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Global Credit Research - 17 Jan 2014
New York, January 17, 2014 -- Moody's Investors Service said that TWCC Holding Corp.'s
(d/b/a The Weather Channel Companies -"TWCC") contract dispute
with DIRECTV Holdings LLC ("DIRECTV" -- Baa2 senior unsecured,
stable outlook) has no immediate impact on the company's B1 Corporate
Family rating or Stable outlook. In yet another high profile feud
between content providers and carriers, TWCC and DIRECTV failed
to reach a new carriage deal due to a battle over fees, as a result
of which The Weather Channel has been pulled from DIRECTV's subscription
service. Even though the contract stand-off between the
two companies has no immediate ratings impact, Moody's views
the development as a credit negative given the potential for material
deterioration in debt protection metrics absent a resolution between TWCC
and the satellite provider over the near term.
Moody's believes that The Weather Channel is unlikely to be dropped
on a long-term basis, given its defensible position as the
most recognizable source for weather and accordingly, we believe
there is a good chance that both parties will eventually renew the contract
in order to avoid customer dissatisfaction and churn. As is customary
with disputes of this nature, it is likely that over the coming
weeks, TWCC and DIRECTV will resume negotiations and work to resolve
the disagreement over affiliate fees. With around 20 million subscribers,
DIRECTV is a significant customer for TWCC, and a permanent loss
of carriage fees from DIRECTV could have severe operational and credit
ramifications for the company. TWCC is presently weakly positioned
within its B1 CFR, and consequently the DIRECTV loss would jeopardize
its ability to reduce debt-to-EBITDA leverage (by the end
of 2015) to the 6.5x level expected for the current B1 CFR and
put downward pressure on the rating. Moody's estimates that
a sustained loss of distribution by DIRECTV could lead to revenue declines
in the mid-teens for the cable network business (advertising plus
affiliate fees), which we estimate accounts for between 50 and 60%
of total revenues, and in the mid single to low double digit range
for the company's consolidated revenues. This would severely
threaten the company's deleveraging prospects and debt-to-EBITDA
would significantly exceed the current leverage of 7.6x (as of
9/30/2013, incorporating Moody's standard adjustments),
potentially leading to increased probability of a downgrade. Additionally,
DIRECTV refusing to carry TWCC's content could expose the company
to business risks if other distributors were to follow suit, resulting
in unfavorable renegotiations, contract disputes and / or termination
of additional carriage deals. However, we think this trend
is unlikely given the channel's focus on weather information which
isn't fully replicated elsewhere on TV. Alternatively,
another concern which could impact the rating is the potential that the
subscriber fees are reduced. This could trigger some "most
favored nations" clauses in other large distributor carriage agreements,
and set a precedent for other distributors to follow to reduce their affiliate
fees paid to TWCC. Unlike other important cable networks,
TWCC is not bundled with other popular channels and has no sports or entertainment
programming with high viewer ratings to help with negotiations.
However, it does provide valuable public service programming during
periods of regional extreme weather events.
TWCC Holding Corp. d/b/a The Weather Channel Companies ("TWCC"),
headquartered in Atlanta, GA is a multiplatform media and information
company focused on providing weather information to consumers and businesses.
Content is delivered to individuals most notably through its national
U.S. cable network "The Weather Channel", the Internet
and mobile. TWCC also provides weather data and forecasting services
to a variety of industries. TWCC is jointly owned by Comcast Corporation's
NBCUniversal Media, LLC ("NBCU" - A3 senior unsecured rating,
positive outlook) and private equity firms Bain Capital Partners,
LLC and Blackstone Management Partners, LLC.
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Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
MD - Corporate Finance
Corporate Finance Group
Moody's says The Weather Channel's latest dispute with DIRECTV could have negative credit implications
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
No Related Data.
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