(The following statement was released by the rating agency)
NEW YORK, May 03 (Fitch) Fitch Ratings has affirmed Thomson
(TRI) long-term Issuer Default Ratings (IDRs) and its senior
ratings at 'A-'. The Rating Outlook is Stable.
Key Rating Drivers:
Fitch's ratings for TRI reflect the company's cash flow
generating ability, its
geographic and product diversification, sound balance sheet, and
conservative financial policies. Fitch expects that TRI will
continue to target
2.0x net unadjusted leverage.
Fitch recognizes that there are meaningful barriers to entry in
businesses. There are also a limited number of well-capitalized
compete predominantly on product differentiation, quality and
Fitch believes management will continue to be disciplined in its
divestures and acquisitions. Fitch expects proceeds from
divestures and cash
generated by operations to be used for investments into its core
acquisitions and for return of capital to shareholders (via
Rating concerns include cyclicality of the Financial and Risk
(F&R) segment. The
segment was down 2% (3% organically) in the first quarter of
TRI's overall revenue/product diversification creates a cushion
to absorb some
pressures within a particular segment. Organic growth in TRI's
mitigated most of the F&R organic decline, resulting in
consolidated revenues up
1% (organic revenue down 1%), from ongoing businesses.
Fitch recognizes that in the near term, TRI continues to have
to reduce cost, particularly with elimination of legacy
EBITDA margins. However, the ratings reflect Fitch's
long-term, EBITDA margins will be more susceptible to future
the recent downturn, the F&R segment generally exhibited less
(on an EBITDA basis) than Fitch would have anticipated for a
fixed-cost business. Cost reductions in connection with the
Reuters provided a significant offset to declines in revenues;
to EBITDA margins. Fitch notes that the subscription nature of
provides a lag which gives management visibility on the need for
actions to preserve margins.
Also, as with other highly rated media companies, the potential
financial policy revisions is an inherent concern.
Rating upside is limited. However, an explicit commitment to and
record of more conservative balance sheet metrics could merit
Fitch believes that TRI is committed to its balance sheet
parameters. However, a
significant acquisition or heavy repurchases that could lead to
materially outside its 2x net leverage target for several
without a publicly stated plan to de-lever, could result in a
FCF, Liquidity and Leverage
Based on Fitch's calculations, last 12 months (LTM) free cash
flow (FCF; after
dividends) as of Dec. 31, 2012, was $706 million and LTM March
31, 2013 FCF was
$479 million. Based on Fitch's conservative model, Fitch expects
FCF to be in
the range of $550 million to $700 million. TRI's overall pension
84% funded. Fitch does not expect any significant cash drains
related to pension
plan funding. Fitch's FCF expectations assume approximately $1
TRI has guided to low single-digit growth in total ongoing
billion revenue base in 2012) and adjusted EBITDA margins in the
range of 26% to
27% (26.6% in 2012). Fitch believes these targets are achievable
reflected in Fitch's FCF expectations. That said, the ratings
have tolerance for
revenue and EBITDA margin expansion to be less than TRI's
Cash and cash equivalents totaled $423 million as of March 31,
is also supported by TRI's $2 billion commercial paper (CP)
program. There were
no borrowings at year-end 2012; however, Fitch estimates CP
around $300 million at the end of March 2013. The CP program is
supported by its
undrawn $2 billion revolving credit facility that expires August
2016. TRI has
ample cushion inside of the facility's 4.5x net debt-to-rolling
EBITDA leverage covenant.
As of March 31, 2013, debt totaled $7.5 billion, Fitch estimates
gross leverage at 2.1x, and unadjusted net leverage at 2x. Fitch
unadjusted gross leverage to remain under 2.25x over the next
few years and
unadjusted net leverage to be below the company's target of 2x.
TRI has the following near-term maturity schedule:
--$1 billion in notes maturing in 2013;
--$1.4 billion in notes maturing in 2014;
--Approximately $600 million coming due in 2015.
Given TRI's liquidity position, access to capital markets and
Fitch believes TRI has the flexibility to address upcoming
maturities and make
acquisitions and/or share repurchases.
Fitch has affirmed the following ratings:
--IDR at 'A-';
--Bank credit facility at 'A-';
--Senior unsecured notes at 'A-';
--Short-term IDR at 'F2';
--Commercial paper at 'F2'.
The Rating Outlook is Stable.
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
Michael Simonton, CFA
Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549,
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
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS
here. IN ADDITION,
ON THE AGENCY'S
PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS,
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE
AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE
FROM THE 'CODE OF
CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER
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
ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER
ON THE FITCH