AOL TW can’t click

S&P wary of co.'s $1.9 bil in future payments

NEW YORK — Despite $750 million of “found booty” from Microsoft last week, AOL Time Warner can’t seem to get no love from the ratings agencies.

Credit arbiter Standard & Poor’s on Friday said that it is keeping the conglom’s BBB+ corporate credit rating on CreditWatch with negative implications. While S&P acknowledged the three-quarters-of-a-billion-dollar cash settlement with the software giant was a positive move toward meeting AOL TW’s debt-reduction targets, the agency is still mindful of some $1.9 billion in upcoming payment commitments.

Paying bills

These include payouts concluding litigation regarding its former theme-park unit, catch-up pension contributions, the acquisitions of Vivendi Universal’s interest in AOL Europe and an additional stake in the WB Network and remaining capital expenditures related to the company’s new headquarters.

Investors, who pushed the stock up 2.49% Friday to $15.22, broadly applauded the Microsoft deal as a net positive financially — if not strategically: After all, said one analyst, working more closely with Microsoft on digital rights protection won’t necessarily stem the rampant subscriber losses at America Online.

With a Securities & Exchange Commission investigation still hovering, and no clear indication of what kind of penalty payment could await, more cautious money is steering clear.

“Resolution of the CreditWatch listing will include a reassessment of Standard & Poor’s comfort level with expected financial metrics and further calls on cash or debt capacity, as well as other issues,” said Standard & Poor credit analyst Heather Goodchild. “These include the competitive challenges confronting the America Online unit, ongoing SEC and U.S. Dept. of Justice investigations, and shareholder litigation.”

While AOL TW recently pocketed a nifty $1.2 billion from the sale of its 50% stake in Comedy Central to Viacom, the company had to fork over $2.1 billion to Comcast from the restructuring of the old Time Warner Entertainment partnership.

Still being shopped are its AOL Time Warner book unit, Atlanta sports franchises and its CD and DVD manufacturing operations.

IPO delay

The planned public flotation of Time Warner Cable has been delayed until the fall, and with no updates from SEC accounting investigators, many analysts are expecting an ’04 listing.

Credit Lyonnais Securities analyst Richard Read applauded the unexpected Microsoft cash but noted that only the cable IPO will help the company’s shares sustain their current growth. “Asset sales are too little, as AOL’s issues are really long-term strategic positioning in nature, not short-term debt reduction,” he pointed out in a research note Friday.

In fact, until financial exigencies stop dictating company strategy — e.g., selling off assets to pay down debt — AOL TW is unlikely to get the positive spin it believes its vastly improved operating performance deserves.