Fitch Rates Time Warner's Proposed Senior Issuance 'BBB'; Outlook Stable.

NEW YORK -- Fitch Ratings has assigned a 'BBB' rating to Time Warner Inc.'s (TWX) proposed senior unsecured notes and debentures issuance announced today. Fitch has also affirmed the following ratings:

TWX

--Long-term Issuer Default Rating (IDR) 'BBB'.

--Senior unsecured

--Short-term 'F2'.

Time Warner Cable Inc. (TWC)

--Long-term Issuer Default Rating (IDR) 'BBB'.

--Senior unsecured 'BBB';

--Short-term 'F2'.

Time Warner Entertainment, L.P. (TWE)

--Long-term Issuer Default Rating (IDR) 'BBB';

--Senior unsecured 'BBB'.

Approximately $33 billion in debt outstanding at Sept. 30, 2006 is affected by this action. Fitch expects a large proportion of the new debt issuance to be used to pay down commercial paper borrowings. The Rating Outlook is Stable.

Fitch's ratings on TWX and TWC/TWE continue to reflect the company's strong and consistent free cash flow, solid credit protection measures, sound liquidity, significant subscription based-revenue, leading market positions in core businesses, and strong brands. Rating concerns include the secular pressures facing the company's publishing division and the company's exposure to cyclical advertising, which Fitch notes is less significant relative to industry peers. Also, the inherent volatility of the filmed entertainment and television production businesses and execution risk regarding the company's new strategy for AOL are concerns. In addition, while Fitch recognizes the recent increase in the company's share price could alleviate some shareholder pressure, the potential for additional shareholder friendly initiatives or more meaningful de-consolidation remains a concern (consistent with our caution across the broader media landscape). The Stable Outlook recognizes that there is room at the 'BBB' rating level for some operational shortfalls and modest additional shareholder friendly actions.

Operating performance in the nine-month period ended Sept. 30, 2006 was solid with high single digit revenue growth and double digit EBITDA growth. Performance continues to be driven by ancillary product offerings and further penetration of the triple play bundled offering in the cable division. In addition, growth in the company's Networks division has compensated for some pressure at AOL, tepid advertising results from the magazines division, and somewhat soft results from the filmed entertainment thus far in 2006. Fitch believes the company should be able to continue to drive EBITDA and margin expansion on revenue gains and cost reduction initiatives, which are targeted at approximately $1 billion by year-end (YE) 2007.

At YE 2006, the company is expected to have roughly $35 billion in debt. Incorporating incremental EBITDA from the Adelphia properties in 2006, proforma leverage is expected to be within managements stated target of approximately 3.0 times (x), which is comfortably within Fitch's parameters for a 'BBB' rated company with Time Warner's business risks. Fitch expects Time Warner's free cash flow (FCF) to proforma debt will be around 10%, which is also appropriate for the rating. Improvement in its FCF to debt measure is expected in the intermediate term as Time Warner integrates its increased cable footprint from the Adelphia transaction and continues to increase penetration of high margin broadband offerings. Fitch does not expect any significant increase in dividends that would further weaken its FCF metrics.

Time Warner has addressed several significant credit risks in recent years. The company negotiated a settlement regarding the primary securities class action litigation and has settled with the SEC. It also reduced its total debt balance by over $2 billion in 2005 and by over $7 billion between 2002 and 2005. These improvements to its credit profile provided the company the capacity to pursue the significant Adelphia transaction and repurchase over $13 billion of stock (year-to-date Sept. 30, 2006) while maintaining a strong 'BBB' rating.

While liquidity has been reduced as a result of the Adelphia deal and other transactions in 2006, Fitch believes Time Warner's liquidity is adequate. Liquidity continues to be supported by strong free cash flow, over $1 billion in cash, and approximately $5 billion in available credit facilities at Sept. 30, 2006. The company faces approximately $1.6 billion of debt maturities in 2007 and approximately $800 million in 2008; most of its debt matures in 2011 and thereafter. Fitch believes the company will term out some of its commercial paper balances with the notes and debentures issues announced this morning.

Existing TWX indebtedness (debt issued by Time Warner Inc., Time Warner Companies, Turner Broadcasting System and Historic TW Inc.) has the benefit of cross guarantees from Time Warner Inc., the subsidiary guarantors listed above and AOL LLC (which owns the AOL assets and is also considered a subsidiary guarantor). (Note cable assets are not part of this subsidiary guarantee). This guarantee structure encompasses a significant proportion of the (non-cable) assets owned by TWX and essentially unifies the probability of default on debt outstanding at any of the subsidiary guarantors. (Note there is presently no public or bank debt at AOL LLC or either of its two immediate holding companies.)

Indebtedness under the proposed issuance (to be issued under an indenture dated [Nov. 7 2006]), will have a guarantee structure similar to the existing indebtedness with the exception that it will not have a guarantee from AOL LLC but from a holding company, TW AOL Holdings Inc. This Holdco owns 92.5% of AOL Holdings LLC which in turn owns 100% of AOL LLC (Google owns 5% of AOL Holdings LLC and Time Warner Inc. owns the remaining 2.5%.) The structural subordination of the new guarantee relative to existing guarantee does not warrant a rating distinction in Fitch's view.

Consistent with other investment grade indentures, the [Nov. 7, 2006] and April 19, 2001 indentures provide weak protections from leveraging events under many circumstances. There are no material provisions/restrictions related to a change of control, asset sales, additional debt, cross default or cross acceleration. There is a negative pledge which should be triggered if greater than 15% of Consolidated Net Worth (as defined) or $500 million were to become secured (excluding film financings and other exceptions).

Given actions that some other companies across the corporate space have taken recently to subvert certain protections in order to execute leveraging transactions, Fitch is generally skeptical regarding the potential effectiveness of some covenants in corporate bond indentures.

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