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Rating Action:

Moody's confirms DIRECTV at Baa2 stable

22 Jul 2015

New York, July 22, 2015 -- Moody's Investors Service, ("Moody's") has confirmed the Baa2 senior unsecured long term rating of DIRECTV Holdings LLC ("DTV Holdings") based on its imminent acquisition by AT&T Inc. ("AT&T" -- Baa1, negative). Moody's expects all regulatory approvals will be finalized within the next few days and AT&T will complete the acquisition of DIRECTV ("DTV"), the ultimate parent of DTV Holdings. Today's rating action assumes that AT&T will not issue an explicit guarantee of the debt at DTV Holdings which will continue to issue audited financial statements. As part of this rating action, Moody's has affirmed DTV Holdings Prime-2 commercial paper rating. The outlook is stable. This rating action concludes the review for upgrade initiated on May 19, 2014.

A summary of today's action follow:

..Issuer: DIRECTV Holdings LLC

Confirmations:

....Senior Unsecured Regular Bond/Debenture (Local Currency), Confirmed at Baa2

....Senior Unsecured Regular Bond/Debenture (Foreign Currency), Confirmed at Baa2

Affirmation:

....Senior Unsecured Commercial Paper (Local Currency), Affirmed P-2

Unchanged:

....Senior Unsecured Shelf (Local Currency), Unchanged at (P) Baa2

Outlook Actions:

..Issuer: DIRECTV Holdings LLC

....Outlook, Changed To Stable From Rating Under Review

RATINGS RATIONALE

The acquisition by AT&T will bolster DIRECTV's market position through the ability to bundle broadband and wireless services with DIRECTV's core video product. Therefore, the merger will reduce the threat of obsolescence that DIRECTV faced from the evolution of video distribution away from the traditional linear model. DIRECTV's US business faces growth and cost challenges, but its Latin America segment has growth potential as video penetration increases throughout the region. Also, DTV Holdings' leverage profile could improve over time as debt maturities are likely to be refinanced at the AT&T Inc. level. However, AT&T's high dividend payout, its high capital intensity, its international investments and its ongoing spectrum requirements will require DTV to upstream all excess cash flow to AT&T Inc. The cash needs of AT&T, in conjunction with the maturity of the satellite video business could also result in underinvestment in the DTV subsidiary. These offsetting positive and negative credit implications result in Moody's view that the merger will not change the creditworthiness of DTV Holdings.

The ratings outlook for DTV Holdings is stable, based on Moody's view that the business will continue to generate strong cash flows and stable EBITDA and not be affected by pressure on AT&T's other businesses or its capital structure. The stable outlook also reflects Moody's view that AT&T will continue to invest in DTV's operations at levels that will sustian its market share and product relevance. AT&T's ratings outlook is negative, reflecting the decelerating growth of its core US wireless business, which has experienced margin compression and top line weakness from a heightened competitive environment. AT&T's Baa1 rating has no margin of safety to absorb further wireless segment weakness, strategic missteps or unanticipated market shifts and the rating will not accommodate additional debt-financed M&A.

Moody's could lower the ratings of DTV Holdings if revenues or cash flows deteriorate, if it loses significant market share or if the company's stand alone leverage rises above 2.75x (Moody's adjusted). The ratings of DTV Holdings could be upgraded if DTV gains market share and improves its credit metrics materially. An upgrade would be predicated upon AT&T following a disciplined approach to capital allocation within and reinvestment into the DTV subsidiary.

DIRECTV Holdings, LLC is a wholly-owned, U.S. operating company of DIRECTV, and is the largest direct-to-home digital television service provider in the United States with 20 million domestic subscribers and 19 million Latin America subscribers (including its reported subscribers for Sky Mexico). DIRECTV's revenue for the last twelve months ended March 31, 2015 was approximately $33 billion.

The principal methodology used in these ratings was Global Pay Television - Cable and Direct-to-Home Satellite Operators published in April 2013. Please see the Credit Policy 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 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.

Mark Stodden
VP - Senior Credit Officer
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 confirms DIRECTV at Baa2 stable
No Related Data.
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