CHICAGO–(BUSINESS WIRE)–Fitch Ratings has affirmed the ‘BBB’ Issuer Default Rating (IDR) assigned to NBC Universal Media, LLC (NBCUniversal), a direct wholly owned subsidiary of NBC Universal, LLC. Related issue ratings were also affirmed, and a full list is shown below.
Additionally, Fitch has assigned an initial ‘BB+’ IDR to Universal City Development Partners, Ltd. (Universal Orlando), a ‘BB+’ issue rating to Universal Orlando’s 8.875% senior unsecured notes, and a ‘BB’ issue rating issue rating to its 10.875% senior subordinated notes.
The Rating Outlook for all of NBCUniversal’s ratings is Stable. Approximately $9.7 billion of debt (principal value) is affected by Fitch’s action.
Fitch’s rating actions follow NBCUniversal’s announcement that the company has entered into definitive agreements with affiliates of the Blackstone Group, LP (Blackstone) to purchase its 50% equity interest in Universal Orlando for approximately $1.025 billion.
Fitch believes the proposed transaction does not meaningfully increase the business risks related to NBCUniversal’s credit profile while acknowledging that the transaction increases NBCUniversal’s exposure to the more economically sensitive and cyclical theme park business.
Fitch expects NBCUniversal will fund the purchase price with a combination of cash on hand, borrowings under NBCUniversal’s revolving credit facility and with proceeds from a one-year $400 million subordinated loan to NBCUniversal from Comcast Corporation (Comcast). The transaction is not leveraging (on a pro forma basis), and NBCUniversal’s credit protection metrics remain within Fitch’s expectations for the current ratings category. As of the LTM period ending March 31, 2011 NBCUniversal’s leverage was 2.8 times (x) and after giving consideration for the proposed transaction NBCUniversal’s leverage is 2.9x on a pro forma basis.
The ‘BB+’ IDR assigned to Universal Orlando reflects its globally recognized brand and intellectual property position, limited direct competition, relatively high barriers of entry into the U.S. theme and amusement park industry and the company’s strong free cash flow (defined as cash flow from operations less capital expenditures and dividends) profile. For the year ended Dec. 31, 2010, Universal Orlando generated approximately $239.4 million of free cash flow. During 2011 Fitch expects a modest increase in free cash flow generation as Universal Orlando’s operating performance continues to benefit from the opening of The Wizarding World of Harry Potter attraction.
Additionally Fitch believes Universal Orlando’s strategic ties to NBCUniversal provide one notch of support to Universal Orlando’s ratings. Universal Orlando provides NBCUniversal a platform to promote and strengthen its various brands.
Key rating concerns include the highly competitive Orlando market where a total of seven major theme parks operate and the economic sensitivity of the theme park business.
Overall, the ratings incorporate NBCUniversal’s size, scale, leading brand positions and diversity of operations and business risk as one of the world’s most prominent media and entertainment companies. Central to Fitch’s ratings and a key strength of the company’s credit profile is NBCUniversal’s portfolio of leading cable networks. Fitch considers cable networks one of the strongest subsectors in the media and entertainment industry, providing NBCUniversal with a revenue base largely consisting of stable, recurring and high margin affiliate fee revenue generated from multichannel video programming distributors as well as a significant source of NBCUniversal’s free cash flow generation.
Rating concerns center on the secular issues challenging NBCUniversal’s Broadcast Television segment, including time-shifting technologies and internet based content, as well as the cyclicality of advertising revenues. Fitch believes that on a total company basis NBCUniversal generates less than half of its revenues from advertising – in line with its media peer group. In addition to the secular and cyclical risks, strategic missteps within NBCUniversal’s Filmed Entertainment and Broadcast Television segments have the operating performance of these business segments lagging behind their peer group and have negatively affected profitability. Going forward, operating strategy is expected to focus on effectively managing the cost structure and programming costs.
Fitch expects NBCUniversal’s year end 2011 leverage metric, pro forma for the closing of the transaction with Blackstone to reflect the rating and be below 3x.
NBCUniversal’s liquidity position is adequate given the business risks inherent in its operations, and is supported by Fitch’s expectation for strong and consistent free cash flow generation and available borrowing capacity from NBCUniversal’s $750 million revolver. The company does not have any material maturities scheduled during 2011 and does not have a material maturity scheduled until 2014. Fitch expects that during the ratings horizon free cash flow will amount to approximately 8% to 9% of consolidated revenues.
The Stable Outlook reflects Fitch’s expectation for consistent free cash flow generation, the company’s ability to improve the profitability of its Broadcast Television and Filmed Entertainment segments, and the secular threats to NBCUniversal’s Broadcast and Filmed Entertainment segments not materially impacting operating results during the current ratings horizon.
NBCUniversal’s acquisition of Blackstone’s 50% interest in Universal Orlando would result in a 100% ownership and full consolidation of Universal Orlando balance sheet and income statement by NBCUniversal. The transaction is expected to close on July 1, 2011.
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