NBCUniversal Media is selling commercial paper from a new $1.5 billion program. It’s gotten a decent rating from Moody’s Investors Service, which also affirmed its ratings on other NBCU debt – some $9 billion in all.
Moody’s said it had assigned a Prime-2 short-term rating to NBCUniversal Media, LLC’s new $1.5 billion commercial paper program and affirmed the company’s Baa2 long-term senior unsecured debt ratings. The commercial paper will have a maturity of up to 397 days from the date of issue, and will rank equally with the company’s existing senior unsecured indebtedness.
“The program is backed by the company’s $1.5 billion revolving credit facility, which is provided by a diverse group of banks. The bank facility has same day availability and does not have a material adverse change clause which could limit availability when the company most needs liquidity. The facility has a single financial covenant which is a maximum debt-to-EBITDA ratio of 4.85x until June 30, 2013 (dropping to 4.25x thereafter), and we expect the company will maintain significant cushion under this covenant. The proceeds from the sale of commercial paper will be used for general corporate purposes. The affirmation of the Baa2 senior unsecured debt ratings is based upon the company’s strong operating performance and cash flow generation, and moderate debt-to-EBITDA leverage,” Moody’s said.
Here is the rating rationale:
“NBCU’s rating reflects the combined entity’s iconic brands (USA, NBC and Universal, among others), large portfolio of cable networks, significant scale (based upon revenues) and the broad geographic reach of the NBC network. The rating is further supported by a governance-based limitation on the amount of incremental debt NBCU can incur (2.75x based on management’s calculation of debt-to-EBITDA leverage), our expectation that average net leverage will remain at or below 3.0x over the next seven years (including Moody’s standard adjustments and guarantees) and that operating performance will continue to improve. The company’s rating is constrained by the expected average net debt leverage level of about 3.0x, exposure to advertising cycles, concentration within the cable network segment which currently drives the majority of cash flow, and the film and television production segment’s inherent risk and volatility.
The stable outlook reflects Moody’s expectation that NBCU will sustain average net debt-to-EBITDA leverage at or below 3.0x over the intermediate-term. Additionally, the outlook incorporates our assumption that free cash flow conversion will remain strong as revenues grow and margins expand.
Given expected volatility of the company’s leverage metric, Moody’s does not anticipate any upwards rating momentum over the next seven years until Moody’s has determined that (or the company has demonstrated that) leverage can be maintained at lower levels, or if Comcast were to complete the full acquisition of the company sooner than anticipated and merged legally such that NBCU’s and Comcast’s debt became pari passu.
Given the governance-based limitation on the amount of debt that can be incurred, we would not expect a material increase in leverage over the next several years absent a material decline in operating performance. Additionally, we would likely continue to look through any cyclical downturns providing the company maintained an adequate liquidity profile. Absent a change to the company’s assets or ownership, we would not likely contemplate a change to the rating over the intermediate term. An agreement by Comcast and GE to permit NBCU’s leverage to rise and be sustained above 2.75x for acquisitions or for the purchase of GE’s stake, could put pressure on NBCU’s ratings. Also, should Comcast acquire GE’s remaining stake in NBCU earlier than expected, Moody’s would likely revisit the rating and reassess management’s leverage target.”