Fitch: Discovery's Ratings Unaffected by Olympic Broadcast Agreement

NEW YORK--(BUSINESS WIRE)--

Discovery Communications LLC's (Discovery) 'BBB' Issuer Default Rating (IDR) is not affected by the company's agreement to purchase the exclusive TV and multi-platform broadcast rights for the four Olympic Games from 2018 through 2024 for 1.3 billion Euros (USD1.4 billion), according to Fitch Ratings. The rights will cover 50 European countries and territories and more than 700 million people. A complete list of Fitch's ratings on Discovery is provided at the end of this release.

The purchase of the Olympic broadcast rights in Europe is consistent with Discovery's strategy to invest in its international operations, especially Eurosport, its majority-owned Pan-European sports network. The company has committed to broadcasting a minimum of 200 hours of the Olympic Games and 100 hours of the Olympic Winter Games on free-to-air television during the Games period. Discovery will also provide subscription based offerings across multiple platforms including its Eurosport network, Eurosport.com and the Eurosport Player, a leading OTT service. Discovery will sub-license a portion of the rights in many markets across Europe as a way to recover some of its upfront costs.

Fitch believes the transaction complements Eurosport's existing programming and enhances the pay-tv and OTT offerings of Discovery's international networks. Eurosport already broadcasts a number of winter and summer sports showcased during the Olympics, and this agreement solidifies the network's position as a top European sports programmer of Olympic sports. Beyond free-to-air and PayTV channels, Eurosport Player, DPlay, Eurosport.com and Eurosport 360 will deliver more coverage and immersive experiences across all screens.

Cash requirements related to the purchase are expected to be minimal over the next three years and will ramp up once the Olympic games air. Discovery expects to sublicense a majority of the broadcast rights where it does not own properties which should help offset the costs of the content rights. Fitch believes Discovery's credit profile has sufficient flexibility, given solid free cash flow (FCF) generation, adequate credit protection metrics for the ratings category, and a minimal near-term maturity schedule, to accommodate this agreement.

In terms of capital allocation, Discovery's priority remains investing in its core business through programming existing networks or through acquisitions. While large-scale M&A activity is not anticipated given the dearth of cable network assets available for sale, there is room at the 'BBB' level to absorb some mid-sized acquisitions if Fitch believed the company could credibly restore leverage to under 3x within a 12-month timeframe.

Discovery's ratings are supported by its strong core brands - in particular the strength of the company's Discovery and TLC brands, both of which reach nearly 100 million subscribers across the U.S. and continue to generate solid ratings. In addition, the ratings incorporate the revenue and growth prospects of Discovery's international business segment, global carriage, leverageable content, robust FCF and solid credit metrics. Ratings concerns continue to center on the significant contribution of cyclical advertising revenue, a competitive landscape of similar programming on other cable channels, the general volatility associated with hit-driven content and the company's dependence on the Discovery and TLC brands.

Fitch currently rates Discovery as follows:

--Long-term IDR 'BBB';

--Short-term IDR at 'F2';

--Senior unsecured revolving credit facility 'BBB';

--Senior unsecured notes 'BBB'

--Commercial paper 'F2.'

Additional information is available on www.fitchratings.com

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