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Fitch Affirms Thomson Reuters' IDR at 'A-'; Outlook Stable
May 3, 2013 / 7:41 PM / in 5 years

Fitch Affirms Thomson Reuters' IDR at 'A-'; Outlook Stable

(The following statement was released by the rating agency) NEW YORK, May 03 (Fitch) Fitch Ratings has affirmed Thomson Reuters Corp.'s (TRI) long-term Issuer Default Ratings (IDRs) and its senior unsecured note 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 consistent 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 TRI's core businesses. There are also a limited number of well-capitalized competitors that compete predominantly on product differentiation, quality and delivery. Fitch believes management will continue to be disciplined in its approach to divestures and acquisitions. Fitch expects proceeds from divestures and cash generated by operations to be used for investments into its core businesses, acquisitions and for return of capital to shareholders (via dividends and/or share buybacks). Rating concerns include cyclicality of the Financial and Risk (F&R) segment. The segment was down 2% (3% organically) in the first quarter of 2013. However, TRI's overall revenue/product diversification creates a cushion to absorb some pressures within a particular segment. Organic growth in TRI's other divisions 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 some opportunity to reduce cost, particularly with elimination of legacy products, benefiting EBITDA margins. However, the ratings reflect Fitch's expectations that, long-term, EBITDA margins will be more susceptible to future downturns. During the recent downturn, the F&R segment generally exhibited less operating leverage (on an EBITDA basis) than Fitch would have anticipated for a predominantly fixed-cost business. Cost reductions in connection with the integration of Reuters provided a significant offset to declines in revenues; providing support to EBITDA margins. Fitch notes that the subscription nature of the business provides a lag which gives management visibility on the need for fixed-cost actions to preserve margins. Also, as with other highly rated media companies, the potential threat of financial policy revisions is an inherent concern. Rating Sensitivities: Rating upside is limited. However, an explicit commitment to and sustained track record of more conservative balance sheet metrics could merit upgrade consideration. Fitch believes that TRI is committed to its balance sheet parameters. However, a significant acquisition or heavy repurchases that could lead to TRI operating materially outside its 2x net leverage target for several sequential periods, without a publicly stated plan to de-lever, could result in a negative rating action. 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 position was 84% funded. Fitch does not expect any significant cash drains related to pension plan funding. Fitch's FCF expectations assume approximately $1 billion in capital expenditures. TRI has guided to low single-digit growth in total ongoing revenues ($12.4 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 and are reflected in Fitch's FCF expectations. That said, the ratings have tolerance for revenue and EBITDA margin expansion to be less than TRI's expectations. Cash and cash equivalents totaled $423 million as of March 31, 2013. Liquidity is also supported by TRI's $2 billion commercial paper (CP) program. There were no borrowings at year-end 2012; however, Fitch estimates CP borrowings were 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 LTM adjusted EBITDA leverage covenant. As of March 31, 2013, debt totaled $7.5 billion, Fitch estimates unadjusted gross leverage at 2.1x, and unadjusted net leverage at 2x. Fitch expects 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 FCF generation, Fitch believes TRI has the flexibility to address upcoming maturities and make acquisitions and/or share repurchases. Fitch has affirmed the following ratings: TRI --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. Contact: Primary Analyst Rolando Larrondo Director +1-212-908-9189 Fitch Ratings, Inc. One State Street Plaza New York, NY 10004 Secondary Analyst Shawn Gannon Associate Director +1-212-908-0223 Committee Chairperson Michael Simonton, CFA Managing Director +1-312-368-3138 Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: Additional information is available at ''. 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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