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Credit FAQ: Calculating Leverage For Selected U.S. Telecommunications And Cable Companies (2023 Update)

Many investors ask how S&P Global Ratings calculates leverage for certain U.S. telecommunications and cable companies. To address their questions, we are providing our analytical adjustments for EBITDA and debt for the following companies we rate: AT&T Inc., Charter Communications Inc., Comcast Corp., Cox Enterprises Inc., Equinix Inc., and Verizon Communications Inc.

Table 1

U.S. telecom and cable company peer risk profile comparison
Company Rating Business/financial risk profiles Adjusted leverage threshold--upside Adjusted leverage threshold--downside LTM adjusted leverage

AT&T Inc.

BBB/Stable/A-2 Strong/Significant 3.0x 3.75x 3.8x

Charter Communications Inc.

BB+/Stable/-- Strong/Aggressive 4.25x 5.0x 4.4x

Comcast Corp.

A-/Stable/A-2 Strong/Intermediate 2.0x 3.0x 2.6x

Cox Enterprises Inc.

BBB/Stable/A-2 Satisfactory/Intermediate 2.25x 3.25x 1.8x

T-Mobile US Inc.

BBB-/Positive/-- Satisfactory/Significant 3.25x 4.0x 3.9x

Verizon Communications Inc.

BBB+/Stable/A-2 Strong/Intermediate 2.5x 3.25x 3.1x
Note: Ratings as of April 14, 2023. S&P Global Ratings-adjusted leverage as of Dec. 31, 2022. LTM--Last 12 months. Sources: Company reports and S&P Global Ratings estimates.

Frequently Asked Questions

What debt adjustments does S&P Global Ratings make for U.S. telecommunications and cable companies?

Many of our adjustments to a company's as-reported debt balance--such as the tax-affected unfunded portion of pension and other post-employment benefits (OPEBs), and the netting of accessible cash and liquid investments--are common across most corporate issuers. However, we also make several less-common sector-specific adjustments to debt, most notably our adjustment for captive finance operations for the wireless equipment receivables. The wireless companies offer customers so-called equipment installment plans (EIPs) to finance the cost of their mobile handsets. These plans qualify as captive finance operations under our criteria (see "Standard & Poor's Analytical Approach To Wireless Equipment Installment Plans," published March 30, 2016), in line with our captive finance criteria (see "The Impact Of Captive Finance Operations On Nonfinancial Corporate Issuers," published Dec. 14, 2015). Because we base this calculation on publicly available data, we show this adjustment for AT&T and Verizon. We do not publish our captive finance adjustment for T-Mobile US Inc., but we report the impact on selected credit metrics. As of Dec. 31, 2022, our captive finance adjustment resulted in a 0.1x improvement in the company's adjusted debt to EBITDA. (For more details on our methodology and adjustments, see "Corporate Methodology: Ratios And Adjustments," and "Guidance: Corporate Methodology: Ratios And Adjustments," both published April 1, 2019).

When a company buys or merges with another, does S&P Global Ratings assess the rating based on pro forma adjusted leverage?

We generally don't assess the impact of mergers and acquisitions on ratings using pro forma EBITDA unless there's a compelling reason to do so. Pro forma financial statements allow for a more representative measure of full-year performance and more significant ratios, but they have limitations. First, they reflect the financial performance of the acquisition under a different management team, so at best it's an approximation of how the larger company will perform. Each company may have somewhat different accounting standards, especially for how it amortizes programming costs. Also, pro forma estimates that companies provide to the market reflect a recognition of all immediate synergies. Most synergies are realized over time (and some may not be achieved at all), and most companies' pro forma guidance doesn't include the costs (i.e., severance, restructuring) that they will incur to achieve those synergies. For example, T-Mobile's original 2018 pro forma guidance for its merger with Sprint recognized $6 billion in expected synergies (it has since increased to $7.5 billion), even though the company expected to achieve those synergies over three to four years.

