DBRS Morningstar Confirms Thomson Reuters Corporation’s Ratings 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 the Company’s Commercial Paper rating at R-2 (high) and its Preferred Shares rating at Pfd-3 (high). All trends remain Stable. The confirmations acknowledge the Company's low current leverage, but they also reflect the execution risk associated with the two-year (2021-22) Change Program and likelihood of leveraging the balance sheet to drive future earnings growth and/or accelerate returns to shareholders while maintaining the current ratings.

Thomson Reuters' profitability increased materially in 2020, reflecting solid performance in each of the big three operating segments (i.e., Legal Professionals, Corporates, and Tax & Accounting Professionals) and absent stranded and/or one-time costs associated with the 2018 divestiture of the former Financial & Risk (F&R now Refinitiv) business. Importantly, when Thomson Reuters reported 2020 year-end results, it also introduced a $500 million to $600 million two-year Change Program to streamline operations, drive future growth, and lower ongoing capital intensity.

Thomson Reuters’ credit metrics continued to improve in 2020. The Company's cash flows benefited from the absence of stranded and one-time costs associated with the divestiture of the former F&R business (renamed Refinitiv) and adjusted EBITDA growth in the underlying consolidated businesses, which combined with steady debt balances resulted in YE2020 gross leverage dipping to 2.09 times (x).

Over the past two years, Thomson Reuters has navigated considerable changes while maintaining its current ratings, which include the divestiture of the former F&R (now Refinitiv) business, the subsequent sale of Refinitiv to London Stock Exchange Group, a C-suite transition (chief executive officer and chief financial officer), and the introduction of a multiyear business reorganization. Transitioning to an operating company from a holding company structure, while accelerating profit growth entails considerable execution risk. However, DBRS Morningstar notes that the Company has developed a solid track record of delivering on complex tasks.

Although DBRS Morningstar expects Thomson Reuters' leverage to remain below the Company's stated net leverage target of 2.5x (and lower than what is required for the current ratings), in the near term, it provides considerable liquidity and funding capacity. DBRS Morningstar believes that Thomson Reuters is likely to leverage its balance sheet to invest in future growth and/or accelerate the return of capital to shareholders within the current rating category.

If the Company were to maintain leverage at approximately 2.0x, maintain a conservative approach to shareholder returns, and/or experience a sustainable acceleration in the earnings profile, a positive rating action may occur. Conversely, if the Company were to complete a transformational debt-financed acquisition, experience a fundamental deterioration in profit, and/or pursue more aggressive financial management, a negative rating action may occur.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The principal methodologies are Rating Companies in the Publishing Industry (March 12, 2021; https://www.dbrsmorningstar.com/research/375264), DBRS Morningstar Criteria: Commercial Paper Liquidity Support for Nonbank Issuers (March 9, 2021; https://www.dbrsmorningstar.com/research/375001), and DBRS Morningstar Criteria: Preferred Share and Hybrid Security Criteria for Corporate Issuers (November 2, 2021; https://www.dbrsmorningstar.com/research/369165), which can be found on dbrsmorningstar.com under Methodologies & Criteria. Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021; https://www.dbrsmorningstar.com/research/373262).

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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