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27 Jul 2010
New York, July 27, 2010 -- Moody's Investors Service (Moody's) assigned an A2 senior unsecured rating
to AT&T Inc.'s ("AT&T") new Senior Unsecured
Notes, due in 2015. Moody's expects the issuance to raise
$2.25 billion in gross proceeds for the company, which
will likely be used for general corporate purposes. The rating
outlook remains negative and reflects the company's challenge of
maintaining leverage consistent with the A2 rating in the face of negative
forces that pressure its fundamental operating profile, largely
stemming from secular declines of the company's local wireline operations,
macroeconomic conditions, increasing competition and the maturation
of the wireless business in the US.
As such, among the triggers that could stabilize AT&T's rating
outlook would be if the company's adjusted Debt/EBITDA leverage continues
to decline below 2.0x. Another hallmark of an A2 -
stable company is conservative liquidity management, and we expect
AT&T's liquidity policies to continue to be in line with other Prime
In Moody's view a successful notes offering enhances the company's
forward liquidity, as the proceeds will effectively prefund a portion
of the debt maturities due over the next twelve months, which is
a major consideration in the company's P-1 short term liquidity
rating. To supplement its liquidity position, the company
maintains a $9.5 billion back up revolving credit facility
which matures in July 2011. However, Moody's is concerned
that by having a credit facility with less than a year to maturity,
AT&T is somewhat limiting its financial flexibility against the scheduled
debt repayments and dividend payouts, as well as potential for resumption
of M&A activity or stock buybacks over the next twelve months.
..Issuer: AT&T Inc.
....Multiple Seniority Shelf, Assigned
....Senior Unsecured Regular Bond/Debenture,
At the same time, Moody's recognizes the improvement in AT&T
Inc.'s recent operating performance which has resulted in
reduced financial leverage. By suspending its stock buyback activity
since mid-2008 and having repaid about $7 billion of balance
sheet debt since mid-2009, the company drove its Moody's
adjusted Debt/EBITDA leverage to just over 2.0x at the end of the
second quarter in 2010, a reduction from 2.2x at the same
time in 2009. Furthermore, Gerald Granovsky Moody's
Vice President -- Senior Credit Officer said, "AT&T's
ability to restore its stated Debt/EBITDA leverage target to between 1.3x-1.5x
(1.7x to 2.0x Moody's adjusted) in one year is a reinforcement
of the company's commitment to maintain solid credit metrics despite
ongoing competitive and macroeconomic pressures that have constrained
the company's free cash flow growth."
AT&T's A2 senior unsecured rating reflects the company's position
as the largest telecommunications company in the US and its strong and
well-diversified cash flow. The company's rating is
also supported by its dominant position as the #1 or #2 operator
in nearly all of the key segments in which it operates. Moody's
also notes that continued strong performance by AT&T Mobility,
AT&T's wireless operating subsidiary, has been the primary
reason for AT&T's EBITDA stability, as the growth in the
wireless unit driven by the success of the iPhone handset has balanced
the declines in the wireline segment.
At the same time, the rating reflects Moody's views of the
ongoing negative forces that pressure AT&T's fundamental operating
profile, largely stemming from secular declines of the company's
core wireline operations, the persistently weak macroeconomic conditions
that have delayed the rebound in the enterprise and wholesale businesses,
the maturation of the wireless industry in the US, and the possible
loss of the exclusive right to sell the iPhone in the US sometime over
the next 12 months. In order to mitigate these challenges and solidly
position the rating within the A2 category, Moody's believes
the company will need to maintain adjusted leverage under 2.0x,
amid pressure from shareholders to increase returns, while maintaining
flexibility to pursue strategic alternatives.
For more details on AT&T's rating rationale, please see
The principal methodology used in rating AT&T was Moody's rating methodology
for Global Telecommunications Industry published in December 2007 and
available on www.moodys.com in the Rating Methodologies
sub-directory under the Research & Ratings tab. Other
methodologies and factors that may have been considered in the process
of rating this issuer can also be found in the Rating Methodologies sub-directory
on Moody's website.
Moody's most recent rating action for AT&T was on May 11, 2009.
At that time Moody's changed the ratings outlook on AT&T Inc.,
AT&T Mobility and BellSouth to negative.
AT&T, the largest telecommunications company in the USA,
is headquartered in Dallas, Texas.
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
Alexandra S. Parker
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Moody's assigns A2 to new AT&T notes; outlook remains negative
No Related Data.
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