Research Update: AT&T Inc. Outlook Revised To Stable On Proposed Merger Of Warner Media LLC With Discovery Inc.; Ratings Affirmed

U.S.-based telecommunications service provider AT&T Inc. announced on May 17 that it reached an agreement to spin off and merge its media business Warner Media LLC (WarnerMedia) with Discovery Inc. in a Reverse Morris Trust-structured transaction. As part of the deal, AT&T will receive $43 billion (subject to adjustment) in a combination of cash, debt securities, and Warner Media's retention of certain debt. The company also updated its financial policy, which will include reaching its 2.5x leverage target by 2023, a year earlier than its previous forecast, and reducing the size of its dividend to 40%-43% of free cash flow from $15 billion annually, with a portion of the savings being allocated to capital expenditures (capex). As a result of

... AT&T Inc. announced on May 17 that it reached an agreement to spin off and merge its media business Warner Media LLC (WarnerMedia) with Discovery Inc. in a Reverse Morris Trust-structured transaction. As part of the deal, AT&T will receive $43 billion (subject to adjustment) in a combination of cash, debt securities, and Warner Media's retention of certain debt. - The company also updated its financial policy, which will include reaching its 2.5x leverage target by 2023, a year earlier than its previous forecast, and reducing the size of its dividend to 40%-43% of free cash flow from $15 billion annually, with a portion of the savings being allocated to capital expenditures (capex). - As a result of these factors, we expect AT&T's pro forma leverage will be 3.6x-3.7x in 2022, declining to 3.4x-3.5x in 2023, and comfortably below our 3.75x downgrade threshold. - We therefore revised the rating outlook to stable from negative and affirmed the...

Research Update