AT&T; Plans to Cut Debt to Protect Credit Rating

Wall Street expects AT&T; Corp. to launch a massive debt-reduction program to keep its credit ratings stable, analysts said Wednesday.

AT&T; will fund the debt repayment “through the continued divestiture of nonstrategic assets, as well as from the proceeds of the expected IPO of Broadband next year,” company spokesman David Caouette said. Broadband is AT&T;’s cable-television unit.

Standard & Poor’s Corp., which this week downgraded AT&T;’s credit rating, said that to maintain its new “A” rating, the largest long-distance phone and cable-TV company would have to lower its total debt by the end of 2001 to 1.5 times cash flow, which is earnings before interest, taxes, depreciation and amortization.

AT&T; listed long-term debt of $29.4 billion at the end of September and $32.3 billion of debt maturing within one year. The company is expected to generate cash flow of about $24 billion next year, analysts said. It would have to reduce its total debt to about $36 billion to achieve the 1.5 times debt-to-cash-flow goal, analysts said.

AT&T; shares fell 44 cents to close at $22 on the New York Stock Exchange, just above the 52-week low of $21.25.

On Oct. 25, AT&T; said it would break into three companies by 2002 in an effort to boost shareholder value. The company plans to sell shares in the Broadband unit in 2001, then spin off the division as an asset-backed company within 12 months of the IPO.

AT&T; also plans to convert AT&T; Wireless Group tracking stock into an asset-backed company, leaving AT&T; Business and an AT&T; Consumer tracking stock as its other units.

Aside from asset sales and IPOs, AT&T; may raise funds by selling its 25.5% stake in Time Warner Entertainment, gained through the June purchase of MediaOne Group Inc. Time Warner Entertainment, or TWE, is a joint venture that owns most of Time Warner Inc.’s cable-TV systems, some of its cable networks and the Warner Bros. studio.

AT&T; must either sell the TWE stake, take steps to split off programming units such as John Malone’s Liberty Media Group, or sell cable systems that reach 9.7 million U.S. viewers to avoid violating a federal cap on the number of customers a cable operator may reach. The cap is 30% of U.S. homes.

AT&T; has until December to tell regulators which course it will take.