How does S&P Global Ratings calculate EBITDA?

We define EBITDA as a company's revenues minus operating expenses (excluding depreciation, amortization, and noncurrent asset impairment and impairment reversals). We include any cash dividends the company receives from affiliates, associates, and joint ventures, and we exclude the company's share of these investees' profits. We also exclude any share-based compensation expense payable in shares. We include restructuring and acquisition-related costs in our EBITDA calculation but exclude asset impairments and write-downs.

How frequently does S&P Global Ratings update its adjustments?

We update our adjustments for operating leases, pension, and OPEBs once each year, when the companies release their form 10-K annual reports. However, we have made midyear adjustments when deemed material. We update all other adjustments quarterly.

Table 2

AT&T Inc. debt reconciliation
Mil. $
As of Dec. 31, 2022 Amount Comments Financial statements Reference S&P Global Ratings reference
Reported debt 134,203.0 Less: Portion accounting for finance leases Page 71; 10-K dated Dec. 31, 2022
S&P Global Ratings adjustments
Plus: Trade receivables sold 8,712.0 Page 91-92; 10-K dated Dec. 31, 2022 Para 76; Guidance: Criteria: General: Corporate Methodology: Ratios And Adjustments
Plus: Reported lease liabilities (finance and operating) 24,023.0 On-balance sheet (operating + finance) lease liability Page 67-68; 10-K dated Dec. 31, 2022 Para 46-55; Guidance: Criteria: General: Corporate Methodology: Ratios And Adjustments
Less: Captive finance debt (11,267.4) Accounts for debt associated with device payment plan agreement receivables based on a debt-to-equity ratio of 7x Page 91-92; 10-K dated Dec. 31, 2022 Para 123-124; Guidance: Criteria: General: Corporate Methodology: Ratios And Adjustments
Less: Accessible cash (3,701) 100% of unrestricted cash & cash equivalents Page 45; 10-K dated Dec. 31, 2022 Para 38-45; Guidance: Criteria: General: Corporate Methodology: Ratios And Adjustments
Plus: No equity hybrid rep as equity, Equity 7,965.0 Preferred equity interest in Tower Holdings Page 89 and 47; 10-K dated Dec. 31, 2022 Para 82-88; Guidance; Criteria Hybrid Capital
Plus: Intermediate-equity hybrid rep. as equity, Equity 2,516.5 Preferred equity interest treated as 50% debt treatment Page 46; 10-K dated Dec. 31, 2022 Para 82-88; Guidance; Criteria Hybrid Capital
Plus: Postretirement benefit obligations/deferred compensation 5,588.5 Tax-effected pension (21%) and other post-retirement obligations Page 82-88; 10-K dated Dec. 31, 2022 Para 56-68; Guidance: Criteria: General: Corporate Methodology: Ratios And Adjustments
Plus: Put rights/option/non-redeemable interests 5,340.0 Preferred equity interest in AT&T Mobility II LLC Page 90; 10-K dated Dec. 31, 2022 Para 19; Guidance: Criteria: General: Corporate Methodology: Ratios And Adjustments
Plus: Other 15,797.0 Unamortized debt issuance cost and vendor financing payables Page 35 and 71; 10-K dated Dec. 31, 2022 Para 18; Criteria: Corporates: General: Corporate Methodology: Ratios And Adjustments
Total S&P Global Ratings adjustments 54,973.6
S&P Global Ratings-adjusted debt 189,176.6
Sources: Company reports, S&P Global Ratings estimates.

