Communications

Question 1

COMCAST CORPORATION (CMCSA)

Answer 1

Global media and tech company with three primary businesses: Comcast Cable, NBCUniversal (NBCU) and Sky, operating through five segments: Comcast Cable (broadband, video, wireless, security under Xfinity), NBCUniversal in three segments Media (TV and streaming), Studios (film and television, and Theme Parks, and Sky (Europe). Diversified revenue stream, strong cash flow generation, and a leading market position in broadband and cable services. High capital expenditure requirements and exposure to competitive pressures in the media and telecommunications sectors. Highest qualiity name in communications

CMCSA provides risk of playing a major role in the consolidation of the media sector. Concerns around broadband sub growth will weigh on EBITDA expectations and needed network capex requirements. Still financial policy remains conservative with 2.4x net lev target and A- credit rating. Should trade 10-15bp inside of VZ. Prefer CMCSA to DIS

A3/A-/A-
Cable & Satellite - Americas
$86.29bn in index across 63 issues

Question 2

COX COMMUNICATIONS INC (COXENT)

Answer 2

Wholly-owned cable subsidiary of Cox Enterprises, Inc. (CEI), a privately-held broadband communications and automotive services company. Cox is a broadband communications and entertainment company providing advanced digital video, high-speed internet, telephone, and home security and automation services over its nationwide Internet Protocol (IP) network. A stable revenue base (over 6mn customers) from subscription services and significant investments in infrastructure. Weaknesses include limited financial transparency due to its private ownership and high leverage ratios.

Low leverage and conservative financial policy but private company which necessitates a discount, and challenging broadband sub growth amid rising competition from telecom service providers. Limited upside given broadband and cord-cutting pressure. Should trade wide of RCICN and TCN; downside is to at least CHTR levels

Baa2/BBB/BBB+
Cable & Satellite - Americas
$9.71bn in index across 14 issues ($9.71bn 144a)

Question 3

VIRGIN MEDIA SECURED FINANCE PLC (VMED)

Answer 3

Operates as a special purpose entity for issuing debt securities to refinance existing credit facilities and for acquisition purposes. The company’s strong business profile and solid financials, supported by its parent company VMED O2 UK Ltd, provide a stable foundation for credit investors. Their focus on reducing leverage and enhancing competitive positioning is also positive.

Ba3(Neg)/B+/BB+
Cable & Satellite - Europe
$7.27bn in index across 7 issues

Question 4

CLEAR CHANNEL INTERNATIONAL BV (CCO)

Answer 4

Operates outdoor advertising services across various international markets. Their business model includes leveraging digital and traditional advertising platforms to reach a broad audience. Financially, Clear Channel focuses on maintaining a strong market presence and generating consistent revenue from their diverse advertising portfolio.

Unsecured bonds moved to overweight given the reduced probability of a recession, particularly as billboard is well positioned to capture advertising dollars alongside the shift to digital. I would be hesitant to add should there be economic softness as CCO is levered ~10x, which is high given valuations in the space have typically been 12x. With limited (negative) FCF available to pay down debt CCO will need an asset sale or equity raise to repair the balance sheet, which seems unlikely near-term given market conditions.

Caa1/CCC+
Media and Entertainment - Americas
$4.92bn in index across 5 issues

Question 5

FOX CORP (FOXA)

Answer 5

News, sports, and entertainment company in the United States. Strengths include a strong presence in live news and sports broadcasting, which provides stable viewership and advertising revenue; strong financials and prudent financial management. Weaknesses involve high dependency on advertising revenue and potential regulatory risks associated with media operations. Less diversified than DIS and WBD

Event risk given management’s willingness to (selectively) pursue accretive inorganic growth opportunities in core verticals as well as possible spending in streaming and/or sports betting. Live TV business model is defensive, and while the political cycle and news/sports presence should alleviate some of the pressure on advertising, the company continues to face challenges associated with the linear entertainment industry. Gross lev at the low end of 2.25-3.0x target with $4.1B in cash. Trades too wide to other BBBs; would rather own FOXA vs RCICN (currently 126bp)

Baa2/BBB
Media and Entertainment - Americas
$6.64bn in index across 5 issues

Question 6

HEARST TELEVISION INC (HTV)

Answer 6

Hearst Television is a leading local television broadcaster in the United States. Strengths include a stable revenue base from local advertising and strong market positions in key regions. Weaknesses are limited financial transparency due to private ownership and exposure to cyclical advertising markets

Acquired
Media and Entertainment - Americas
No USD Bonds Outstanding

Question 7

META PLATFORMS INC (META)

