Moody’s put Comcast’s debt ratings on review for a downgrade after the media conglomerate revealed plans to separate into two independent publicly traded companies by spinning off its media and entertainment unit NBCUniversal, along with its European media business.
“Comcast’s reduced revenue diversification following the planned public offering of the NBCUniversal and Sky assets underscores the remaining entity’s exposure to intense competition in broadband markets,” Neil Mack, vice president of the credit rating agency’s corporate finance group, said in a statement Tuesday.
With its strategic pivot, Comcast aims to pull back a mix of content and pay-TV distribution under one roof at a time when its cable broadband business faces intense competition.
“The credit resilience of cable broadband business models remains under pressure due to debt leverage that is increasingly inconsistent with negative operating trends, raising investor concerns about appropriate levels of debt leverage in lower growth end markets,” Mack added. The credit ratings under review for downgrade previously had a stable outlook.
Now Moody’s showing its admiration for Comcast/NBCUniversal is losing synergies and cash flows from a shared presence in both content and traditional distribution just as Comcast with its planned spin-off chooses to focus and invest, and perhaps more deal-making down the road, as keys to future success.
“Ongoing secular pressures in the company’s low-margin linear video pay-TV business make it more important to maintain Comcast’s significant broadband cash flow. Comcast also currently benefits from additional revenue diversification from its portfolio of media, studio content and theme parks, but these are low-margin businesses compared to the company’s broadband business, which in addition to residential broadband also includes the smaller but higher-margin business services connectivity segment,” Moody’s said in its June 30 investor note.
Comcast’s linear cable television networks were previously distributed to shareholders as Versant Media Group. Moody’s argued that Comcast’s debt levels would come under pressure without EBITDA and cash flow pegs to decline, but high-margin businesses sprang up as Versant.
NBCUniversal after the spin will be led by CEO Mike Kavanagh, and will include NBC, Peacock, Bravo, Telemundo, film and television studios, its global theme park business, and the company’s Sky division in Europe.
“While the company’s excellent liquidity and financial flexibility support the current credit profile, negative secular pressures hitting Comcast’s broadband-focused communications and platforms segment increase overall business risks,” the credit rating agency said in explaining why Comcast is now at risk of a potential downgrade.
