Fitch: AMX Assets Pick-Up Would Not Damage AT&T Credit Profile

An acquisition by AT&T Inc. of America Movil S.A.B. de C.V.'s (AMX) assets, valued at roughly $17.5 billion, would only have a modest credit impact for AT&T, according to Fitch Ratings. Media rumors have indicated the value of the assets under discussion using a valuation of five to seven times EBITDA. However, no concrete details have emerged regarding key components.

AT&T reportedly has been approached by AMX regarding potential interest in a portion of AMX's assets in Mexico. AMX plans to sell operational assets in order to reduce its market share below 50%, and thus cease to be a 'preponderant economic agent.' AMX has indicated the sale will only take place at a fair market value, and only if it will be allowed to provide convergent services after the divestiture without being subject to unfavorable regulations.

Based on the rumored asset value and range of EBITDA multiples, an acquisition would not have a material impact on AT&T's credit profile following its combination with DIRECTV, and Fitch's possible rating actions surrounding the DIRECTV acquisition. We believe the impact would not be material, even if the acquisition was entirely debt funded.

Fitch currently has AT&T's 'A' Issuer Default Rating (IDR) on Rating Watch Negative in view of the incremental leverage resulting from its anticipated acquisition of DIRECTV (IDR of 'BBB-'). Upon the announcement of that transaction, we stated that, as proposed, the DIRECTV transaction would likely lead to a one-notch downgrade to 'A-' and a Stable Rating Outlook.

We estimate that AT&T's leverage in 2015 following the DIRECTV acquisition would be under 2.0x; the addition of the AMX assets based on some very preliminary assumptions would lead to leverage of slightly over 2.0x, but still within range of an 'A-' rating. A final evaluation of the rating would encompass, and could be affected by, the regulatory approval process for both transactions, potential spectrum spending and AT&T's potential financial policies.

AT&T will materially increase its scale upon completion of the DIRECTV acquisition, adding a large pay-TV business to its already large wireless and wireline businesses. Therefore, we believe the potential acquisition of the AMX assets would not have a material effect on its credit profile. On an LTM pro forma basis ending June 2014, a combined AT&T and DIRECTV would have nearly $163 billion in revenue and more than $50 billion in EBITDA.

The size of the post-acquisition company poses challenges regarding the acquisition of other material high-growth businesses in the US. Therefore, Fitch believes it likely that AT&T will have to turn abroad in order to seek opportunities with the potential for meaningful impact on growth. In the US, solid organic growth opportunities remain in the wireless business and certain strategic elements of the wireline business, but further participation in wireless consolidation has been foreclosed by regulators.

AT&T has stated that the Latin American region is one where growth opportunities for the company have been identified. AT&T has extensive experience in the region through its long-time ownership of AMX. This stake was divested in June 2014 as part of the DIRECTV transaction, given DIRECTV's extensive assets in Latin America.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

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