TRI.PR.B Downgraded to Pfd-3(high) by DBRS; S&P Affirms

DBRS has announced that it:

has today downgraded Thomson Reuters Corporation’s (Thomson Reuters or the Company) Issuer Rating, Unsecured Debentures and Unsecured Medium-Term Notes ratings to BBB (high) from A (low), Commercial Paper rating to R-2 (high) from R-1 (low) and Preferred Shares rating to Pfd-3 (high) from Pfd-2 (low). The trends are all Stable. This action follows the Company’s change in financial management guidelines. As part of a broader plan to improve its business mix and cost structure while returning value to shareholders, the Company now intends to target a net debt-to-EBITDA ratio of up to 2.5 times (x) from 2.0x prior.

The downgrade reflects DBRS’s view that the Company’s target net debt-to-EBITDA ratio of up to 2.5x results in a credit risk profile that is no longer consistent with the A (low) rating category. Going forward, DBRS will continue to monitor the progress of Thomson Reuters’ strategic initiatives related to product simplification, cost cutting, non-core asset dispositions and the effective rollout of the Company’s financial data provision platforms. Thomson Reuters’ revised ratings with Stable trends reflect the Company’s entrenched market position, the diverse nature of its customer base and its predominantly subscription-based revenue model. The ratings also reflect the need for constant innovation, exposure to changing technology, intensifying competition in key segments and the risks associated with the Company’s acquisition and divestiture program.

TRI.PR.B was last mentioned on PrefBlog when S&P put it on Trend-Negative in May 2012.

Standard & Poor’s also downgraded the company but preferreds were not affected:

  • We are lowering our corporate credit rating on New York-based Thomson Reuters Corp. to ‘BBB+’ from ‘A-‘ given the company’s shift in financial policy, which will result in higher debt leverage.
  • In addition, we are assigning our ‘A-2′ global scale short-term rating to Thomson Reuters’ commercial paper program.
  • We expect Thomson Reuters’ adjusted debt leverage will remain above our 2.5x maximum threshold for the ‘A-‘ corporate credit rating in the medium term.
  • We also expect the company to use all of its discretionary cash flow and additional debt to repurchase up to US$1 billion in shares next year, as well as pay dividends, make acquisitions, and fund a US$350 million one-time charge.
  • The stable outlook reflects our belief that Thomson Reuters’ operating
    performance will improve in the next year; that the company will successfully complete its Financial & Risk division transformation in
    2014, resulting in healthy and sustainable revenue and EBITDA growth; and that credit ratios will remain in line with our expectations in the medium term, including adjusted debt to EBITDA below 3x on a sustainable basis.

“The downgrade reflects the company’s shift in its financial policy to allow for a higher level of debt leverage, namely a maximum of 2.5x net debt to EBITDA from the prior target of 2.0x,” said Standard & Poor’s credit analyst Lori Harris. Adding our adjustments, we believe Thomson Reuters’ debt leverage will remain above our maximum 2.5x threshold for the company at the ‘A-‘ rating level. We expect Thomson Reuters to use all of its discretionary cash flow and additional debt this year and next for share repurchases, one-time charges, material pension plan contributions, dividends, and acquisitions. Specifically, management has announced plans for a US$350 million one-time charge mostly for its F&R division and a US$500 million contribution to its defined benefit pension plans this year, as well as up to US$1 billion in share repurchases next year.

TRI.PR.B is tracked by HIMIPref™ and is currently included in the Floaters subindex. It will be moved to Scraps at the regular monthly rebalancing on October 31, on credit concerns.

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