Table 3

AT&T Inc. EBITDA reconciliation
Mil. $
For rolling 12 months ended Dec. 31, 2022 Amount Comments Financial statements reference S&P Global Ratings reference
S&P Global Ratings reported EBITDA 38,246.0 Reported EBITDA is revenue less total cost of goods sold and selling, general, and administrative expenses
S&P Global Ratings adjustments
Plus: Operating lease rent 5,437.0 Annual operating lease rent Page 67-68; 10-K dated Dec. 31, 2022 Para 46-55; Guidance: Criteria: General: Corporate Methodology: Ratios And Adjustments
Less: Captive finance EBITDA (536.1) Removal of captive finance revenue and expenses based on a 5% revenue factor and 0.5% expense factor Page 91-92; 10-K dated Dec. 31, 2022 Para 123-124; Guidance: Criteria: General: Corporate Methodology: Ratios And Adjustments
Plus: Dividends received from equity investments 4,457.0 Cash distributions from DIRECTV Page 93; 10-K dated Dec. 31, 2022 Para 26; Guidance: Criteria: General: Corporate Methodology: Ratios And Adjustments
Plus: Share-based compensation expense 518.0 Annual share-based compensation expense (pre-tax) Page 88; 10-K dated Dec. 31, 2022 Para 25; Guidance: Criteria: General: Corporate Methodology: Ratios And Adjustments
Plus: noncash pre-tax charge 1,413.0 noncash pre-tax charge to abandon conduits that will not be utilized to support future network activity Page 66; 10-K dated Dec. 31, 2022 Para 26; Guidance: Criteria: General: Corporate Methodology: Ratios And Adjustments
Less: Others 21.0 Gain on repurchases under Equipment Installment Receivable Program Page 91-92; 10-K dated Dec. 31, 2022 Para 28; Guidance: Criteria: General: Corporate Methodology: Ratios And Adjustments
Total S&P Global Ratings adjustments 11,309.9
S&P Global Ratings-adjusted EBITDA 49,555.9
Sources: Company reports, S&P Global Ratings estimates.

Table 4

Charter Communications Inc. debt reconciliation
Mil. $
As of Dec. 31, 2022 Amount Comments Financial statements reference S&P Global Ratings reference
Reported debt 97,603.0 Less: Portion accounting for finance leases Page F-4; 10-K dated December 31, 2022
S&P Global Ratings adjustments:
Plus: Reported lease liabilities (finance and operating) 1,378.0 On-balance sheet (operating+finance) lease liability Page F-14; 10-K dated Dec. 31, 2022 Para 46-55; Guidance: Criteria: General: Corporate Methodology: Ratios And Adjustments
Plus: Multi-employer pension plans 0.0 After-tax liabilities associated with withdrawal from multiemployer pension plan Page F-45; 10-K dated Dec. 31, 2021 Para 106; Guidance: Criteria: General: Corporate Methodology: Ratios And Adjustments
Less: Accessible cash and liquid investments (645) 100% of unrestricted cash & cash equivalents Page F-4; 10-K dated Dec. 31, 2022 Para 38-45; Guidance: Criteria: General: Corporate Methodology: Ratios And Adjustments
Plus: Postretirement benefit obligations/deferred compensation 0.0 Tax-effected pension (21%) and other post-retirement obligations Page F-41; 10-K dated Dec. 31, 2020 Para 54-56; Guidance: Criteria: General: Corporate Methodology: Ratios And Adjustments
Total S&P Global Ratings adjustments 733.0
S&P Global Ratings-adjusted debt 98,336.0
Sources: Company reports, S&P Global Ratings estimates.

Table 5

Charter Communications Inc. EBITDA reconciliation
Mil. $
For rolling 12 months ended Dec. 31, 2022 Amount Comments Financial statements reference S&P Global Ratings reference
S&P Global Ratings reported EBITDA 20,865.0
S&P Global Ratings adjustments
Plus: Operating leases 482.0 Annual operating lease rent less variable lease costs Page F-14; 10-K dated Dec. 31, 2022 Para 46-55; Guidance: Criteria: General: Corporate Methodology: Ratios And Adjustments
Plus: Share-based compensation expense 470.0 Annual share-based compensation expense Page F-26; 10-K dated Dec. 31, 2022 Para 25; Guidance: Criteria: General: Corporate Methodology: Ratios And Adjustments
Plus: Loss on disposals of property, plant, and equipment 8.0 Net loss on sale of assets Page F-25; 10-K dated Dec. 31, 2022 Para 28; Guidance: Criteria: General: Corporate Methodology: Ratios And Adjustments
Plus: Litigation settlement with Sprint Communications Co. L.P. and T-Mobile USA Inc. 0.0 Litigation settlement Page F-32; 10-K dated Dec. 31, 2021 Para 27; Guidance: Criteria: General: Corporate Methodology: Ratios And Adjustments
Plus: EBITDA other

