S&P tightens leverage target for AOL

Standard & Poor's still has the ratings of AOL Time Warner Inc. on negative watch, but has tightened the leverage target to maintain current ratings.

In order to maintain the BBB+ corporate credit rating and others for the media giant, S&P said it has lowered the target gross debt to EBITDA ratio to 2.75x from 3.0x, noting this would will be an important cushion against potential adverse consequences of litigation and regulatory investigations.

S&P said it places particular emphasis on the increased business risk of the America Online subsidiary, higher debt levels to accomplish the restructuring of Time Warner Entertainment Co. LP, delays in executing a cable unit IPO, overall earnings uncertainty and risks from the SEC/DOJ investigation and litigation.

At the same time, the company has made progress in reducing debt through asset sales and is attempting to stabilize AOL's operating performance, S&P noted. However, management recently commented that AOL's narrowband subscriber base, its most important profit source, is continuing to erode a little bit faster.

Ratings could be affirmed with a negative outlook, assuming that S&P believes the company can achieve and maintain this target financial measure in the coming 12 months.

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