Fitch: FOX CDS Widen 50% on Potential Time Warner Combo

NEW YORK--()--Significant widening in Twenty-First Century Fox, Inc.'s (FOX) five-year credit default swap (CDS) spreads is likely in reaction to news that the media giant had made an offer to buy Time Warner Inc., according to Fitch Solutions.

CDS on FOX have widened 50% since July 4, compared to just 3% widening observed for Fitch Solutions' North America Media CDS Index over the same time period.

Additionally, CDS liquidity for FOX has increased notably over the past few weeks, and is currently trading in the 15th regional percentile, up nine rankings since July 8. Increased CDS liquidity reflects higher levels of market uncertainty over the future direction of spreads for the media giant.

Time Warner has reportedly turned down an $80 billion acquisition offer from FOX. The offer was at about a 25% premium of the stock price a day prior. If formed, the combined company would be valued at roughly $150 billion and would form one of the largest media firms globally.

We believe the deal makes strategic sense for both companies. FOX would benefit from the acquisition by adding more leverage in deal-making with cable companies, expand its rights to broadcast sporting events, while Time Warner would add to its already impressive Hollywood studio.

Rating concerns for Time Warner, apart from M&A activity, center on the company's ability to balance escalating programming expenses and production costs with the requirement to consistently deliver programming that drives incremental viewer share while maintaining or expanding operating margins. Time Warner's Issuer Default Rating (IDR) is 'BBB+' and the Rating Outlook is Stable.

For FOX, exposure to cyclical advertising revenues within the company's local television and Fox Network ad sales highlights rating concerns, as does the company's capacity to adapt to ever-changing media consumption patterns and technology platforms. FOX's IDR is currently 'BBB+' with a Stable Outlook.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

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Director
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+1 212-908-0848
or
David Peterson
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70 W. Madison Street
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or
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or
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Contacts

Fitch Ratings
Diana Allmendinger
Director
Fitch Solutions
+1 212-908-0848
or
David Peterson
Senior Director
Corporates, Telecom and Cable
+1 312-368-3177
Fitch, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Kellie Geressy-Nilsen
Senior Director
Fitch Wire
+1 212-908-9123
33 Whitehall Street
New York, NY
or
Media Relations
Brian Bertsch, New York, +1 212-908-0549,
brian.bertsch@fitchratings.com
Sandro Scenga, New York, +1 212-908-0278
sandro.scenga@fitchratings.com