AT&T aims to grow cash flow, get to 2.5x leverage by the end of 2019

By Devika Patel

Knoxville, Tenn., Sept. 12 – AT&T Inc. management believes it can get its leverage ratio down to 2.5x by the end of 2019 organically and without disposing of assets.

In June, AT&T completed its acquisition of Time Warner Inc., paying $42.5 billion in cash and issuing 1,185,000,000 shares, which raised the company's net debt to $180.4 billion.

The company’s management has said that it expects its net debt to EBITDA to decline to 2.5x by the end of next year from just under 3x in the second quarter.

“When the board and I stepped into this transaction, and the amount of leverage that we’d be taking on to get it done, we spent an incredible amount of time getting ourselves comfortable that first of all we could support the debt, that the business would support the debt, and second of all that we could de-lever fairly quickly,” chairman and chief executive officer Randall Stephenson said at the Goldman Sachs Communacopia Conference in New York on Wednesday.

“We have told The Street that we will finish this year at free cash flow, meaning cash flow after CapEx before dividends, of $21 billion and that $21 billion includes $2 billion of deal costs that will not recur and the $21 billion on a run rate basis is really $23 billion.

“That’s how we’ll kind of move into 2019.

“But the $23 billion only includes a half year of Time Warner, and Time Warner generates a lot of cash.

“You bring in a full year of Time Warner – we exit this year on a run rate basis at $25 billion of free cash flow.

“So, if you assume no growth in our free cash flow next year, no growth whatsoever, we’re in a $25 billion run rate going in,” he said.

Stephenson said that many of the company’s segments are expected grow EBITDA in 2019 and be cash-flow contributive, including Mexico, Entertainment Group and Warner Media.

“There’s no reason why we shouldn’t see cash flow growth next year,” Stephenson said.

“So, you put all this together, we exit this year at $25 billion free cash flow.

“That’s a low watermark for next year, but if you just said $25 billion is the best we can do, if we take all of our discretionary cash flow this year and next year and commit to debt paydown, which is the plan, we get to 2.6x, 2.65x debt to EBITDA just at $25 billion of free cash flow and without selling or disposing of anything,” he said.

“Just the low watermark gets you to a very comfortable debt to EBITDA range,” he said.

“So, we get to line of sight of 2.5x by the end of the year next year just organically with no growth, and I fully anticipate growth.

“So, getting to 2.5x we think is imminently achievable.

“We feel pretty good about being able to achieve that,” he said.

AT&T is a Dallas-based telecommunications company.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.