*DJ Fitch Affirms Thomson Reuters' IDR at 'BBB+' & Removes Watch Negative; Outlook Stable

(MORE TO FOLLOW) Dow Jones Newswires

October 02, 2018 10:40 ET (14:40 GMT)

Press Release: Fitch Affirms Thomson Reuters' IDR at 'BBB+' & Removes Watch Negative; Outlook Stable

The following is a press release from Fitch Ratings:

Fitch Ratings-New York-02 October 2018: Fitch Ratings has affirmed the 'BBB+' Long-Term Issuer Default Rating (IDR) and senior unsecured issue ratings of Thomson Reuters Corporation (TRI) and the company's 'F2' Short-Term IDR and commercial paper ratings. Fitch has removed the ratings from Rating Watch Negative and assigned a Stable Rating Outlook.

Fitch's rating action follows the Oct. 1, 2018 closing of TRI's announced sale of 55% of its Financial & Risk segment (Refinitiv) to an investment consortium comprising private equity funds managed by Blackstone, Canada Pension Plan Investment Board (CPPIB) and GIC. The transaction values Refinitiv at approximately $20 billion, or 11.1x June 30, 2018 Fitch-calculated LTM EBITDA pre-synergies (8.2x adjusted EBITDA assuming full synergies). TRI will receive gross proceeds of approximately $17.0 billion (subject to purchase price adjustments) and retain a 45% interest in Refinitiv. It will control of four of nine voting board seats and consent rights over major fundamental matters and maintain operational overlap with a Reuters' news agreement and multi-year reciprocal back office support agreements.

Resolution of the Rating Watch and affirmation of the existing ratings reflects the significant quantum of debt repayment (approximately $4 billion) from the proceeds of the sale, which is greater than originally presented ($3 billion). The debt repayment is in line with TRI's historical practices of using asset sale proceeds for debt repayment. Following the debt repayment, Fitch calculates LTM ended June 30, 2018 pro forma total gross leverage of 2.1x, which is within Fitch's 2.5x negative rating sensitivity. The balance of sale proceeds are to be used to fund share buybacks ($10 billion), external growth opportunities (approximately $2 billion), and costs associated with the transaction, including cash taxes and all transaction expenses, and funding of one-time costs to eliminate stranded costs related to the Refinitiv transaction (approximately $1 billion).

Fitch has tightened its negative rating sensitivity for Fitch-calculated gross leverage to 2.5x, from 3.0x due to new TRI's diminished scale and diversification. Fitch's gross leverage sensitivity is now consistent with other similarly rated peers of TRI. Fitch also acknowledges that the company will manage its balance sheet to a 2.5x net leverage target, which may result in Fitch-calculated gross leverage exceeding 2.5x. If TRI significantly increases leverage to fund either an acquisition or shareholder returns, which is not expected over the rating horizon, Fitch would revisit the rating if the resultant Fitch-calculated gross leverage exceeded 2.5x. The company's 2.5x net leverage target excludes the $2 billion to be held in an investment fund to be used for external growth opportunities.

Post transaction, TRI will maintain full ownership of its existing Legal, Tax & Accounting and Reuters News businesses. For FY 2017, new TRI generated $5.6 billion and $1.6 billion of revenue and EBITDA, respectively. These remaining businesses have leading market positions, proprietary databases, well entrenched tools and analytics, better growth prospects, and a higher percentage of recurring, subscription based revenues than the sector average. In addition, the legal and tax and accounting markets have less exposure to economic slowdowns than Refinitiv's end markets. Fitch believes these strengths will offset TRI's reduction in diversification following the sale of Refinitiv, further confirming the Rating Watch resolution.

KEY RATING DRIVERS

Refinitiv Transaction: The Refinitiv transaction, which closed on Oct. 1, 2018, allows TRI to turn its full focus on its remaining, higher growth business segments while maintaining the ability to realize any potential upside through its 45% ownership in Refinitiv. It also reduces its exposure to the economic and market pressures inherent in the markets Refinitiv segment serves. During the recent downturn, the Refinitiv segment exhibited less operating leverage (on an EBITDA basis) than Fitch would have anticipated. And, a significant amount of management's time has been focused on bringing Refinitiv margins more in line with its other segments, which they will no longer have to do once operational control is effectively moved to Blackstone.

Conservative Financial Policy: The ratings reflect TRI's cash flow generating ability, sound balance sheet, and consistent and conservative financial policies. Following the closing of the Refinitiv transaction, the company has announced the use of approximately $4 billion of proceeds to repay debt, which is in line with the company's historical practice of using asset sale proceeds to repay debt and remain within its target leverage. Fitch-calculated pro forma total leverage at June 30, 2018 was 2.1x.

