08.11.2012 16:14
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Pacific Bell -- Moody's places AT&T's ratings on review for downgrade

Approximately $64 billion in debt affected

New York, November 08, 2012 -- Moody's Investors Service has placed AT&T Inc.'s ("AT&T" or the "company") A2 senior unsecured ratings and Prime-1 rating for commercial paper on review for downgrade. The review is prompted by the company's announcement yesterday that it is has changed its financial policy and will increase leverage to repurchase stock and step up capital spending. Moody's review will consider the increase in the company's leverage target against the offsetting positives that may derive from increased capital spending in the wireless and wireline businesses.

Moody's has taken the following rating actions:

All AT&T debt ratings including the P-1 short-term rating are placed on review for possible downgrade

RATINGS RATIONALE

In the review, Moody's will evaluate the growth potential and cash flow impact of the company's increased capital investment program and continued aggressive share repurchase. AT&T plans to increase capital spending to $22 billion per year through 2015 from an estimated $19 billion in 2012 to expand both its wireless 4G LTE and U-verse platform coverage.

AT&T's decision to move away from its prior 1.5x leverage target is a strong negative. Moody's anticipates the company will raise a significant amount of new debt to fund the increase in capex and ongoing share repurchase. On a pro forma basis, the company's adjusted Debt/EBITDA leverage will rise to about 2.5 times (using Moody's standard adjustments, which add about 0.7 times to the company's reported calculations). As such, many of AT&T's financial metrics will be outside the boundaries expected for an A2-rated issuer for an extended period, and specifically the 2.0 times adjusted Debt/EBITDA leverage which Moody's has previously identified as a potential downgrade benchmark.

Moody's views the increased wireless capex favorably, as it should improve AT&T's service quality and help the company maintain its position as a leader in the US wireless industry. Moody's believes that wireless carriers, such AT&T and Verizon, have established strong competitive positions within the market primarily because they have maintained the discipline and ability to continually reinvest into the network.

Similarly, Moody's views the expansion of U-verse favorably as it will enable AT&T to remain relevant to consumers who demand higher speed broadband services. The expansion of U-verse, as well as the steps to improve non U-verse DSL service, will also complement the expanded LTE wireless footprint. The announcement also settles the uncertainty surrounding the future of AT&T's non U-verse service territories.

The principal methodology used in rating AT&T was the Global Telecommunications Industry Methodology published in December 2010. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Mark StoddenAsst Vice President - Analyst Corporate Finance Group Moody'sInvestors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653John Diaz MD - Corporate Finance Corporate Finance Group JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Releasing Office: Moody's Investors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653(C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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