553 1653

John Diaz
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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