[December 02, 2014]

Fitch Rates DIRECTV Holdings LLC's Sr. Unsecured Notes 'BBB-(EXP)'; Remains on Positive Watch

Fitch Ratings expects to assign a 'BBB-(EXP)' Rating Watch Positive rating to DIRECTV Holding LLC's (DTVH) issuance of senior unsecured. DTVH is a wholly owned indirect subsidiary of DIRECTV. DTVH's 'BBB-' Issuer Default Rating (IDR) was placed on Rating Watch Positive following the May 2014 announcement of the acquisition of DIRECTV by AT&T (News - Alert) Inc. (AT&T). AT&T's IDR is 'A' and is on Rating Watch Negative.

Proceeds from the offering, together with cash if necessary, are expected to be used for the repayment of DTVH's 3.55% senior notes due March 15, 2015. As of Sept. 30, 2014, DTVH had approximately $19.8 billion of debt outstanding.

The notes will be guaranteed on a senior unsecured basis by DIRECTV and DTVH's material domestic subsidiaries. The notes will rank pari passu with DTVH's existing senior unsecured debt (including its senior revolving credit facility). In addition, the guarantees rank equally with the respective guarantor's senior unsecured indebtedness.

KEY RATING DRIVERS

--For DTVH, the Positive Watch reflects AT&T's ownership of the company following the close of the transaction and strong strategic ties. DTVH's final rating will depend on an evaluation of AT&T's financial policies with respect the DTVH's debt and the degree of linkage to AT&T's rating. The acquisition is expected to be completed in the first half of 2015, following the necessary regulatory approvals.

-- DIRECTV's video assets are complementary to AT&T's operations, but the longer term strategic benefits are less clear and depend on the post-merger company's ability to capitalize on emerging trends in the industry.

--DTVH's current ratings incorporate Fitch's expectation for continued generation of free cash flow (FCF; before dividends to DIRECTV) and the company's high level of financial flexibility within the existing ratings category. In addition, DIRECTV's Latin American (DTVLA) business segment has strong growth prospects.

--The current ratings also consider the company's lack of revenue diversity and video-centric service offering relative to its cable MSO and telephone company competition, which limits growth prospects in the U.S.

Consolidated credit protection metrics are aligned with Fitch's expectations and strongly positioned within the current rating category. Consolidated leverage stood at 2.33x as of the latest 12-month (LTM) period ended Sept. 30, 2014.

In addition to FCF generation, the company's liquidity position is supported by the collective available borrowing capacty under its $2.5 billion revolver (consisting of a $1 billion revolving credit facility maturing February 2016 and a $1.5 billion revolver maturing September 2017. All of which was available for borrowing as of Sept. 30, 2014). These facilities support DTVH's $2.5 billion commercial paper program, of which there was $129 million outstanding as of Sept. 30, 2014. Consolidated cash totaled approximately $2.9 billion as of Sept. 30, 2014. The company's maturity schedule is well-laddered and also adds to its overall financial flexibility. DTVH has $1.2 billion of debt scheduled to mature during 2015 followed by $2.25 billion in 2016.

DIRECTV's down-stream guaranty of DTVH's senior unsecured notes has a neutral effect on DTVH's credit profile, in Fitch's opinion. DTVH bondholders will benefit from the cash flows generated from DIRECTV's businesses owned outside of DTVH, including DIRECTV Latin America Holdings, Inc. and DIRECTV Sports Networks, LLC.

RATING SENSITIVITIES

Positive:

The rating may be upgraded following a review of AT&T's proposed acquisition of DIRECTV as outlined in Fitch's press release regarding AT&T dated May 19, 2014.

Additional information is available at 'www.fitchratings.com'.

THE ISSUER DID NOT PARTICIPATE IN THE RATING PROCESS, OR PROVIDE ADDITIONAL INFORMATION, BEYOND THE ISSUER'S AVAILABLE PUBLIC DISCLOSURE.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (May 28, 2014);

--'Telecommunications - Rating Navigator Companion' (Nov. 17, 2014).

Applicable Criteria and Related Research:

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393

Telecommunications: Ratings Navigator Companion

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=809869

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=940075

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