DBRS Morningstar Confirms Thomson Reuters at BBB (high) with Stable Trends

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 and Stable trends reflect DBRS Morningstar’s view that—although uncertainty related to the intensity and duration of the Coronavirus Disease (COVID-19) pandemic persists—the Company’s earnings profile is well positioned to navigate the current climate and has shown resilience during the pandemic and resultant macroeconomic impact. The ratings continue to be supported by Thomson Reuters’ well-entrenched position as a leading global information provider, considerable product and customer diversification, and free cash flow-generating capacity. DBRS Morningstar also considered the intense competitive environment in the Company’s key operating segments, the need for constant client-focused innovation, and the risks associated with acquisition and divestiture activity.

While Thomson Reuters’ earnings may be modestly below initial 2020 expectations, DBRS Morningstar expects growth to remain positive year over year. Supporting this outlook is the Company’s leadership position in its three key verticals (i.e., Legal Professionals, Corporates, and Tax & Accounting Professionals), a high level of recurring revenue (about 88% in its key verticals), nearly 90% electronic/digital service delivery, and roughly 90% client retention rate. Furthermore, DBRS Morningstar believes that the mission critical nature of the Company’s digital products and services portfolio are enhanced by shelter-in-place and/or work-from-home directives as the efficient and timely flow of information, the ability to collaborate with peers, and continuous client interaction are critical elements of business continuity.

Although there is significant uncertainty for the medium-to-longer term related to the economic impact of coronavirus and the pace of recovery, the increasing operating complexity within the Company’s three primary verticals should drive booking growth, and thus revenue and earnings performance over DBRS Morningstar’s forecast horizon.

In terms of the Company’s financial profile, DBRS Morningstar expects credit metrics to remain essentially in line with 2019, as both core debt and EBITDA will likely remain relatively steady. DBRS Morningstar expects Thomson Reuters to continue to generate stable cash flow to meet its capital expenditures and dividend commitments. Share repurchase activity is expected to be used only to offset the dilutive impact of issuing shares. DBRS Morningstar notes that the recent $1.0 billion (CAD 1.4 billion) debt issuance effectively prefunds near-term debt maturities and improved the Company’s liquidity position. Thomson Reuters had an estimated pro forma $1.8 billion in cash and equivalents and $800 million in undrawn credit facilities at the end of the Q1 2020.

While Thomson Reuters is well positioned to navigate the challenges of the coronavirus crisis both in terms of operating performance and balance sheet stability and liquidity, a protracted global economic downturn could pressure medium-term operating results and cash flows. A material contraction in future cash flows could also block the Company from being able to invest in high-return initiatives and/or pursue strategic acquisitions. As a result, if Thomson Reuters were to experience a fundamental deterioration in profit and/or pursue more aggressive financial management that results in a sustainable rise in leverage, a negative rating action may occur.

Conversely, a positive rating action may occur if the Company’s earnings profile accelerates meaningfully for a sustained period and gross leverage moves structurally lower. However, this scenario is highly unlikely given the current coronavirus crisis and economic challenges that are likely to intensify over the coming 12 to 24 months.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

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

The principal methodologies are Rating Companies in the Publishing Industry (March 20, 2020), DBRS Morningstar Criteria: Rating Corporate Holding Companies and Parent/Subsidiary Rating Relationships (November 25, 2020), DBRS Morningstar Criteria: Commercial Paper Liquidity Support for Nonbank Issuers (March 10, 2020), and DBRS Morningstar Criteria: Preferred Share and Hybrid Security Criteria for Corporate Issuers (November 1, 2019), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

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 info@dbrsmorningstar.com.

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.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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