Fitch Affirms Comcast's IDR at 'BBB+'; Stable Outlook.
Fitch's ratings and Stable Outlook continue to reflect Comcast's strong competitive position as the largest multiple system operator in the U.S., and Fitch's belief that the company is well positioned to generate solid operating metrics and sustainable EBITDA and free cash flow growth in an operating environment that Fitch anticipates will be increasingly competitive over Fitch's rating horizon. Key to Comcast's strong competitive position is its scale and strong system clustering as well as the emergence of the triple play service offering. In Fitch's opinion Comcast derives a competitive advantage through its scale and system clustering by driving operational efficiencies through its cable plant and controlling operating costs, in particular programming costs. In Fitch's view, the triple play offering capitalizes on the bundling of consumer telecommunications and entertainment products, further diversifies the revenue generating unit (RGU) base, has a positive impact on Comcast's other service offerings, and sets the foundation for further revenue and cash flow growth and average revenue per unit (ARPU) expansion.
In Fitch's opinion the transactions with Adelphia, Time Warner Cable (TWC) and Susquehanna Cable (closed during the third and second quarters of 2006, along with the announced plan to dissolve the Texas and Kansas City Cable Partners, LP, are all positive for Comcast's credit profile. These transactions strengthen Comcast's subscriber clusters, as nearly all of the cable systems Comcast acquired through the transactions with Adelphia, TWC and Susquehanna cable are contiguous with existing Comcast cable systems, and convert passive investments in TWC, Time Warner Entertainment Company, LP, and the Texas and Kansas City Cable Partners, LP, into cash flow-generating assets. Fitch believes that the former Adelphia cable systems acquired by Comcast represent a significant RGU, revenue and cash flow growth opportunity as Comcast completes cable plant upgrades necessary to launch telephony services and drives operational efficiencies through the former Adelphia systems. The ratings incorporate the event risks associated with the potential unwind of the Insight Midwest Partnership expected during the course of 2007. An affiliate of Comcast owns 50% of Insight Midwest, LP, and Insight Communications Company, Inc. own the remaining 50%.
Rating concerns center on the competitive threat posed by the direct broadcast satellite (DBS) operators, incumbent local exchange carriers (ILECs), and new industry participants, the integration of the cable systems acquired from Adelphia and Time Warner as well as event risk related to Comcast adopting a more aggressive financial policy capital allocation to shareholders. Fitch continues to believe that Comcast, with its size and scale, is in an enviable consumer mass market competitive position relative to DBS providers and the regional bell operating companies (RBOCs), and is better positioned to maintain market share than the DBS and RBOC competitors. In Fitch's view, the service bundling strategy used by Comcast is appropriate and the company should continue to focus on up-selling subscribers that take analog video service only, as a subscriber that takes multiple services is less susceptible to competitive offers. Relative to the RBOCs, the competitive threat will grow somewhat during 2007 as the RBOCs continue to deploy fiber-based telecommunications solutions. Comcast will continue to enjoy a first to market advantage during 2007 as the RBOCs fiber deployment will lack widespread availability to meaningfully compete with Comcast. Fitch believes that Verizon's and AT&T, Inc.'s deployment plans for its fiber build present more of a medium-term risk to Comcast.
In line with Fitch's expectations, total debt outstanding has increased by approximately $3.9 billion during the first nine months of 2006. The increased debt has supported Comcast's strategy to invest in its cable business through the acquisitions closed during 2006 and the pending dissolution of the Texas and Kansas City Cable Partners, LP partnership. The increased debt level also supported other various investments including the acquisition of wireless spectrum licenses in the Federal Communications Commission's auction of Advanced Wireless Services licenses through Comcast's investment in SpectrumCo. While leverage as of the end of the third quarter of 2006 increased to 2.95 times (x), Fitch believes that the incremental cash flow generated by the cable system acquisitions completed during 2006 will lead to leverage approaching 2.6x by year-end 2007. During 2007, Fitch anticipates that the company will continue to utilize free cash flow generation to continue to return significant amounts of capital to its shareholders as well as make strategic investments the company believes will further differentiate its product offering from competition. As of the end of the third quarter of 2006 approximately $3.5 billion of capacity remained under the company's board-authorized share repurchase program. Fitch believes that the company's financial policy will continue to focus on returning value to shareholders primarily through share repurchases, but that Comcast will maintain credit quality and financial flexibility indicative of its 'BBB+' rating category.
The Stable Outlook reflects Fitch's expectation for Comcast to maintain a financial policy regarding returning value to shareholders from internally generated cash flow, the continuation of strong operating metrics, and the unfettered integration of the cable systems acquired during 2006 and the Houston cable system expected to be acquired as a result of the dissolution of the Texas and Kansas City Cable Partners partnership. A more aggressive financial policy such as debt-financed share repurchases or special dividends, or an erosion of the company's operating metrics due to competitive factors could lead to a revision of the company's rating outlook.
Fitch affirms the following ratings:
Comcast Corporation --IDR at 'BBB+'; --Senior unsecured debt at 'BBB+'; --$5 billion revolving bank facility (co-borrower with Comcast Cable Communications Holdings, Inc.) at 'BBB+'; --Commercial paper 'F2'. Comcast Cable Communications Holdings, Inc. --IDR at 'BBB+'; --Senior unsecured debt at 'BBB+'; --$5 billion revolving bank facility (co-borrower with Comcast) at 'BBB+'. Comcast Holdings Corporation --IDR at 'BBB+' --Senior subordinated debentures at 'BBB' --Subordinated exchangeable notes at 'BBB' Comcast Cable Communications, LLC --IDR at 'BBB+'; --Senior unsecured debt at 'BBB+'. Comcast Cable Holdings, LLC --IDR at 'BBB+'; --Senior unsecured debt at 'BBB+' ; --TOPrs at 'BBB-'. Comcast MO Group, Inc. --IDR at 'BBB+' ; --Senior unsecured debt at 'BBB+'. Comcast MO of Delaware, LLC --IDR at 'BBB+'; --Senior unsecured debt at 'BBB+'.
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|Date:||Dec 21, 2006|
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