Answer 7

Leading social media and technology company. Strengths include a dominant position in social media, strong user engagement across its platforms, and significant advertising revenue. Weaknesses are regulatory scrutiny, privacy concerns, and heavy reliance on advertising for revenue. Highest quality name in media & entertainment

Solid balance sheet and leadership position in the social media space, but digital ad exposure in challenging macro environment, a tough regulatory backdrop, constantly evolving data privacy laws and practices, and high investment requirements in the metaverse and AI for the next few years. Expect Meta to be a regular issuer. Like the name for defensive portfolios

Aa3/AA-
Media and Entertainment - Americas
$18.38bn in index across 9 issues

Question 8

MOODYS CORPORATION (MCO)

Answer 8

Provides credit ratings, research, tools, and analysis to the global capital markets. Strengths include a dominant market position in credit ratings and strong recurring revenue streams. Weaknesses involve regulatory scrutiny and exposure to economic cycles affecting credit markets

Should trade 10-15bp wide of SPGI (currently 19bp wide of SPGI). Cognizant of some M&A risk but like the rating agencies over media

BBB+/BBB+
Media and Entertainment - Americas
$5.40bn in index across 11 issues

Question 9

MSCI INC (MSCI)

Answer 9

Offers critical decision support tools and services for the global investment community. Strengths include a leading position in index and analytics services and strong recurring revenue. Weaknesses are high dependency on financial markets and exposure to regulatory changes

Baa3/BBB-/BBB-
Media and Entertainment - Americas
$4.20bn in index across 5 issues ($4.20bn 144a)

Question 10

NETFLIX INC (NFLX)

Answer 10

Provider of entertainment services including TV series, films, and games across various genres and languages. As of June 30, 2024, the company has 277.7 million paid subscribers and is the world’s largest streaming company. Netflix was incorporated in 1997 and is headquartered in Los Gatos, California. Third highest quality name in media & entertainment.

Solid business platform with streaming, no linear headwinds, and potential tailwind from digital advertising. NFLX financial policy remains conservative with $5B+ of FCF and target gross debt of $10-15B equating to strong IG metrics. Potential to get to higher rating, but haven’t been willing to commit to A rating and/or a leverage tgt. Like the name for defensive portfolios

Baa1/A
Media and Entertainment - Americas
$9.00bn in index across 8 issues

Question 11

OMNICOM GROUP INC (OMC)

Answer 11

Provides advertising, marketing, and corporate communications services. Strengths include a diverse client base and strong global presence. Weaknesses involve high competition in the advertising industry and sensitivity to economic downturns affecting advertising budgets

Gross lev target low-2x. Should trade wide of MCO and well inside of IPG

Baa1/BBB+
Media and Entertainment - Americas
$4.00bn in index across 5 issues

Question 12

PARAMOUNT GLOBAL (PARA)

Answer 12

Media, streaming, and entertainment company worldwide, changed its name from ViacomCBS in Feb 2022. Strengths include a broad range of media assets and strong content creation capabilities. Weaknesses involve high operational costs and significant competition in the streaming market

In July 2024, PARA announced merger with Skydance that is a positive for credit as Skydance will inject $1.5B into PARA for debt reduction. PARA 2Q24 results were generally better than expected with Revenue missed but OIBDA and FCF ahead of consensus. Paramount+ subs showed significant growth yoy but were down seq due to exit from S Korea. PARA also took a $6B impairment related to linear. Prefer over WBD due to Ellison involvement and pot’l for asset sales but Moody’s review is an risk. Fallen angel candidate

Baa3(Neg)/BB+/BBB-(Neg)
Media and Entertainment - Americas
$14.66bn in index across 20 issues

Question 13

S&P GLOBAL INC (SPGI)

Answer 13

Provides credit ratings, benchmarks, analytics, and workflow solutions. Strengths include a leading position in credit ratings and strong recurring revenue streams. Weaknesses involve regulatory risks and exposure to economic cycles affecting credit markets. Second highest quality name in media & entertainment

Should trade inside of DIS and MCO

A3/A-
Media and Entertainment - Americas
$10.70bn in index across 13 issues

Question 14

TAKE-TWO INTERACTIVE SOFTWARE INC. (TTWO)

Answer 14

Leading developer and publisher of interactive entertainment under Rockstar Games, 2K, and other names. Strengths include a strong portfolio of popular game franchises and robust cash flow generation. However, weaknesses involve high dependency on a few key titles and significant competition in the gaming industry

Video game producer. S&P revised the outlook to negative on the expectation that the delay in the GTA VI release will result in EBITDA remaining suppressed and leverage sustained above the 2.0x downgrade threshold until the release. Disciplined financial policy but M&A focus results in event risk. Limited upside catalysts until GTA VI release or M&A resulting in expansion of offering/pipeline.

