DirecTV Entertainment Holdings LLC

Overview Key strengths Key risks Third-largest U.S. pay-TV player where size and scale can provide some advantage in negotiating contracts with content providers. Participates in the mature pay-TV industry exposed to secular pressures caused by technology shifts that have lowered barriers to entry. Generates solid free cash flow given low capital intensity with percentage of capex to revenue of under 2%. Declining revenue and EBITDA driven by sharp declines in satellite video subscribers in favor of streaming alternatives. Conservative capital structure with low financial leverage. Rising programming costs could pressure profitability. Distributions to owners could result in moderate increase in leverage. Government subsidized rural broadband buildouts could increase competition in rural markets over time. The company installed a new leadership

...Sharper management focus has improved operating and financial performance over the past year. The company installed a new leadership team in early 2021 and has renewed its focus on attracting and retaining its most-profitable subscribers. Specifically, DirecTV reduced its customer churn to a range of 1.58%-1.82% over the past 12 months, from 2.1%-2.6% under its previous management team. Furthermore, management's cost reductions are ahead of schedule, which has enabled the company to improve its EBITDA at a moderately faster pace than we previously expected. We expect leverage to remain low. Credit metrics are strong and offsetting factors to the company's challenging business conditions. DTV generated close to $4.1 billion of free cash in 2021, which it used to pay $1.3 billion in dividends (mainly for tax purposes) and the rest to pay down preferred instruments (that we treat as debt). The company continued to pay down preferred units in the first quarter of 2022, resulting in S&P Global...

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