Fox Corp. Assigned 'BBB' Rating On Strong Television Assets In The Face Of Industry Pressures; Outlook Stable

  • Before being acquired by The Walt Disney Co., Twenty-First Century Fox Inc. is spinning off its news (FOX News and FOX Business), national sports (FS1, FS2, Big Ten Network, and FOX Deportes), and U.S. TV assets (FOX broadcast network and TV station portfolio) into a new company, Fox Corp. (FOX).
  • We assigned our 'BBB' issuer credit rating to New York city-based FOX and our 'BBB' issue-level ratings to its proposed senior unsecured debt issuance.
  • While FOX is fully exposed to the secularly challenged U.S. television industry, we believe its strong television assets (FOX broadcast network and FOX News) better position the company to face these secular pressures through at least the next sports right renewal cycle (its NFL broadcast contract expires in 2022).
  • The stable outlook reflects our expectations that, while FOX will initially have conservative leverage for the rating category, we expect the company will operate with S&P Global Ratings-adjusted leverage between 2.25x-3.0x on a sustained basis. The stable outlook explicitly assumes that FOX will not lose the NFL TV broadcast rights when the current contracts expire in 2022.
NEW YORK (S&P Global Ratings) Jan. 10, 2019-- S&P Global Ratings today took 
the rating actions listed above. In conjunction with its spin-off from 
Twenty-First Century Fox Inc. (21CF), U.S. media company Fox Corp. (FOX) will 
issue senior unsecured debt. The company expects to use the proceeds from that 
issuance, along with cash on the balance sheet, to fund a dividend to 21CF to 
cover that company's tax liabilities resulting from FOX's separation.

Our 'BBB' rating reflects FOX's strong television assets, primarily FOX News 
and FOX broadcast network, which better position the company to face the 
secularly challenged U.S. television sector. This is somewhat tempered by the 
company's lack of business and geographic diversification since it is fully 
exposed to U.S. television. The company's strategy of focusing on sports and 
news reflects, in our view, the most effective use of its assets, especially 
since it no longer owns a captive TV production studio. Over the longer term, 
we believe this strategy may not be defensible because the threatened entrance 
of new nontraditional competitors such as Hulu, Amazon, and Netflix for sports 
rights may drive up the cost of sports programming, and they may even win away 
some of these contracts from the traditional TV operators.

Like all of its media peers, FOX is exposed to shifts in media consumption and 
advertising spending, particularly within the U.S. television industry. Chief 
among them are the fragmentation of television viewing as audiences migrate 
away from traditional television to alternative entertainment sources, and the 
decline of the traditional video bundle in favor of smaller ("skinny") video 
bundles with fewer cable networks or over-the-top (OTT) content options.

The stable outlook reflects our expectations that, while FOX will start with 
conservative leverage for the rating category, the company will operate with 
adjusted leverage between 2.25x-3.0x on a sustained basis. While the U.S. TV 
ecosystem will continue to face increasing secular pressures, its decline will 
be modest, at least through the next sports rights renewal cycle. The stable 
outlook explicitly assumes that FOX will not lose NFL TV broadcasting rights 
when the current contracts expire in 2022.

Although unlikely over the next two years, we could lower our issuer credit 
rating on FOX if the company's adjusted leverage rises above our 3x threshold 
because of debt-financed acquisitions or elevated shareholder returns, with 
little to no path to returning to below 3x within two years. We could also 
tighten our leverage threshold for the rating or lower the rating if worsening 
U.S. secular trends in FOX's businesses permanently erode the company's 
operating metrics, specifically an acceleration in cord-cutting or if 
significant permanent shifts in advertising depresses revenue growth below the 
rate of sports programming growth.

Although unlikely over the next two years, we could upgrade FOX if the company 
revised its financial policy such that adjusted leverage would remain below 
2x. Alternatively, we could raise our ratings if we have a more favorable view 
of FOX's business profile. However, this is highly unlikely given the 
company's lack of international diversification and its full exposure to the 
secular trends harming the U.S. TV ecosystem.