273.0

Employee termination cost Page F-25 &26; 10-K dated Dec. 31, 2022 Para 27; Guidance: Criteria: General: Corporate Methodology: Ratios And Adjustments
Total S&P Global Ratings adjustments 1,233.0
S&P Global Ratings-adjusted EBITDA 22,098.0
Sources: Company reports, S&P Global estimates.

Table 6

Comcast Corp. debt reconciliation
Mil. $
As of Dec. 31, 2022 Amount Comments Financial statements reference S&P Global Ratings reference
Reported debt 93,011.0 Less: Portion accounting for finance leases Page 84; 10-K dated Dec. 31, 2022
S&P Global Ratings adjustments
Plus: Reported lease liabilities (finance and operating) 8,582.0 On-balance sheet (operating + inance) lease liability Page 84 and 95; 10-K dated Dec. 31, 2022 Para 46-55; Guidance: Criteria: General: Corporate Methodology: Ratios And Adjustments
Less: Accessible cash and liquid investments (4,845) 100% of unrestricted cash & cash equivalents and marketable securities Page 70 and 86; 10-K dated Dec. 31, 2022 Para 38-45; Guidance: Criteria: General: Corporate Methodology: Ratios And Adjustments
Plus: Postretirement benefit obligations/deferred compensation 3,378.8 Tax-effected pension (21%) and other post-retirement obligations Page 91-92; 10-K dated Dec. 31, 2022 Para 56-68; Guidance: Criteria: General: Corporate Methodology: Ratios And Adjustments
Plus: Put options on minority stakes 411.0 Redeemable noncontrolling interests and redeemable subsidiary preferred stock Page 70; 10-K dated Dec. 31, 2022 Para 19; Guidance: Criteria: General: Corporate Methodology: Ratios And Adjustments
Plus: Redeemable non-controlling interest and tax liabilities 1,486.0 As disclosed by management; includes outstanding loan balance from SPV to Comcast, present value of tax liability (associated with minimum put value) less difference between minimum value of put and collateralized debt initally raised Para 19; Guidance: Criteria: General: Corporate Methodology: Ratios And Adjustments
Total S&P Global Ratings adjustments 9,012.8
S&P Global Ratings-adjusted debt 102,023.8
Sources: Company reports, S&P Global Ratings estimates.

Table 7

Comcast Corp. EBITDA reconciliation
Mil. $
For rolling 12 months ended Dec. 31, 2022 Amount Comments Financial statements reference S&P Global Ratings reference
S&P Global Ratings reported EBITDA 36,445.0 Reported EBITDA is revenue less total cost of goods sold and selling, general, and administrative expenses
S&P Global Ratings adjustments
Plus: Operating leases 1,200.0 Operating lease rent as disclosed by management Para 46-55; Guidance: Criteria: General: Corporate Methodology: Ratios And Adjustments
Plus: Share-based compensation expense 1,061.0 Annual share-based compensation expense (pre-tax). Does not include employee stock repurchase plans which are settled in cash Page 94; 10-K dated Dec. 31, 2022 Para 25; Guidance: Criteria: General: Corporate Methodology: Ratios And Adjustments
Total S&P Global Ratings adjustments 2,261.0
S&P Global Ratings-adjusted EBITDA 38,706.0
Sources: Company reports, S&P Global Ratings estimates.

