OREANDA-NEWS. Fitch Ratings has affirmed Thomson Reuters Corporation's (TRI) Long-term Issuer Default Rating (IDR) at 'BBB+'. In addition, Fitch has affirmed the individual issue ratings at 'BBB+' and short-term ratings at 'F2'. A full list of rating actions follows at the end of this release.

KEY RATING DRIVERS

The ratings reflect TRI's cash flow generating ability, geographic and product diversification, sound balance sheet, and consistent and conservative financial policies. Fitch Ratings expects the company will continue to target 2.5x net unadjusted leverage. As of Sept. 30 2015, Fitch calculates gross leverage of 2.5x and net leverage of 2.3x.

Fitch recognizes 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.

Recurring, subscription-based revenues accounted for approximately 87% of TRI's consolidated revenues during year-end 2014 and provide significant visibility, stability and predictability to the company's free cash flow (FCF) generation. The subscription based business model capitalizes on long-standing client relationships and improving account churn. Fitch expects net sales within the company's Financial and Risk (F&R) segment will continue to improve and does not expect any material deviation from the its well established revenue mix.

Rating concerns include the cyclicality of the F&R segment, TRI's largest. For the nine months ended Sept. 30, 2015, the segment was down 6%, but flat on both a constant currency and organic basis. However, TRI's overall revenue/product diversification creates a cushion to absorb specific segment pressures, and consolidated revenues were only down 4% through Sept. 30, 2015 but were up 1% on both a constant currency and organic basis.

Fitch expects EBITDA margins to continue to be susceptible to future downturns. The F&R segment generally exhibited less operating leverage (on an EBITDA basis) in the last downturn than Fitch would have anticipated. Conversely, EBITDA margins would be expected to rebound meaningfully upon the return of revenue growth.

TRI has been focusing on reducing costs through product and platform simplification to increase its operating leverage, thereby strengthening EBITDA margins. As a result of these efforts, the company has realized more than $300 million of annual run-rate savings, primarily in the F&R segment. Fitch expects the company to realize additional savings from future transition efforts.

Fitch believes management will continue to be disciplined in its approach to acquisitions and divestitures. TRI has reduced its focus on growth through acquisitions, focusing instead on organic growth, and Fitch expects future acquisitions to be smaller tactical deals. Regarding divestitures, in November 2015, TRI announced it was exploring strategic options for its Intellectual Property & Science (IPS) business. IPS comprised approximately 8% of TRI's latest 12 months (LTM) Sept. 30, 2015 total revenues and 9.5% of EBITDA. Fitch expects TRI will use a portion of net divestiture proceeds for debt repayment to allow the company to remain within its 2.5x net target leverage, with excess proceeds used to invest in core businesses and for share buybacks. Fitch believes TRI has completed most of its portfolio pruning and does not expect any additional material divestitures.

In May 2015, TRI announced plans to repurchase up to an additional $1 billion of its common shares by the end of 2016. This follows the company's prior $1 billion share repurchase, which was announced in May 2014 and completed in May 2105. Since 2004, TRI has returned over $14 billion to shareholders through dividends and share repurchases. Fitch expects TRI to issue debt to return capital to its shareholders but to remain within its stated 2.5x net leverage target.

KEY ASSUMPTIONS

Fitch's key assumptions within the rating case for TRI include:

--Low single-digit underlying growth beginning 2016. 2015 sales pressured due to F&R segment and FX headwind offset by growth in other reporting segments;
--Continued margin improvements resulting from restructuring efforts;
--Shareholder returns of $1 billion in buybacks and $1 billion in dividends annually with flexibility to moderate buybacks or acquisition spend;

RATING SENSITIVITIES

More Conservative Metrics for Upgrade: Rating upside is limited. However, an explicit commitment to and sustained track record of more conservative financial policy including maintaining gross leverage below 2x could merit upgrade consideration. In tandem with the adoption of a more conservative financial policy, Fitch would need to observe a stronger operating profile within the F&R segment as evidenced by sustained positive net sales and segment operating margins approaching 30%.

Downgrade Trigger: Fitch believes TRI is committed to its balance-sheet parameters. However, a significant acquisition or increased shareholder friendly initiatives that increase gross leverage as calculated by Fitch to over 3x, or greater than 2.5x on a net leverage basis.

LIQUIDITY

As of Sept. 30 2015, TRI had $710 million in cash and cash equivalents. Liquidity is also supported by TRI's $2 billion commercial paper (CP) program. The CP program is supported by its undrawn $2.5 billion revolving credit facility that expires May 2018. Based on Fitch's calculations, LTM FCF after dividends as of September 30, 2015 was $754 million (includes $159 million in cash adjustment related to restructuring).

Fitch affirms the following

Thomson Reuters Corporation
--Issuer Default Rating (IDR) at 'BBB+';
--Bank credit facility at 'BBB+';
--Senior unsecured notes at 'BBB+';
--Short-term IDR at 'F2';
--Commercial paper at 'F2'.

The Rating Outlook is Stable.