Fitch Ratings has upgraded DreamWorks Animation SKG, Inc.’s (DWA) Issuer Default Rating (IDR) to ‘A-‘ from ‘B+’, removed the rating from Positive Rating Watch, and assigned a Stable Outlook. Fitch also upgraded the rating on DreamWorks’ senior unsecured notes to ‘A-‘ from ‘B+/RR4’ and withdrew the ‘BB+/RR1′ rating on its senior secured credit facility. Comcast Corporation (Comcast) closed on its $3.8 billion acquisition of DWA on Aug. 22, 2016, at which time it became a wholly-owned subsidiary of Comcast. DWA is now part of NBCUniversal’s Universal Filmed Entertainment Group, which includes Universal Studios and NBCUniversal Brand Development. NBCUniversal is a division of Comcast. DWA’s credit facility was repaid and terminated at closing, resulting in the withdrawal of the senior secured rating. DWA is also expected to redeem it’s $300 million, 6.875% senior notes due Aug. 15, 2020, on Sept. 21, 2016, at a redemption price of 105.156% plus accrued and unpaid interest. Comcast will indirectly fund the redemption using cash on hand, including proceeds from bonds issued in July 2016 in part to fund DWA’s acquisition. Once the notes have been redeemed, Fitch will withdraw DWA’s IDR and senior unsecured ratings. KEY RATING DRIVERS Fitch links the IDRs of Comcast and DreamWorks in accordance with our assessment of the parent-subsidiary linkage between the two entities. While no cross defaults or cross guarantees exist between the entities, Fitch believes DreamWorks’ probability of default would be overstated if it did not consider Comcast’s businesses and credit profile and potential downstream cash flows. Comcast’s key rating drivers include consistent capital structure and allocation policies, significant financial flexibility, leading market positions, operating and geographic diversification, and evolving competitive environment. KEY ASSUMPTIONS While Comcast’s services are maturing, Cable revenue is expected to grow in the low- to mid-single digits and margins compress due to increased programming costs. Capital intensity is expected to remain relatively consistent with no change expected in the company’s financial policy or capital allocation strategy. For DreamWorks, Fitch expects film segment stabilization due to a revised film mix and cost reduction efforts, higher working capital needs to fund increased content requirements (primarily to Netflix), and continued growth in its TV and New Media and Other segments due to favorable secular trends. RATING SENSITIVITIES Note: Comcast’s sensitivities are listed due to the linkage of Comcast’s and DreamWorks’ IDRs: A positive rating action would likely coincide with Comcast committing to and achieving a financial policy consistent with an ‘A’ rating, including maintaining its leverage below 1.5x on a sustained basis. Comcast would need to demonstrate that its operating profile will not materially decline in the face of competition. Negative rating actions would likely coincide with discretionary actions of Comcast’s management including, but not limited to, adopting a more aggressive financial strategy or event-driven merger and acquisition activity that drive leverage beyond 2.5x in the absence of a credible deleveraging plan. LIQUIDITY Comcast’s liquidity position and overall financial flexibility are strongly based on Fitch’s expectation that the company will continue to generate material amounts of free cash flow. FULL LIST OF RATING ACTIONS Fitch upgraded the following ratings DreamWorks Animation SKG, Inc. –IDR to ‘A-‘ from ‘B+’; –Senior unsecured notes to ‘A-from ‘B+/RR4’. Fitch withdrew the senior secured credit facility rating of ‘BB+/RR1’. Contact: Primary Analyst Jack Kranefuss Senior Director +1-212-908-0791 Fitch Ratings, Inc. 33 Whitehall St. New York, NY 10004 Secondary Analyst Rachael Shanker Associate Director +1-212-908-0649 Committee Chairperson Monica Bonar Senior Director +1-212-908-0579 Media Relations: Alyssa Castelli, New York, Tel: +1 (212) 908 0540, Email: [email protected]. Date of Relevant Rating Committee: Aug. 25, 2016, Additional information is available on www.fitchratings.com. Applicable Criteria Corporate Rating Methodology – Including Short-Term Ratings and Parent and Subsidiary Linkage (pub. 17 Aug 2015) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here_id=1010826 Solicitation Status here Endorsement Policy here ail=31
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY’S PUBLIC WEBSITE ‘WWW.FITCHRATINGS.COM’. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE ‘CODE OF CONDUCT’ SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.
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