Table 8

Cox Enterprises Inc. debt reconciliation
Mil. $
As of Dec. 31, 2022 Amount Comments Financial statements reference S&P Global Ratings Reference
Reported debt 12,695.1 Less: Portion accounting for finance leases Page 20 and 56; Financial Statements dated Dec. 31, 2022
S&P Global Ratings adjustments
Plus: Reported lease liabilities (finance and operating) 1,668.6 On-balance sheet (operating + finance) lease liability Page 54; Financial Statements dated Dec. 31, 2022 Para 46-55; Guidance: Criteria: General: Corporate Methodology: Ratios And Adjustments
Less: Accessible cash and liquid investments (2,061) 100% of unrestricted cash & cash equivalents and current marketable securities Page 20; Financial Statements dated Dec. 31, 2022 Para 38-45; Guidance: Criteria: General: Corporate Methodology: Ratios And Adjustments
Less: Captive finance debt (2,695.4) Accounts for debt associated with device payment plan agreement receivables As disclosed by the management related to NextGear, a wholly owned subsidiary of Cox Automotive Inc. Para 123-124; Guidance: Criteria: General: Corporate Methodology: Ratios And Adjustments
Plus: Postretirement benefit obligations/deferred compensation 1,118.1 Tax-effected pension (21%) and other post-retirement obligations Page 68-74; Financial statements dated Dec. 31, 2022 Para 56-68; Guidance: Criteria: General: Corporate Methodology: Ratios And Adjustments
Plus: Other 0.0 Transition tax liability carry forward from previous year at present value Para 106; Guidance: Criteria: General: Corporate Methodology: Ratios And Adjustments
Total S&P Global Ratings adjustments (1,969.7)
S&P Global Ratings-adjusted debt 10,725.4
Sources: Company reports, S&P Global Ratings estimates.

Table 9

Cox Enterprises Inc. EBITDA reconciliation
Mil. $
For rolling 12 months ended Dec. 31, 2022 Amount Comments Financial statements reference S&P Global Ratings reference
S&P Global Ratings reported EBITDA 6,043.3 Reported EBITDA is revenue less total cost of goods sold and selling, general, and administrative expenses
S&P Global Ratings adjustments
Plus: Operating lease rent 227.3 Annual operating lease rent less variable lease costs Page 54; Financial Statements dated Dec. 31, 2022 Para 46-55; Guidance: Criteria: General: Corporate Methodology: Ratios And Adjustments
Less: Captive finance EBITDA (425.9) Removal of captive finance revenue and expenses based on information as disclosed by the management As disclosed by the management related to NextGear, a wholly owned subsidiary of Cox Automotive Inc. Para 123-124; Guidance: Criteria: General: Corporate Methodology: Ratios And Adjustments
Plus: Share-based compensation expense 318.0 Annual share-based compensation expense (pre-tax) Page 23; Financial Statements dated Dec. 31, 2022 Para 25; Guidance: Criteria: General: Corporate Methodology: Ratios And Adjustments
Less: Other (172.2) Reversal of gain on sale of business Page 23; Financial Statements dated Dec. 31, 2022 Para 28; Guidance: Criteria: General: Corporate Methodology: Ratios And Adjustments
Total S&P Global Ratings adjustments (52.8)
S&P Global Ratings-adjusted EBITDA 5,990.5
Sources: Company reports, S&P Global Ratings estimates.

