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, which is 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 capital expenditure (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. Distributions to owners could result in a moderate increase in leverage. Government-subsidized rural broadband buildouts could increase competition in rural markets over time. The company has consistently applied a significant portion

...DirecTV's credit metrics are currently strong for the rating. The company has consistently applied a significant portion of its healthy cash flow toward debt reduction via redemption of preferred shares (which we treat as debt). For example, DirecTV generated free operating cash flow (FOCF) of about $5.3 billion in 2022 and applied $2.5 billion toward redemption of preferred units. In the first quarter of 2023, the company repaid the remaining balance of approximately $700 million, resulting in S&P Global Ratings-adjusted debt to EBITDA of about 1.3x for the last 12 months ended March 31, 2023. The leadership team that was installed in 2021 has been successful at lowering customer churn by focusing on attracting and retaining its most profitable subscribers while implementing cost reduction initiatives. As a result, EBITDA margins are currently 25% (compared with about 16% prior to the spin-off). As a result of healthy profitability combined with lower adjusted debt, DirecTV's FOCF-to-debt...

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