OREANDA-NEWS. Fitch Ratings is expected to assign a 'BBB+' rating to the benchmark sized 10-year and 30-year senior unsecured note offering by 21st Century Fox America, Inc., a subsidiary of Twenty-First Century Fox, Inc. (FOXA). The Rating Outlook is Stable.

FOXA had approximately $18.8 billion of debt outstanding as of June 30, 2015, pro forma for October maturities, consisting primarily of senior unsecured notes issued by 21st Century Fox America, Inc. (some are issued under that entity's former name, News America Holdings, Inc.). A complete list of ratings follows at the end of this release.

Proceeds of the new issue are expected to be used for general corporate purposes. The new notes will rank pari-passu with other senior unsecured indebtedness of 21st Century Fox America, Inc. and will also benefit from a guarantee by FOXA. The notes will contain an obligation to repurchase the notes at 101% upon change of control (including a transfer of more than 50% of the company's voting stock to a person other than News Corp. or a member of the Murdoch family) and non-investment grade ratings, as defined. Similar to existing bonds, there are no financial covenants.

KEY RATING DRIVERS
--FOXA's portfolio of cable networks, including regional sports networks, and leading brands underpin the ratings. Fitch believes these businesses position the company with solid growth prospects and the ability to generate meaningful levels of free cash flow (FCF).

--Fitch expects that FOXA will use its excess liquidity to further reinvest in its core businesses and growth initiatives while supporting shareholder returns within the context of managing to its leverage target ranging between 2.5x and 3.0x.

--Shareholder returns (dividends and stock repurchases) that exceed FCF generation are incorporated into current ratings, to the extent that leverage remains below Fitch's 3x total leverage threshold.

--FOXA's liquidity position and financial flexibility remain strong for the rating. Fitch anticipates FOXA will generate annual FCF in excess of $2 billion during the rating horizon.

--FOXA is well positioned to address the secular threats and opportunities presented by emerging alternative distribution platforms and continued audience fragmentation across the media and entertainment landscape.

Fitch holds FOXA's overall strategic positioning in high regard as its businesses consist of a strong collection of cable and regional sports networks, leading television and film studios, national television network with robust sports-programming rights, and local television broadcast. Each of FOXA's businesses have the scale characteristics to operate at high margins and generate meaningful levels of free cash flow (FCF) and positions the company to address the secular threats and opportunities presented by changing media consumption patterns and continued audience fragmentation across the media and entertainment landscape. Fitch believes these businesses position the company with solid growth prospects and the ability to generate meaningful levels of FCF, and balanced against the risks inherent within the company's operating profile, place the company solidly within Fitch's parameters for a 'BBB+' rating.

FOX's decision to sell its European DBS businesses, consisting of its 57.4% ownership stake in Sky Deutschland AG and its wholly owned subsidiary Sky Italia SRI, to Sky plc enhanced the company's overall financial and strategic flexibility and will have a material impact on FOX's credit profile. The transaction increased FOX's ownership stake in National Geographic Channels International to 73% and generated approximately $8.1 billion of net cash proceeds.

FOXA's financial priorities remain consistent. The company's leverage target, ranging between 2.5x and 3.0x along with the FOXA's $5 billion share repurchase program highlight its capital allocation policy. FOXA is capitalizing on the capacity and flexibility within its balance sheet and intends to repurchase $5 billion of its common stock during fiscal year 2016.

Outside of potential merger and acquisition activity, Fitch expects that FOXA will continue investing in its core businesses and growth initiatives and support shareholder returns within the context of managing to its leverage target. Shareholder returns that exceed FCF generation are incorporated into current ratings, to the extent that leverage remains below Fitch's 3x total leverage threshold.

FOXA's capital structure and credit protection metrics remain stable and within Fitch's expectations for the current rating. Consolidated leverage as of the latest 12 months (LTM) period ended June 30, 2015 was 2.79x. Fitch expects leverage will range between the company's 2.5x to 3.0x leverage target during the rating horizon.

Scheduled maturities are well-laddered and manageable considering FCF, reliable market access and back-up liquidity. Upcoming maturities include $44 million due during the remainder of fiscal 2016 (YES Network Term Loan amortization), and $444 million due during fiscal 2017 (8% senior debentures due October 2016; YES Network Term Loan amortization).

FOXA is well positioned to address the secular threats and opportunities presented by emerging alternative distribution platforms and continued audience fragmentation across the media and entertainment landscape. The alternative distribution platforms generate incremental demand for high-quality content across all major end-markets (broadcast, cable networks and subscription video on demand) and large, well-capitalized content providers, such as FOXA, will remain crucial to the industry. The ratings incorporate expected earnings volatility generated by the company's Filmed Entertainment segment, given the general hit-driven nature of the movie industry.

KEY ASSUMPTIONS
Fitch's key assumptions within the rating case include:

--The revenue growth within the company's cable network programming business reflects the company's ability to secure affiliate fee rate increases. Fitch anticipates low-double-digit affiliation fee growth. The company's investment in original programming supports affiliation fee growth.

--From a margin perspective, the base case reflects the company's investment in original programming and costs associated with the launch of new cable networks as well as acquired programming. The ability to grow higher affiliate fee revenues at a similar pace to programming costs contribute to stable margins at the cable network programming segment.

--Fitch assumes typical volatility within the Filmed Entertainment business. The Television segment benefits from a stable economic and advertising environment and growing retransmission consent revenues while incorporating typical political advertising revenue cycle.

RATING SENSITIVITIES
Positive: Positive rating action would likely coincide with FOXA adopting a more conservative financial policy highlighted with a gross leverage target of 2x or lower. Meanwhile, FOXA will need to demonstrate that its operating profile can sustain itself amidst ongoing competitive pressures, changing media consumption patterns and evolving technology platforms.

Negative Rating Trigger: Negative rating actions are more likely to coincide with a material shift in financial policy including, but not limited to, the company adopting a more aggressive financial strategy or event-driven merger and acquisition activity that drive leverage beyond 3x in the absence of a credible de-leveraging plan while exhausting excess cash balances. A negative rating action based solely on operational performance is unlikely over the short term.

LIQUIDITY
Fitch believes that FOXA's liquidity position and financial flexibility are strong for the rating given the strength of its businesses and expected FCF generation. The company generated approximately $2.3 billion of FCF for the fiscal year ended June 30, 2015. FCF generation remains strong even as the Company continues to invest in channel launches, original content, and higher costs to acquire programming (including sports programming) across the company's portfolio of cable and television networks. Fitch expects these investments will remain among the company's key priorities during its fiscal year 2016.

The company's liquidity position is supported by existing cash balance totaling $8.4 billion as of June 30, 2015 ($950 million held by foreign subsidiaries as of June 30, 2015) and the borrowing capacity from its $1.4 billion revolver which expires May 2020. Fitch anticipates that excess cash will be utilized over time to support tuck-in acquisitions and incremental shareholder distributions in order to reach their target cash balance ranging between $2 and $3 billion.

Fitch currently rates FOXA as follows:

Twenty-First Century Fox, Inc.
--Issuer Default Rating (IDR) 'BBB+'.

21st Century Fox America, Inc.
--IDR 'BBB+';
--Senior unsecured 'BBB+'.