Capital Deployment: TRI has finalized the use of Refinitiv Transaction proceeds. In addition to debt repayment, $10 billion will be allocated to shareholder returns, $2 billion will remain on the balance sheet to fund acquisitions, and $1 billion will be used for transaction-related fees and expenses. Regarding M&A, Fitch expects TRI to focus less on smaller deals that increase operational and technological complexity and instead consider medium-sized (i.e. greater than $500 million) transactions with compelling strategic rationale. Woodbridge Company Limited (Woodbridge), TRI's principal shareholder with 64% ownership, intends to participate in the share repurchases and maintain its stake.

Barriers to Entry: Fitch recognizes the meaningful barriers to entry in the industries TRI will continue to compete in given TRI's leading global market positions and the overall mature nature of the industries. This is especially true for legal and tax and accounting, where TRI occupies the number one position in each. There are a limited number of well-capitalized competitors that compete predominantly on product differentiation, quality and delivery.

Stable Revenue Base: TRI's revenue will continue to be predominantly recurring, with approximately 87% of 1H 2018 pro forma total revenues derived from subscriptions and similar contractual arrangements, providing stability and visibility into the company's performance. This percentage remains in line with historical performance including Refinitiv. In addition, TRI has retention rates of approximately 90%.

Decreased Revenue Diversification: For FY 2017, the Refinitiv segment generated 54% ($6.0 billion) of TRI's total revenues. Pro forma for Refinitiv's sale, three of the remaining segments will generate approximately 80% of TRI's revenues. However, Fitch takes comfort from the fact that these remaining businesses have leading market positions, proprietary databases, well entrenched tools and analytics, better growth prospects, and a higher percentage of recurring, subscription based revenues than the sector average. In addition, the legal and tax and accounting markets have less exposure to economic slowdowns than Refinitiv's end markets.

Refinitiv Relationship: Fitch views TRI's post-transaction association with Refinitiv positively due to TRI's control of 4 of 9 voting board seats, consent rights over major fundamental matters and operational overlap with the 30-year Reuters' news agreement and multi-year reciprocal back office support agreements. Fitch acknowledges TRI lacks majority economic and voting control over Refinitiv, which is atypical in parent subsidiary linkage situations. In addition, TRI is not required to provide additional funding to Refinitiv. However, Fitch finds TRI's influence over Refinitiv's strategic decisions and large equity stake warranted the establishment of a moderate parent subsidiary linkage and provided a one notch uplift of Refinitiv's IDR to 'BB'.

DERIVATION SUMMARY

TRI is a global provider of electronically delivered information and decision support tools to businesses and professionals. Following the Refinitive transaction, TRI will focus on its leading positions in the legal and tax and accounting markets. Its IDR reflects its' predominantly fixed-cost business and high operating leverage. Post transaction, it will have a higher percentage of recurring, subscription based revenues than the sector average, and its focus on the legal and tax & accounting markets reduces its exposure to economic slowdowns. Fitch believes these strengths will offset new TRI's diminished scale and diversification and weaker margins relative to its peers.

New TRI's revenues will be in line with S&P Global Inc. (BBB+/Stable) though more levered. It will be larger than Moody's Corporation (BBB+/Stable), Verisk Analytics (BBB+/Stable), and IHS Markit Ltd. ('BBB'/Stable) and will maintain lower leverage than each. Although it will be similar in size to Refinitiv (BB/Stable), it has significantly less leverage and better growth prospects.

No country-ceiling or operating environment factors impact the rating.

KEY ASSUMPTIONS

Fitch's Key Assumptions Within Our Rating Case for the Issuer

- Refinitiv Transaction closes Oct. 1, 2018 with debt repayment and share repurchases occurring in 4Q 2018.

- Low single digit underlying revenue growth for Legal and mid-single digit revenue growth for Tax & Accounting.

- Corporate costs double through 2019 as TRI allocates the $1 billion for costs associated with the transaction, including cash taxes and all transaction expenses, and one-time costs to eliminate stranded costs, temporarily driving EBITDA margins to a 23% trough in 2019.

- Corporate EBITDA margin return to the high 20%'s by 2020 after corporate transaction costs related to Refinitiv are completed.

- Acquisitions totalling $2.0 billion through 2021 providing additional revenues and driving aggregate revenue growth to mid-single digits in 2020 and 2021.

- Annual share repurchases suspended over rating horizon as company focuses on organic and inorganic growth.

(MORE TO FOLLOW) Dow Jones Newswires

October 02, 2018 10:40 ET (14:40 GMT)

Press Release: Fitch Affirms Thomson Reuters' IDR -2-

- Annual dividends decline to below $700 million annually due to the reduction in outstanding shares resulting from the 2018 share buyback.

- Fitch-calculated FCF exceeds $200 million annually over the rating horizon.

- Fitch-calculated leverage remains within the rating sensitivities over the rating horizon.

