DBRS Morningstar Confirms Thomson Reuters at BBB (high), Stable

DBRS Limited (DBRS Morningstar) confirmed Thomson Reuters Corporation’s (Thomson Reuters or the Company) Issuer Rating, Unsecured Medium-Term Notes rating and Unsecured Debentures rating at BBB (high). DBRS Morningstar also confirmed Thomson Reuters’ Commercial Paper rating at R-2 (high) and its Preferred Shares rating at Pfd-3 (high). All trends are Stable. The confirmations reflect the strong operating performance since the divestiture of Refinitiv (formerly dba Financial & Risk, or F&R) and the Company’s practice of allocating divestiture proceeds and free cash flow in a balanced manner.

While Thomson Reuters’ profitability came under pressure in 2018, as a result of the Refinitiv divestiture and the repositioning of the new Company, consolidated revenue performance improved considerably in H1 2019. EBITDA margins have improved since year end and suggest that management has executed very well on its strategy to reinvigorate sustainable and profitable long-term growth.

Thomson Reuters’ credit metrics have been affected by the divestiture of the F&R business and the Company’s subsequent repositioning. However, with a right-sized capital structure, a continued ability to generate solid free cash flow and a track record of prudent financial management, the Company’s credit risk profile remains well positioned within the current rating category.

DBRS Morningstar believes the Company is well positioned to deliver mid-single-digit revenue growth on average over the forecast horizon (2019–2022). Furthermore, growth in profitability is expected to accelerate post-2019 as elevated transitional costs diminish and the Company is able to capitalize on an improving product mix, ongoing efficiency improvements and the benefits of operating leverage.

DBRS Morningstar expects the Company’s use of free cash flow to trough in 2019 and turn positive in 2020 and continue to grow at a double-digit pace annually through 2022. While net debt-to-EBITDA of approximately 0.85 times (x) is well below the Company’s long-term target of 2.0x–2.5x, the Company had $2.1 billion in cash at Q2 2019. As a result, the current net leverage slack is expected to be directed primarily toward cash financed acquisition activity.

DBRS Morningstar believes the Company is well positioned in the rating category. However, if lease-adjusted gross debt leverage (gross leverage) were to decline meaningfully for a sustained period amid steady profit growth, a positive rating action may occur. Conversely if gross leverage were to increase materially for an extended period and operating performance deteriorates, a negative rating action may occur.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodologies are Rating Companies in the Publishing Industry, DBRS Criteria: Preferred Share and Hybrid Security Criteria for Corporate Issuers and DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Issuers, which can be found on dbrs.com under Methodologies & Criteria.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at [email protected].

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at [email protected].

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