Printer Friendly

TIME WARNER DECONSOLIDATION DOES NOT SPLIT RATINGS, FITCH SAYS -- FITCH FINANCIAL WIRE --

 NEW YORK, Nov. 5 /PRNewswire/ -- The deconsolidation of Time Warner Entertainment Co., LP (TWE), from Time Warner Inc. (TWI) does not result in split ratings for the two companies because it does not change the existing economic and operational ties, Fitch says. Fitch currently rates TWI's and TWE's senior debt "BBB-."
 Post-deconsolidation, TWI still maintains ultimate authority over the disposition of TWE's cash flow. Although TWI has reduced its equity stake in TWE since the creation of the partnership, TWI's ability to maintain full operational control of TWE has not been effected. Currently, TWI owns 63 percent of the residual interest in TWE. According to the partnership agreement, TWI does not have to own more than 50 percent to keep its existing level of control. Additionally, it's not likely that TWI will relinquish economic control of its primary growth assets. While management responsibility and voting control of TWE's cable operation is shared with U S West, TWI still controls the filmed entertainment, cable programming and Six Flags divisions, as well as TWE's board of directors.
 Stepped up capital expenditures at TWE will not necessarily prevent the highly profitable subsidiary from distributing a significant amount of cash to TWI, its more highly leveraged parent. Construction of a technologically advanced media and telecommunications infrastructure, estimated to cost between $3 billion and $5 billion over the next five years, will not limit TWE's capacity to upstream cash to TWI. With the support of U S West's $2.5 billion investment, TWE's annual capital expenditure requirement will only increase by about $200 million annually to approximately $600 million, leaving about $500 million of cash flow available each year for distribution. Currently, cash distributions are subject to some restrictions contained in TWE's bank agreement and limited partnership agreement. However neither contract sufficiently limits the flow of funds from TWE to its partners, and both agreements can be modified without the approval of TWE bondholders.
 While proceeds from the sale of additional partnership interests could be used to reduce TWE's leverage and improve its credit profile relative to that of TWI, it may not be in the TWE's best interest to deleverage. The partnership investments in TWE are off balance sheet equity interests. As a result, the partners are more likely to be interested in maximizing their returns than reducing TWE's leverage. Also, with already strong cash flows likely to continue to grow at a double-digit rate, TWE could rationally support a moderately high level of debt and still maintain an investment grade financial profile.
 A cross-default provision between TWE and TWI links the credit of the two companies so closely that Fitch would have given them the same ratings in any event. In the case of these two companies however, the economic and operational relationship between TWE and TWI weigh more heavily in Fitch's decision to maintain a consolidated rating approach on Time Warner.
 -0- 11/5/93
 /CONTACT: Keith B. Foley, 212-908-0572, or Stuart M. Rossmiller, 212-908-0639, both of Fitch/
 (TWX)


CO: Time Warner Entertainment Co., LP; Time Warner Inc. ST: New York IN: ENT SU: RTG

TW -- NY027 -- 1173 11/05/93 10:55 EST
COPYRIGHT 1993 PR Newswire Association LLC
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1993 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Publication:PR Newswire
Date:Nov 5, 1993
Words:522
Previous Article:GAMMA INTERNATIONAL SIGNS LETTER OF INTENT WITH TV BINGO NETWORK
Next Article:UNITED AIRLINES OCTOBER TRAFFIC INCREASES 8.3 PERCENT
Topics:

Terms of use | Copyright © 2016 Farlex, Inc. | Feedback | For webmasters