RATING SENSITIVITIES

Developments That May, Individually or Collectively, Lead to Positive Rating Action

- Fitch does not contemplate an upgrade over the near term.

- An explicit commitment to and sustained track record of more conservative balance sheet metrics, including maintaining Fitch calculated gross leverage at less than 1.5x.

Developments That May, Individually or Collectively, Lead to Negative Rating Action

- A significant debt-financed acquisition or share repurchase plan that increases Fitch-calculated gross leverage over 2.5x for several sequential periods, without a publicly stated plan to delever.

LIQUIDITY

TRI has always focused on maintaining adequate liquidity. As of June 30 2018, TRI had $879 million in cash and cash equivalents. Liquidity is supported by TRI's $2 billion commercial paper (CP) program which had $1.7 million drawn at June 30, 2018. The CP program is supported by an undrawn $2.4 billion revolving credit facility that expires in November 2021 and can be increased to a maximum of $3 billion. TRI has ample cushion under the facility's net debt to LTM adjusted EBITDA leverage covenant of 4.5x. Based on Fitch's calculations, LTM FCF after dividends as of June 30, 2018 was $994 million.

The company also has $110 million in perpetual preference shares issued (based on redemption value at December 2017). The instruments are cumulative and may defer dividends for an indefinite period. There is a dividend stopper that would prevent any common stock dividend or repurchases to occur should the dividends on the preference shares be deferred. The dividend is variable and calculated at an annual rate of 70% of the Canadian Prime Rate. The instrument is afforded 50% equity credit under Fitch's Hybrid criteria.

TRI's capital management strategy remains focused on growing FCF and balancing cash generated between reinvestment in the business, returns to shareholders and maintaining a strong balance sheet, solid credit ratings and ample financial flexibility. TRI's plan to use Refinitiv Transaction proceeds for debt repayment is in line with its history of using assets sale proceeds to repay debt and maintain leverage below its 2.5x target. Following the completion of the F&R Transaction, TRI plans to continue pursuing tactical acquisitions, but on a selective basis, concentrating in high growth areas and assets that can be integrated quickly and easily.

FULL LIST OF RATING ACTIONS

Fitch has removed from Rating Watch Negative and affirmed the following ratings:

Thomson Reuters Corporation

- Long Term IDR at 'BBB+';

- Senior unsecured debt at 'BBB+';

- Short-term IDR at 'F2;

- Short-term debt at 'F2'.

The Rating Outlook is Stable

Contact:

Primary Analyst

Jack Kranefuss

Senior Director

+1-212-908-0791

Fitch Ratings, Inc.

33 Whitehall Street

New York, NY 10004

Secondary Analyst

Kevin McNeil

Director

+1-646-582-4768

Committee Chairperson

Peter Molica

Senior Director

+1-212-908-0288

Summary of Financial Statement Adjustments - Financial statement adjustments that depart materially from those contained in the published financial statements of the relevant rated entity or obligor are disclosed below:

--Fitch applies 50% equity treatment to the company's Series II Preference Shares per its methodology on the treatment of hybrid securities.

Media Relations: Elizabeth Fogerty, New York, Tel: +1 212 908 0526, Email: elizabeth.fogerty@fitchratings.com.

Additional information is available on www.fitchratings.com

Applicable Criteria

Corporate Rating Criteria (pub. 23 Mar 2018)

https://www.fitchratings.com/site/re/10023785

Corporates Notching and Recovery Ratings Criteria (pub. 23 Mar 2018)

https://www.fitchratings.com/site/re/10024585

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/site/dodd-frank-disclosure/10045653

Solicitation Status

https://www.fitchratings.com/site/pr/10045653#solicitation

Endorsement Policy

https://www.fitchratings.com/regulatory

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT 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. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE AT HTTPS://WWW.FITCHRATINGS.COM/SITE/REGULATORY. 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.

Copyright © 2018 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed.

The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch

(MORE TO FOLLOW) Dow Jones Newswires

October 02, 2018 10:41 ET (14:41 GMT)

Press Release: Fitch Affirms Thomson Reuters' IDR -3-

will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers.

For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

Fitch Ratings, Inc. is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (the "NRSRO"). While certain of the NRSRO's credit rating subsidiaries are listed on Item 3 of Form NRSRO and as such are authorized to issue credit ratings on behalf of the NRSRO (see https://www.fitchratings.com/site/regulatory), other credit rating subsidiaries are not listed on Form NRSRO (the "non-NRSROs") and therefore credit ratings issued by those subsidiaries are not issued on behalf of the NRSRO. However, non-NRSRO personnel may participate in determining credit ratings issued by or on behalf of the NRSRO.

(END) Dow Jones Newswires

October 02, 2018 10:41 ET (14:41 GMT)