NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed the following ratings on Thomson Reuters Corp. (TRI) and its subsidiaries:

TRI

--Issuer Default Rating (IDR) at 'A-';

--Bank credit facility at 'A-';

--Senior unsecured notes at 'A-';

--Short-term IDR at 'F2';

--Commercial paper at 'F2'.

Reuters Finance Limited

--IDR at 'A-';

--Senior unsecured at 'A-'.

The Rating Outlook is Stable.

RATING RATIONALE:

--Fitch's ratings for TRI reflect the company's cash flow generating ability, its sound balance sheet and its consistent and conservative financial policies. Fitch expects that TRI will continue to target 2.0 times (x) net unadjusted leverage over the longer term.

--The product-line and geographic diversity of TRI's cash flow streams and the overall growth prospects also support the rating.

--Fitch recognizes that there are meaningful barriers to entry in TRI's core businesses and that there are a limited number of well-capitalized competitors that compete predominantly on product differentiation, quality and delivery (rather than on price).

--Unlike traditional advertising-based consumer media subsectors, TRI serves business customers and has already made the transition to electronic delivery and faces very little threat of substitution by digital transplants.

--Rating concerns include cyclicality of the Markets division and acquisition risk. Also, as with other highly rated media companies, the potential threat of financial policy revisions is an inherent concern.

Rating upside is limited, although an explicit commitment to and sustained track record of more conservative balancesheet metrics could merit upgrade consideration. Fitch believes that TRI is committed to its balance sheet parameters; however, a significant acquisition or heavy repurchases that left the company operating materially outside its targeted leverage comfort range for several sequential periods, without a publicly stated plan to de-lever, could result in a negative rating action.

Based on Fitch's calculations, LTM FCF (after dividends) as of March 31, 2010, was approximately $605 million. Under a conservative base case, Fitch estimates that TRI could generate $300 million to $500 million of FCF in 2010. TRI is guiding to capital expenditures of 8.5% to 9% of revenues for 2010. Fitch expects that capital expenditures will begin to decline as a percent of revenues in 2011 as integration investments related to Reuters and optimization of the portfolio are mostly completed. Fitch estimates capital expenditures will normalize in 2011 and beyond at around 7-8% of revenues. The company's overall pension position was nearly fully funded as of year end (96% funded status). Fitch does not expect any significant cash drains related to pension plan funding. Fitch expects that on a consolidated basis, the company could generate positive free cash flow through a full-fledged downturn.

Cash and cash equivalents totaled $828 million as of March 31, 2010. Liquidity is also supported by its undrawn $2.5 billion revolving credit facility that expires Aug. 14, 2012. The company has ample cushion inside of the facility's 4.5x net debt to rolling last 12 months (LTM) adjusted EBITDA leverage covenant.

TRI is expected to continue to be the future issuer of debt securities and has around or less than $1 billion of debt coming due in each of the next four years. Given its liquidity position, access to capital market and FCF generation, Fitch believes TRI has the flexibility to address upcoming maturities, make smaller prudent acquisitions and participate in some share repurchase activity.

As of March 31, 2010, debt totaled $7.5 billion (before $268 million redemption of the remaining 6.2% notes due January 2012), unadjusted gross leverage was approximately 2.4x and unadjusted net leverage was 2.1x. While free cash flow (after dividends) to gross debt is weak for the rating at below 10%, cash from operations (CFO) to net debt is above 35% (with the difference predominantly driven by the sizable dividend).

TRI's divisions are each well positioned in their markets. In the first quarter of 2010 revenues were down 2% (up 1% after foreign currency impacts), and Fitch calculated EBITDA margins were down 40 bps. This was driven by the economic environment, investments and the resulting lag in revenue performance due to the subscription nature of the business. Fitch recognizes that some clients could reduce spending when contracts come due; however, given that TRI's products are typically deemed by its clients to be essential to the daily functions of their professionals, Fitch does not expect a meaningful shift in pricing power in favor of TRI's clients.

Fitch's base case expectations, include organic revenue down in the Markets division in the mid-single digits, partially offset by low single-digit revenue growth in the Professional division, leading to a low-single-digit consolidated organic revenue decline. Fitch's 2010 revenue assumptions are relatively inline with the company's 2010 guidance. Fitch's model assumes organic revenue growth in 2011, in the low to mid single digits.

Fitch notes that on an EBITDA basis, the Markets business has generally exhibited less operating leverage than Fitch would have anticipated for a predominantly fixed-cost business. In 2009, cost reductions in connection with the integration of Reuters provided a significant offset to decline in revenues, providing support to EBITDA margins. The subscription nature has provided a lag which gives management visibility on the need for fixed-cost actions to preserve margins.

Please see Fitch's full report: 'Thomson Reuters Corp.', dated July 30, 2009, which is available on the Fitch web site at 'www.fitchratings.com'.

The ratings reflect the application of Fitch's current criteria which are available at 'www.fitchratings.com' and specifically include:

--'Corporate Rating Methodology' (Nov. 24, 2009);

--'Liquidity Considerations for Corporate Issuers' (June 12, 2007);

--'Short-term Ratings Criteria for Corporate Finance' (June 12, 2007).

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

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CONTACT:

Fitch Ratings
Rolando Larrondo, +1-212-908-9189, New York
Mike Simonton, CFA, +1-312-368-3138, Chicago
Media Relations:
Cindy Stoller, +1-212-908-0526, New York
cindy.stoller@fitchratings.com

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