Baa2/BBB
Media and Entertainment - Americas
$3.05bn in index across 6 issues

Question 15

The Walt Disney Company (DIS)

Answer 15

Diversified international family entertainment and media enterprise. Strengths include a strong brand portfolio, diversified revenue streams from media networks, parks, and resorts, and robust content creation capabilities. Weaknesses are high operational costs, significant capital expenditures, and vulnerability to economic downturns affecting consumer spending

DIS 3Q24 results were generally solid. Raised FY24 EPS growth to +30% (vs prev +25%) and continue to guide FCF to ~$8B. Mgmt stays committed to its A rating and bringing leverage down to levels consistent with the rating (2.5-3.0x). In the face of s/h pressure, DIS declared a $0.30/sh dividend in Jan 2024 and then a 50% increase in July 2024 plus targeting a $3B buyback in FY24. Trades 18bp inside of CMCSA (prefer CMCSA, META, NFLX all over DIS).

A2/A-(Pos)/A-
Media and Entertainment - Americas
$34.34bn in index across 35 issues

Question 16

THOMSON REUTERS CORPORATION (TRICN)

Answer 16

Offers business information services, including legal, tax, accounting, and compliance solutions. Strengths include a strong market position and diversified revenue streams. Weaknesses are high operational costs and exposure to economic fluctuations affecting client spending

Stable name. Disciplined finacial policy. Thomson Family owns 69% through Woodbridge.

Baa1/BBB+/BBB+
Media and Entertainment - Americas
$1.75bn in index across 4 issues

Question 17

Warner Bros. Discovery, Inc. (WBD)

Answer 17

Global media and entertainment company offering content across television, film, streaming, and gaming. Merger with WarnerMedia has created one of hte largest media companies in the world, with a global reach, significant scale, synergies. Strengths include a diverse content portfolio and strong brand recognition. Weaknesses are high debt levels and integration risks following recent mergers

WBD 2Q24 resutls were disappointing. Subs were ahead of consensus driven by int’l but domestic below. WBD continues to target gross leverage of 2.5-3.0x though unlikely to achieve by FYE24 as orginally expected given continued headwinds to linear TV ad market. 2Q24 net leverage 4.0x. Of note, WBD unlikely to pursue any M&A with PARA despite earlier conversations
FA Candidate: S&P revised outlook to negative in August 2024 following 2Q24 earnings due to 1H24 operating performance that was below expectations, namely from linear, which lowered the likelihood WBD could get to 3.5x leverage in 2025. Moody’s acknowledges that WBD is focused on delevering, so stable outlook

Baa3/BBB-/BBB-
Media and Entertainment - Americas
$33.24bn in index across 16 issues

Question 18

AMERICAN TOWER CORPORATION (AMT)

Answer 18

AMT is a global REIT specializing in wireless and broadcast communications infrastructure. It benefits from stable cash flows and global diversification, but faces high leverage and significant capital expenditure needs.

Closed sale of India (Sep 2024) for $2.5B plus sale of Mexico fiber and Poland help delever and refocus int’l ops. 2Q24 net lev 4.8x so AMT net leverage is inside their 3-5x target in FY24 M&A is a risk but mgmt doesnt see anything compelling. Maintaining IG rating is a priority so will delever and wait for M&A opport’y. FY24 dividend guide $3B. (up slightly yoy). AMT at 11bp wide of AT&T; AMT pot’l more defensive than OMC (7bp inside of AMT) or IPG.

Baa3/BBB/BBB+
Wireless - Americas
$22.30bn in index across 30 issues

Question 19

CROWN CASTLE INC (CCI)

Answer 19

Operates wireless infrastructure in the U.S. It benefits from strong recurring cash flows and a stable business model, but faces high leverage and significant capital expenditures for network expansion.

Tower business is defensive. Long-term fundamentals for the business positive but near-term rates/inflation pressure. Recent activism by Elliott has led to management commencing a review of the fiber business, which is positive. Leverage remains above tgt 5x (2Q24 net 5.8x). Mgmt noted that M&A isn’t a priority. Prefer AMT over CCI at similar levels. Historical relationship to AMT is 7bp wide.

Baa3/BBB/BBB+
Wireless - Americas
$18.25bn in index across 24 issues

Question 20

ROGERS COMMUNICATIONS INC (RCICN)

Answer 20

Leading Canadian communications and media company. It has stable cash flows and a strong market position, but high leverage and exposure to competitive and regulatory risks in Canada are concerns.

