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Fitch Affirms News Corp.'s Ratings; Outlook Stable
June 28, 2013 / 5:06 PM / 4 years ago

Fitch Affirms News Corp.'s Ratings; Outlook Stable

(The following statement was released by the rating agency) NEW YORK, June 28 (Fitch) Fitch Ratings has affirmed the 'BBB+' Issuer Default Rating (IDR) assigned to News Corporation (News Corp.) and its wholly owned subsidiary News America, Inc. Fitch has also affirmed the specific issue ratings assigned to News America, Inc. A full list of ratings follows at the end of this release. The Rating Outlook is Stable. Approximately $16.5 billion of debt outstanding as of March 31, 2013 is affected by Fitch's action. KEY RATING DRIVERS --The ratings incorporate the modest increase in leverage pro forma for the separation transaction (described below); --Fitch does not expect any material changes to the company's financial or capital allocation policies following completion of the separation transaction; --News Corp's portfolio of cable networks and leading brands underpin the ratings. In Fitch's view, following completion of the separation transaction (News Corp. will be renamed Twenty-First Century Fox, Inc. (FOX)), FOX will own businesses consisting of a strong portfolio of cable networks, leading television and movie studios, national television network, and local television broadcast assets and an international direct satellite broadcast business, each of which have the scale characteristics necessary to operate at high margins. Fitch believes these businesses position the company with solid growth prospects and the ability to generate meaningful levels of free cash flow (FCF). The separation transaction will strengthen FOX's operating profile modestly, in Fitch's opinion, as the publishing businesses included in the separation are faced with more secular challenges and operate with lower margins and higher capital intensity. Fitch does not expect any material changes to the company's financial strategies or capital allocation policies. News Corp. remains committed to its share repurchase program; however, the pace of share repurchases has diminished during fiscal 2013. Shareholder returns (dividends and stock repurchases) that exceed FCF generation are incorporated into current ratings, to the extent that leverage remains below Fitch's 3x total leverage threshold. The company had $3.6 billion remaining on its $10 billion authorization as of March 31, 2013. Shareholder returns totaled approximately $2.2 billion during the first nine months of fiscal 2013, representing approximately 104% of FCF before dividends. Given the strength of FOX's underlying businesses, strong liquidity position, and Fitch's FCF expectations, Fitch believes that sufficient capacity exists at the current rating level to accommodate a slight increase in leverage resulting from the separation transaction and to fund the $2.6 billion initial cash capitalization of new News Corp. All of the debt currently outstanding at News Corp. will remain with FOX following the separation transaction. Fitch expects FOX's leverage, pro forma for the separation transaction, to increase to 2.6x (versus 2.3x actual) as of the LTM period ended March 31, 2013 - solidly within Fitch's 3x target for the 'BBB+' rating. Fitch believes FOX is poised to reduce leverage from the pro forma level post-spin and anticipates leverage trending between 2.4 and 2.2x by the end of fiscal 2014. The company generated approximately $2.3 billion of FCF during the LTM period ended March 31, 2013. Going forward Fitch anticipates FOX will generate annual FCF ranging between $2.5 billion and $3 billion during the rating horizon. Fitch believes that FOX's liquidity position and financial flexibility will remain strong for the rating following the separation transaction while acknowledging the transaction will lower cash balance and modestly diminish FCF generation. Pro forma for the separation transaction FOX's cash balance was approximately $6.8 billion as of March 31, 2013. FOX's liquidity position is strong and supported by the borrowing capacity from its $2 billion revolver (expires May 2017) and expected FCF generation. Scheduled maturities are well-laddered and manageable considering FCF, reliable market access and back-up liquidity. The company has no maturities scheduled during the remainder of 2013. Upcoming maturities total $152 million during fiscal 2014 (June 2014) or $902 million during calendar year 2014. The terms of the separation transaction call for FOX to indemnify the new News Corp. for certain payments related to civil claims and investigations made after the completion of the transaction in connection with the alleged phone hacking, illegal data access and inappropriate payments to public officials related to U.K. newspaper matters. The indemnification also reaches to legal and professional fees paid in connection with criminal matters provided the fees and costs are related to employees that are directors, officers, or certain designated employees of News Corp. Important to note is that FOX will not provide any indemnification for any criminal fines or penalties arising from violations of law. While the indemnification agreement does not limit or quantify the potential liability, Fitch expects FOX will have sufficient liquidity to accommodate its indemnification requirements within the current ratings. The separation of News Corp.'s publishing and media and entertainment businesses into two separate public companies (the separation transaction) is expected to close on June 28, 2013. Following completion, News Corp. will be renamed Twenty-First Century Fox, Inc. (FOX). FOX will retain News Corp.'s media and entertainment businesses including its cable networks, television and movie studios, national television network, and local television broadcast assets and international direct satellite broadcast business. News Corp.'s investments in British Sky Broadcasting plc (BSkyB), Yankees Entertainment and Sports Network, and Hulu among others will remain with FOX. The publishing business created through the transaction will hold News Corp.'s newspapers, information services and integrated marketing services businesses, digital real estate services business, book publishing business, digital education business, and the sports programming and pay-tv businesses located in Australia. RATING SENSITIVITIES Positive rating action would likely coincide with FOX adopting a more conservative financial policy highlighted with a gross leverage target of 2x or lower. Meanwhile, FOX will need to demonstrate that its operating profile can sustain itself amidst ongoing competitive pressures, changing media consumption patterns and evolving technology platforms. Negative rating actions are more likely to coincide with a material shift in financial policy including, but not limited to, the company adopting a more aggressive financial strategy or event-driven merger and acquisition activity that drive leverage beyond 3x in the absence of a creditable de-leveraging plan while exhausting excess cash balances. A negative rating action based solely on operational performance is unlikely over the short term. Fitch affirms the following ratings: News Corp. --IDR at 'BBB+'. News America, Inc. --IDR at 'BBB+'; --Senior unsecured at 'BBB+'. Contact: Primary Analyst David Peterson Senior Director +1-312-368-3177 Fitch Ratings, Inc. 70 W. Madison Street Chicago, IL 60602 Secondary Analyst Rolando Larrondo Director +1-212-908-9189 Committee Chairperson Mike Simonton Managing Director +1-312-368-3138 Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: brian.bertsch@fitchratings.com. Additional information is available at 'www.fitchratings.com'. Applicable Criteria and Related Research: --'Corporate Rating Methodology' (Aug. 8, 2012) Applicable Criteria and Related Research: Corporate Rating Methodology here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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