Fitch Rates Twenty-First Century Fox's Bond Offering 'BBB+'

CHICAGO--()--Fitch Ratings has assigned a 'BBB+' rating to the benchmark sized 10-year and 30-year senior unsecured note offering by 21st Century Fox America, Inc., a subsidiary of Twenty-First Century Fox, Inc. (FOXA). The Rating Outlook is Stable. FOXA had approximately $19.1 billion of debt outstanding as of June 30, 2014, consisting primarily of senior unsecured notes issued by 21st Century Fox America, Inc. (some are issued under that entity's former name, News America Holdings, Inc.). A complete list of ratings follows at the end of this release.

Proceeds of the new issue are expected to be used for general corporate purposes. The new notes will rank pari-passu with other senior unsecured indebtedness of 21st Century Fox America, Inc., and will also benefit from a guarantee by FOXA. The notes will contain an obligation to repurchase the notes at 101% upon change of control (including a transfer of more than 50% of the company's voting stock to a person other than News Corp. or a member of the Murdoch family) and non-investment grade ratings, as defined. Similar to existing bonds, there are no financial covenants.

KEY RATING DRIVERS

--FOXA's portfolio of cable networks and leading brands underpin the ratings. Fitch believes these businesses position the company with solid growth prospects and the ability to generate meaningful levels of free cash flow (FCF).

--The issuance is in line with Fitch's expectations. Shareholder returns (dividends and stock repurchases) that exceed FCF generation are incorporated into current ratings, to the extent that leverage remains below Fitch's 3x total leverage threshold.

--FOXA's liquidity position and financial flexibility remain strong for the rating. Fitch anticipates FOXA will generate annual FCF ranging between $1.5 billion and $2 billion during the rating horizon.

--FOXA is well positioned to address the secular threats and opportunities presented by emerging alternative distribution platforms and continued audience fragmentation across the media and entertainment landscape.

Fitch holds FOXA's overall strategic positioning in high regard as its businesses consist of a strong collection of cable networks, leading television and film studios, national television network with robust sports-programming rights, local television broadcast assets and international direct broadcast satellite business. Each of FOXA's businesses have the scale characteristics to operate at high margins and generate meaningful levels of free cash flow (FCF) and positions the company to address the secular threats and opportunities presented by changing media consumption patterns and continued audience fragmentation across the media and entertainment landscape. Fitch believes these businesses position the company with solid growth prospects and the ability to generate meaningful levels of FCF, and balanced against the risks inherent within the company's operating profile, place the company solidly within Fitch's parameters for the 'BBB+' rating.

FOXA's financial priorities remain consistent. The company's leverage target, ranging between 2.5x and 3.0x along with the FOXA's $6 billion share repurchase program highlight its capital allocation policy. The company expects to exhaust the current share repurchase authorization during its fiscal year 2015. Outside of potential merger and acquisition activity, Fitch expects that FOXA will continue investing in its core businesses and growth initiatives and support shareholder returns within the context of managing to its leverage target. Shareholder returns that exceed FCF generation are incorporated into current ratings, to the extent that leverage remains below Fitch's 3x total leverage threshold.

FOXA's decision to sell its European (DBS) businesses, consisting of its 57.4% ownership stake in Sky Deutschland GA and its wholly owned subsidiary Sky Italia SRI to British Sky Broadcasting Group plc in a transaction valued at approximately $9.3 billion enhances the company's overall financial and strategic flexibility. The transaction is expected to generate approximately $7.2 billion of net cash proceeds increasing FOXA's cash balance to approximately $12.6 billion on a pro forma basis. FOXA's DBS segment accounted for approximately 19% and 6% of consolidated revenue and EBITDA respectively through the year-ended June 30, 2014.

FOXA's capital structure and credit protection metrics remain stable and within Fitch's expectations for the current rating. Consolidated leverage as of the latest 12 months (LTM) period ended June 30, 2014 was 2.75x. Fitch expects leverage will range between the company's 2.5x to 3.0x leverage target during the rating horizon.

Fitch believes that FOXA's liquidity position and financial flexibility are strong for the rating given the strength of its businesses and expected FCF generation. The company generated approximately $1.5 billion of FCF during its fiscal year ended June 30, 2014. FCF generation is pressured somewhat due to the company's increased investment in film and television production, and higher costs to acquire programming (including sports programming) across the company's portfolio of cable and television networks. Additionally, the company's liquidity position is supported by existing cash balance totaling $5.4 billion as of June 30, 2014 ($1.4 billion held by foreign subsidiaries) and the borrowing capacity from its $2 billion revolver which expires May 2017. Scheduled maturities are well-laddered and manageable considering FCF, reliable market access and back-up liquidity. Upcoming maturities total $750 million during fiscal 2015 (5.3% senior debentures due Dec. 2014) and $200 million due during fiscal 2016(7.6% senior debentures due Oct. 2015.

FOXA is well positioned to address the secular threats and opportunities presented by emerging alternative distribution platforms and continued audience fragmentation across the media and entertainment landscape. The alternative distribution platforms generate incremental demand for high high-quality content across all major end-markets (broadcast, cable networks and subscription video on demand) and that large, well-capitalized content providers, such as FOXA, will remain crucial to the industry. The ratings incorporate expected earnings volatility generated by the company's Filmed Entertainment segment, given the general hit-driven nature of the movie industry.

RATING SENSITIVITIES

Positive: Positive rating action would likely coincide with FOXA adopting a more conservative financial policy highlighted with a gross leverage target of 2x or lower. Meanwhile, FOXA will need to demonstrate that its operating profile can sustain itself amidst ongoing competitive pressures, changing media consumption patterns and evolving technology platforms.

Negative Rating Trigger: Negative rating actions are more likely to coincide with a material shift in financial policy including, but not limited to, the company adopting a more aggressive financial strategy or event-driven merger and acquisition activity that drive leverage beyond 3x in the absence of a creditable de-leveraging plan while exhausting excess cash balances. A negative rating action based solely on operational performance is unlikely over the short term.

Fitch rates News Corp. as follows:

Twenty-First Century Fox, Inc.

--Issuer Default Rating (IDR) 'BBB+'.

21st Century Fox America, Inc.

--IDR 'BBB+';

--Senior unsecured 'BBB+'.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (May 28, 2014).

Applicable Criteria and Related Research:

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=869874

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Contacts

Fitch Ratings
Primary Analyst
David Peterson, +1 312-368-3177
Senior Director
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Rolando Larrondo, +1 212-908-9189
Director
or
Committee Chairperson
Mike Weaver, +1 312-368-3156
Managing Director
or
Media Relations:
Brian Bertsch, +1 212-908-0549
brian.bertsch@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
David Peterson, +1 312-368-3177
Senior Director
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Rolando Larrondo, +1 212-908-9189
Director
or
Committee Chairperson
Mike Weaver, +1 312-368-3156
Managing Director
or
Media Relations:
Brian Bertsch, +1 212-908-0549
brian.bertsch@fitchratings.com