Chennai: Standard & Poors (S&P), the global rating agency, has assigned its BBB+ rating to AOL Time Warner Incs $6-billion Rule 415 shelf drawdown. AOL Time Warners corporate credit rating is BBB+/A-2. The outlook is stable.

The New York-based AOL Time Warner is the largest media company in the US with vertically integrated positions in publishing, music, filmed entertainment, cable networks, cable TV, and Internet services. The company had about $30 billion of debt and debt-like preferred as of 31 December 2001, including the recent AOL Europe transaction.

The drawdown consists of $1 billion of 5 5/8 per cent notes due 2005; $1 billion of 6.15 per cent notes due 2007; $2 billion of 6 7/8 per cent notes due 2012; and $2 billion of 7.7 per cent notes due 2032.

"The pro-forma total debt to EBITDA for the yearend 2002 should be roughly in line with S&Ps target of 3.0x for the company at the current rating, barring further debt incurrence beyond the AOL Europe buyout," says S&P credit analyst Heather Goodchild.

Goodchild cautions: "However, leverage could rise above the appropriate level if recent discussions regarding the Time Warner Entertainment/Advance Newhouse (TWE-A/N) cable joint venture lead to an AOL Time Warner buyout of the Advance Newhouse stake."

S&P says the leverage also could increase if the AT&T stake in Time Warner Entertainment Co LP (TWE) is registered because of the $1.4-billion minority portion of TWEs debt-like Series A capital and related dividend obligations. The rating agency had expected that either TWE will be restructured or that AOL Time Warner will buy out the stake.

S&P had viewed the Series A as more equity-like in terms of the expected ultimate ownership.  In addition, the companys revised earnings expectations, share repurchases, and the use of debt in the AOL Europe buyout have curtailed debt capacity within the current rating.

According to S&P neither a TWE-A/N buyout, nor the TWE minority stake debt-like Series A, nor any partial buyout of TWE, is currently incorporated in the outlook. Either a TWE-A/N buyout or a partial TWE buyout could lead to a revision of the outlook. Share repurchases could also prompt an outlook revision.

The agency notes that although early signs of a recovery are emerging, improvement in cash flow and credit measures still could be hampered by the economy or by a slower-than-expected subscription growth.