Fitch Affirms Time Warner Cable's IDR at 'BBB'; Outlook Stable

Fitch Ratings has affirmed the 'BBB' Issuer Default Rating (IDR) for Time Warner Cable, Inc. (TWC) and its indirect wholly owned subsidiary Time Warner Entertainment Co., L.P. Fitch also affirmed the individual issuer ratings of TWC and its subsidiaries (as outlined below). The Rating Outlook is Stable. As of March 31, 2012, TWC had approximately $27.1 billion of total debt outstanding including mandatorily redeemable preferred equity.

Fitch believes that TWC has sufficient capacity within the existing ratings to accommodate the company's $4 billion share repurchase authorization and dividend policy while maintaining the company's own 3.25x net leverage target. In the absence of any significant acquisition activity, Fitch does not expect any change to the company's long-term leverage target. TWC reported gross leverage of 3.62x and net leverage of 3.27x as of March 31, 2012. The leverage metrics are within Fitch's expectation and management's target. Moreover after adjusting TWC's leverage metrics for its ICCI acquisition (including $100 million of expected synergies), the company's gross leverage is 3.36x and net leverage is 3.08x. On a gross debt basis, Fitch anticipates total debt outstanding as of year-end 2012 will approximate year-end 2011 debt levels. Fitch expects TWC's leverage will be approximately 3.35x as of year-end 2012.

Shareholder returns (dividends and stock repurchases) increased to $3.3 billion during 2011 representing 120% of TWC's cash flow (cash flow from operations less capital expenditures) generated in 2011. Fitch expects aggressive shareholder returns will continue during 2012, as TWC's board of directors increased the remaining authorization under its share repurchase program to $4 billion effective Jan. 26, 2012 and increased its annual dividend 17% to $2.24. Fitch expects shareholder returns during 2012 to match cash flow after capital expenditures.

The operating leverage inherent in TWC's cable business along with moderating capital intensity enable the company to generate consistent levels of free cash flow (FCF; defined as cash flow from operations less capital expenditures and dividends) and provide TWC with significant financial flexibility. TWC produced over $2.1 billion of FCF during 2011 including $619 million of benefit derived from various economic stimulus legislation. Fitch acknowledges that TWC's share repurchase authorization represents a significant use of cash; however, Fitch believes that the company would reduce the level of share repurchases (as demonstrated when the company announced the ICCI acquisition) should the operating environment materially change, in order to maximize flexibility. TWC is strongly positioned to continue generating sustainable levels of FCF. However, cash taxes are expected to materially increase during 2012 reflecting the reversal of the bonus depreciation programs. The negative swing in cash taxes due to the reversal of bonus depreciation is expected to total approximately $719 million during 2012, negatively affecting TWC's free cash flow generation. Notwithstanding the higher cash taxes, Fitch still expects TWC will generate over $1.5 billion of annual free cash flow during the ratings horizon.

Overall Fitch's ratings reflect TWC's strong competitive position as the second largest cable multiple systems operator (fourth largest multi-channel video program distributor) in the United States, strong subscriber clustering profile and the company's growing revenue diversity owing to the success of TWC's triple-play service offering and growing commercial business. Within the context of existing competitive pressures and weak housing formation and employment conditions, the ratings incorporate Fitch's expectation that the company will continue to generate solid operating metrics, along with sustainable EBITDA and FCF growth over Fitch's rating horizon.

Outside of the company adopting a more aggressive long-term leverage target, the weakening of TWC's competitive position presents the greatest concern within TWC's credit profile. The competitive pressure associated with the service overlap among the different telecommunications service providers, while intense, is not expected to materially change during the ratings horizon. TWC's network and the strategies used to maximize the bandwidth capacity of the network provide the basis from which TWC derives its strong competitive position and the flexibility to meet changing market dynamics. Fitch believes that TWC's operating priorities which center on its 'TV Everywhere' initiative, enhancing user interface, expanding its broadband service capabilities, and growing its commercial business will enable the company to strengthen its overall competitive position.

TWC's liquidity position is strong and is supported by expected FCF generation and available borrowing capacity from TWC's new $3.5 billion revolving credit facility that expires during April 2017 (put in place in April 2012 replacing the prior $4 billion revolver that was set to expire in November 2013). TWC has approximately $1.9 billion of debt scheduled to mature during the remainder of 2012. Scheduled maturities total nearly $4.1 billion during 2013 through 2015 representing 15% of outstanding debt. Fitch expects that TWC will refinance maturing debt and anticipates the TWC will have sufficient liquidity in place to address its maturity schedule 12 to 18 months in advance of a given maturity.

Fitch believes TWC will manage shareholder returns to maintain its 3.25x net leverage target. There is flexibility in the current ratings to withstand cyclical headwinds. Negative rating actions are more likely to coincide with discretional actions of TWC management including, but not limited to, the company adopting a more aggressive financial strategy. However, holding the operating profile constant, positive rating actions would follow the company's commitment to lowering leverage below 2.75x. A change in financial policy that increases the company's leverage target above 3.75x would likely result in a negative rating action.

Fitch has affirmed the following ratings with a Stable Outlook:

Time Warner Cable, Inc.

--IDR at 'BBB';

--Senior unsecured debt at 'BBB'.

--Short-term IDR at 'F2';

--Commercial paper at 'F2';

Time Warner Entertainment Company, LP

--IDR at 'BBB';

--Senior unsecured debt at 'BBB'.

Time Warner NY Cable, LLC

--Preferred membership units at 'BB+'.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 12, 2011);

--'Rating Global Telecoms Companies' (Sept. 16, 2010)

Applicable Criteria and Related Research:

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229

Rating Global Telecoms Companies - Sector Credit Factors

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=550205

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. 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.

Contacts:

Fitch Ratings
Primary Analyst
David Peterson, [phone]
Senior Director
Fitch, Inc.
70 W. Madison,
Chicago, IL 60602
or
Secondary Analyst
John Culver, CFA, [phone]
Senior Director
or
Committee Chairperson
Mike Weaver, [phone]
Managing Director
or
Media Relations
Brian Bertsch, New York, [phone]
[e-mail]