Fitch Ratings Affirms AOLTW Ratings At 'BBB+' & 'F2'.

Business Editors

NEW YORK--(BUSINESS WIRE)--Feb. 28, 2002

Fitch Ratings affirmed the 'BBB+' senior unsecured and 'F2' commercial paper ratings of AOL Time Warner Inc. (AOLTW) and AOL Time Warner Entertainment Co, LP (AOLTWE). The Rating Outlook remains Stable.

The ratings reflect AOLTW's significant subscription based revenue (approximately 45% of total revenue), its leading market positions in core businesses, unparalleled brands, content and distribution network, in addition to its strong financial profile and liquidity position. It also reflects the company's exposure to advertising, albeit less significant relative to industry peers as advertising and commerce is less than 25% of total revenue. However, advertising accounts for a greater percentage of EBITDA due to the higher margins associated with it compared to the majority of its other revenue sources. Based on management's growth assumptions for EBITDA in 2002, it is anticipated that leverage and coverage ratios will remain within the target range of approximately 3.0 and 4.0 times (x), respectively. The rating does not incorporate a material debt-financed transaction in 2002, other than AOL Europe (AOLE), but does incorporate an analysis of AOLTW's off-balance sheet transactions and the fact that AOLTW's adoption of FAS 142 and resulting write-down of goodwill does not impact AOLTW's credit profile. Management continues to remain committed to its BBB+ rating.

Due to the weak economic environment, including a dismal advertising market, AOLTW did not meet its EBITDA and revenue estimates for 2001, and has reduced 2002 estimates relative to previous estimates provided in early 2001. AOLTW believes revenue growth in 2002 will be 5%-8% and EBITDA growth 8%-12%. While the revised 2002 estimate for EBITDA incorporates the expected EBITDA drain from AOLE, the company's international expansion continues to be a significant strategic initiative, which was demonstrated by the IPC acquisition in 2001. Fitch anticipates the majority of AOLTW's growth in 2002 will be derived from its subscription businesses, and to a lesser extent, from its content businesses (primarily filmed entertainment). Fitch expects the losses to significantly decrease at AOLE, stemming from AOLTW's ability to decrease AOLE's costs and drive top line growth as it leverages its other brands and advertising outlets in Europe consistent with its domestic operations.

Moreover, as expected, AOLTW announced that it would acquire Bertelsmann AG's 49.5% interest in AOLE for a total of $6.75 billion in cash ($5.3 billion in January and $1.45 billion in July). AOLTW's $7.5 billion credit facility and $5 billion commercial paper (CP) program were used to initially finance the first part of the Bertelsmann transaction in January 2002 and the refinancing of the assumed AOLE debt. As of year-end 2001, AOLTW had $2.6 billion drawn on the $7.5 billion facility and $1.2 billion CP outstanding. Its $5 billion back-up facility was not drawn. Hence, at year-end 2001, AOLTW had approximately $9.6 billion of availability under all of its committed domestic credit facilities, excluding $1.2 billion available to back-up outstanding commercial paper at AOLTW and AOLTWE. The company's liquidity position is enhanced by free cash flow, which totaled approximately $2 billion on an ongoing basis for 2001 (proforma AOLE), and management expects free cash flow to grow significantly in 2002.

The stable outlook incorporates Fitch's belief that the impact on AOLTW from the weak economy and advertising market will continue to be less severe compared to industry peers that depend more heavily on advertising revenues. Although the slowdown in the advertising market has clearly impacted the company's Networks, AOL, Publishing and Cable operations, Fitch also recognizes the competitive advantage the company has with advertisers due to its many premier brands, large scale and cross-medium platform. AOLTW's advanced cable infrastructure, reaching approximately 20% of nationwide cable subscribers, provides expanded broadband distribution for AOL's online services, and AOLTW's large subscriber base should continue to provide new opportunities to extend the reach of its entertainment and communications brands in the digital environment.