DBRS Confirms News Corporation at BBB, Stable Trend

DBRS has today confirmed the ratings of News Corporation and its finance subsidiaries (collectively, News Corp. or the Company) at BBB. The trends are Stable. The confirmation reflects the Company’s well-diversified mix of media businesses that generate stable cash flow from operations and a stable financial risk profile.

News Corp. continues to benefit from its portfolio of global media assets and has been incrementally adding new media business such as its acquisition of MySpace in December of 2005. While this has given the Company more exposure to higher-growth areas of the media industry in the future, its diversity across the media industry has continued to support its stable business risk profile.

For example, while its Television and Book Publishing units have experienced pressure, the Company’s Filmed Entertainment and Cable Network and Satellite operations have experienced good growth. The Company has been successful in monetizing its film pipeline which has recently included Borat, Night at the Museum and Eragon. Additionally, its Cable Network operations have benefited from higher affiliate fees as distributors have started to renew their original carriage agreements with the Company.

Going forward DBRS expects the Company to continue to acquire online and Internet-based businesses to capture higher growth rates in this segment of the media industry. DBRS expects this will give the Company a good mix of growth and stability to support an overall stable business risk profile going forward.

NewsCorp. has also maintained a stable financial risk profile with higher debt levels over the past few years supported by growth in EBITDA and cash flow from operations. DBRS believes that given the Company’s free cash flow of roughly $1.5 billion each year, News Corp. continues to have the flexibility to invest in new businesses and pursue share repurchases without significantly increasing its leverage.

However, the Company has acknowledged over the longer term that it would prefer higher leverage (net debt-to-EBITDA of roughly 3.0 times) which DBRS believes would remain commensurate with its current rating. Notwithstanding, given the Company’s free cash flow and $5.0 billion in cash, it could be some time before it reaches its longer-term leverage target.

Additionally, DBRS believes that given the recent agreement struck with Liberty Media Corporation (Liberty Media) to exchange News Corp.’s 38% interest in DIRECTV Group, three regional sports networks and $550 million in cash with Liberty Media for its roughly 18% voting stake in News Corp. (valued at $11 billion when the transaction was announced in December 2006), this has likely placated shareholders for some time. DBRS believes that this transaction will essentially act as a massive share repurchase by the Company in addition to removing a large operating distraction for the Company’s management, including Rupert Murdoch.

Notes:
All figures are in U.S. dollars unless otherwise noted.
These ratings are based on public information.