Subscriber growth and operating performance remain strong. High leverage following Shaw transaction, but management remains committed to deleveraging to below 3.25x over the next few years with target deleveraging of 0.5x per year. Spreads reflect high lev; RCICN is an improving credit story. Will need to fund C$4.7B acq though said won’t impact lev

Baa3/BBB-/BBB-
Wireless - Americas
$15.98bn in index across 16 issues

Question 21

T-Mobile US, Inc. (TMUS)

Answer 21

Major U.S. wireless carrier known for its strong market position and growth strategy. It enjoys robust revenue growth and synergies from the Sprint merger, though it contends with high debt levels and intense competition. Third highest quality name in communications

Strong postpaid net adds and modest ARPU improvement should lead to solid EBITDA and FCF growth with guidance of FY24 EBITDA to $31.5-31.8B. TMUS has been a more freq issuer in FY24 (compared to VZ and ATT that look to reduce debt) but expect leverage to remain inside of those competitors. Target net lev in mid-2x range. TMUS should continue to trade inside of ATT

BBB/BBB+
Wireless - Americas
$60.01bn in index across 34 issues

Question 22

AT&T CORP (T)

Answer 22

Major U.S. telecommunications company with diverse services. It has large scale and stable cash flows, but high debt levels and challenges in its media and entertainment segments pose risks. Fourth highest quality name in communications

AT&T 2Q24 EBITDA mixed though FCF above consensus. FY24 guide: FCF $17-18B (vs $16.8B). 2Q24 net lev was 2.9x and the company highlighted target to get to 2.5x by 1H25. Still, AT&T should trade wide of TMUS, as the latter has stronger credit metrics and a better outlook for EBITDA and FCF growth. Sold DTV stake for $7B, question on use of proceeds. Would prefer to own ATT ovsr OMC (@96bp)

Baa2/BBB/BBB+
Wirelines - Americas
$88.38bn in index across 49 issues

Question 23

LEVEL 3 FINANCING INC (LVLT)

Answer 23

Provides telecommunications and internet services, including fiber-optic networks and data centers. Their business model focuses on delivering high-speed connectivity solutions to businesses and consumers. Financially, Level 3 benefits from strong market demand and strategic investments in network infrastructure.

Level 3 fundamentals have detiorated since the TSA agreement closed in 1Q 24. I still view the Level 3 assets superior to Qwest and the holdco given it is less exposed to legacy wireline revenues and the network has no exposure to legacy copper. Prefer the unsecured over the 2nd lien given relative risk reward; in the event of a bankruptcy in 2028/2029 I would expect both to be equitized given leverage is already greater than 5.0x through the 2L

Caa1(Pos)/CCC+
Wirelines - Americas
$7.79bn in index across 12 issues

Question 24

TELUS CORPORATION (TCN)

Answer 24

Leading Canadian telecommunications company. It has a strong market position and stable revenue, but high leverage and competitive pressures are key risks.

Consistently high leverage. Event risk due to acquisitive growth strategy. Expect leverage to stay above the 2.2-2.7x target. Telus should trade wide of CCI

Baa2/BBB
Wirelines - Americas
$3.25bn in index across 5 issues

Question 25

Verizon Communications Inc (VZ)

Answer 25

One of the largest U.S. telecommunications companies. It has a strong business profile and stable cash flows, but high financial leverage and the need for continuous investment in network infrastructure are potential weaknesses. Second highest quality name in communications

Net Unsec Leverage should decline from 2.5x at 2Q24 over time to VZ’s long term target of 1.75-2.0x which is more conservative than AT&Ts and benefits from one-notch higher rating with aspirations of an eventual return to A-. Announced $20B acq of Frontier which will add ~0.25x leverage as closing expected by 1Q26. VZ also announced sale of $3.3B of towers in Sept 2024. VZ should trade comfortably inside of AT&T.

Baa1/BBB+/A-
Wirelines - Americas
$81.98bn in index across 45 issues

Question 26

ILIAD SA (ILDFP)

Answer 26

French telecommunications company that provides internet, mobile, and fixed-line services. Their business model focuses on offering competitive pricing and innovative services to attract customers. Financially, Iliad benefits from strong market demand and a diversified revenue base.

Iliad SA currently sits at its target leverage with M&A being an overhang on the credit and with valuation either below or in-line with BB and BB telecom, positioning around longer dated paper seems suitable.

Ba3/BB
Wirelines - Europe
$2.55bn in index across 3 issues