Table 10

Verizon Communications Inc. debt reconciliation
Mil. $
As of Dec. 31, 2022 Amount Comments Financial statements reference S&P Global Ratings reference
Reported debt 148,907.0 Less: Portion accounting for finance leases Page 77; 10-K dated Dec. 31, 2022
S&P Global Ratings adjustments
Plus: Reported lease liabilities (finance and operating) 27,424.0 On-balance sheet (operating + finance) lease liability Page 56 and 74; 10-K dated Dec. 31, 2022 Para 46-55; Guidance: Criteria: General: Corporate Methodology: Ratios And Adjustments
Less: Accessible cash and liquid investments (2,605) 100% of unrestricted cash & cash equivalents and marketable securities Page 56; 10-K dated Dec. 31, 2022 Para 38-45; Guidance: Criteria: General: Corporate Methodology: Ratios And Adjustments
Plus: Post-retirement benefit obligations/deferred compensation 10,222.6 Tax-effected pension (21%) and other post-retirement obligations Page 92-97; 10-K dated Dec. 31, 2022 Para 56-68; Guidance: Criteria: General: Corporate Methodology: Ratios And Adjustments
Plus: Debt - contingent considerations 317.0 Fair value of the contingent consideration Page 48; 10-K dated Dec. 31, 2022 Para 100; Guidance: Criteria: General: Corporate Methodology: Ratios And Adjustments
Less: Captive finance debt (23,807.3) Accounts for debt associated with device payment plan agreement receivables based on a debt-to-equity ratio of 10x Page 82; 10-K dated Dec. 31, 2022 Para 123-124; Guidance: Criteria: General: Corporate Methodology: Ratios And Adjustments
Plus: Other 4,039.0 Unamortized discount, net of premium Page 77; 10-K dated Dec. 31, 2022
Total S&P Global Ratings adjustments 15,590.3
S&P Global Ratings-adjusted debt 164,497.3
Sources: company reports; S&P Global Ratings estimates.

Table 11

Verizon Communications Inc. EBITDA reconciliation
Mil. $
For Rolling 12 months ended Dec. 31, 2022 Amount Comments Financial statements reference S&P Global Ratings reference
S&P Global Ratings reported EBITDA 47,582.0 Reported EBITDA is revenue less total cost of goods sold and selling, general, and administrative expenses
S&P Global Ratings adjustments
Plus: Operating lease rent 5,345.0 Annual operating lease rent less variable lease costs Page 74; 10-K dated Dec. 31, 2022 Para 46-55; Guidance: Criteria: General: Corporate Methodology: Ratios And Adjustments
Less: Captive finance EBITDA (831.1) Removal of captive finance revenue and expenses based on a 4% revenue factor and 0.5% expense factor Page 82; 10-K dated Dec. 31, 2022 Para 123-124; Guidance: Criteria: General: Corporate Methodology: Ratios And Adjustments
Plus: Dividends received from equity investments 34.0 Dividends received and equity in losses of unconsolidated businesses Page 27; 10K dated Dec. 31, 2022 Para 183; Guidance: Criteria: General: Corporate Methodology: Ratios And Adjustments
Plus: Loss on disposals of property, plant, and equipment 0.0 Reversal of gain on asset sale and loss on spectrum licenses Page 24 and 26; 10K dated Dec. 31, 2022 Para 28; Guidance: Criteria: General: Corporate Methodology: Ratios And Adjustments
Plus: Fair value changes of contingent consideration (57) Fair value adjustments for the contingent consideration Page 48; 10K dated Dec. 31, 2022 Para 100; Guidance: Criteria: General: Corporate Methodology: Ratios And Adjustments
Plus: Share-based compensation expense 770.9 Annual share-based compensation expense (pre-tax) Page 91; 10K dated Dec. 31, 2022 Para 25; Guidance: Criteria: General: Corporate Methodology: Ratios And Adjustments
Total S&P Global Ratings adjustments 5,261.8
S&P Global Ratings-adjusted EBITDA 52,843.8
Sources: Company reports, S&P Global Ratings estimates .

Related Criteria

Related Research

This report does not constitute a rating action.

Primary Credit Analyst:Naveen Sarma, New York + 1 (212) 438 7833;
naveen.sarma@spglobal.com
Secondary Contacts:Allyn Arden, CFA, New York + 1 (212) 438 7832;
allyn.arden@spglobal.com
Chris Mooney, CFA, New York + 1 (212) 438 4240;
chris.mooney@spglobal.com

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