AT&T Inc.

AT&T also updated its free cash flow guidance to about $16 billion in 2023, up $2 billion from pro forma 2022 free cash flow. The improvement is due to lower interest expense following its recent asset sales and subsequent repayment of debt, EBITDA growth, and working capital improvements, partly offsetting lower distributions from DirecTV and higher cash taxes. That said, the updated free cash flow guidance was lower than its previous expectation of around $20 billion when it closed on the sale of Warner Media. However, we expect industry postpaid subscriber trends to moderate in 2023 due to mature conditions with cable taking an increasing share of new customers. The industry reported about 9.2 postpaid phone net subscriber additions in

...AT&T's leverage is somewhat elevated for the rating and we only expect modest improvement over the next couple of years. In 2022, following the spin off and sale of Warner Media, AT&T reduced its reported debt burden by about $41 billion. S&P Global Ratings-adjusted debt declined around $51 billion, the difference primarily due to the transfer of $6 billion of receivable securitizations to Warner Bros. Discovery and lower unfunded pension and other postretirement obligations (OPEBs). While AT&T's S&P Global Ratings-adjusted debt to EBITDA of 3.8x is still somewhat high for the rating, we believe that leverage should decline below our 3.75x downgrade threshold in 2023 due to low-single-digit percent earnings growth and improving discretionary cash flow (DCF) generation. Our base-case forecast assumes that leverage improves to 3.6x-3.7x in 2023 and 3.5x-3.6x in 2024. Capital allocation should favor debt reduction. Management stated that it plans to use all excess cash flow after dividends...

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