Fitch Ratings has assigned an 'A-' rating to Thomson Reuters Corp. (TRI) proposed U.S. dollar denominated unsecured note offering (new notes). Proceeds are expected to be used to redeem outstanding debt securities. Fitch rates the new notes equal to TRI's existing debt. The following are Fitch's ratings on TRI and its subsidiaries:
TRI
-- Issuer Default Rating (IDR) at 'A-';
-- Bank credit facility at 'A-';
-- Senior unsecured notes at 'A-';
-- Short-term IDR at 'F2';
-- Commercial paper at 'F2'.
Reuters Finance Limited
-- IDR at 'A-';
-- Senior unsecured at 'A-'.
Fitch's ratings on TRI reflect the company's meaningful cash flow generating ability, its sound balance sheet and its consistent and conservative financial policies. Fitch expects the company will continue to target 2.0 times (x) unadjusted net leverage. The growth prospects, product-line and geographic diversity of its cash flow streams also support the rating. Fitch recognizes there are meaningful barriers to entry in TRI's core businesses and that there are a limited number of well-capitalized, rational competitors that compete predominantly on product differentiation, quality and delivery (rather than on price). Unlike certain subsectors of advertising based media, TRI has already made the transition to electronic delivery and faces very little threat of substitution by digital transplants. Rating concerns include the cyclicality of the markets division; potential that cost cuts might not offset cyclical revenue weakness under stress scenario; and similar to other highly rated entities - the potential for financial policy revisions.
Similar to TRI's recent bond offerings, the new notes include 1) a limitation on liens over 10% of Shareholders Equity, excluding standard carve-outs, 2) a put should a change of control (at 50% of voting shares) and downgrade below investment grade (as defined) occur and 3) a cross-default in the event of non-payment of principal greater than 3% of Shareholders Equity.
Fitch notes that on Sept. 10, 2009, TRI completed the unification of its dual listed company structure, leaving TRI as the sole publicly traded company. The company has announced further internal reorganizations that take the logical next step of collapsing the obligations and liabilities of TRI and Thomson Reuters PLC (to be renamed Thomson Reuters UK limited). In the course of merging these entities the cross guarantee that currently exists will be eliminated. While the new notes will not receive this cross guarantee, Fitch recognizes it is of little value (as it is soon to be obsolete). Further, in the event that the reorganization is not completed by Sept. 30, 2010, the company will make an offer to fully and unconditionally guarantee (on similar terms) the new notes on an unsecured and unsubordinated basis. Under all foreseeable scenarios, Fitch expects the new notes and existing notes to rank equally over the rating horizon.
As of June 30, 2009, debt totaled $8.0 billion, pro forma unadjusted gross leverage was approximately 2.3x and pro forma unadjusted net leverage was 2.0x. Fitch conservatively estimates pro forma free cash flow (after dividends) in 2009 to be more than $500 million. Liquidity is solid with cash and cash equivalents totaling $1.6 billion as of June 30, 2009. Liquidity is further supported by its undrawn $2.5 billion revolving credit facility that expires Aug. 14, 2012. The company has ample cushion inside of the facility's 4.5x net debt to rolling last 12 months (LTM) adjusted EBITDA leverage covenant. TRI has around or less than $1 billion of debt coming due in each of the next five years. Given its liquidity position, access to the capital markets and FCF generation, Fitch believes TRI has the flexibility to address upcoming maturities, make tactical acquisitions and participate in some share repurchase activity.
Rating upside is limited; however, an explicit commitment to and sustained track record of more conservative balance-sheet metrics could merit upgrade consideration. A significant acquisition or heavy repurchases that left the company operating materially outside its targeted net leverage comfort range for several sequential periods, without a publicly stated plan to de-lever, could result in a negative rating action.
Please see Fitch's full report: 'Thomson Reuters Corp.', dated July 30, 2009, which is available on the Fitch web site at 'www.fitchratings.com'.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, '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.
Contacts:
Fitch Ratings
Mike Simonton, CFA, +1-312-368-3138 (Chicago)
Rolando
Larrondo, +1-212-908-9189 (New York)
Cindy Stoller, +1-212-908-0526
(Media
Relations, New York)
cindy.stoller@fitchratings.com
