Moody’s Weighs Risks of 21st Century Fox Changes - Broadcasting & Cable

Moody’s Weighs Risks of 21st Century Fox Changes

New leadership raises the possibility of shifts in strategic direction, credit rating agency says
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Credit rating agency Moody’s says that while the announcement that James Murdoch would replace his father Rupert as CEO of 21st Century Fox was unlikely to impact the company’s credit rating in the near term, shifts in its future strategic direction are possible.

“A change in the top leadership after decades of singular leadership does raise the possibility of gradual shifts in Fox’s future strategic direction and the company's financial risk profile,” the credit rating agency said. “The uncertainty created by changes in leadership could potentially adversely impact the company's risk tolerance such as more aggressive operating or fiscal practices.”

21st Century Fox’s long-term debt is rated Baa1 by Moody’s.

Moody’s said Rupert Murdoch’s policies helped 21st Century Fox maintain a solid credit rating despite his reputation for boldness.

“Under his careful stewardship and long-term perspective, management has historically offset higher business and operational risks with lower financial risk by funding acquisitions often with equity and cash on hand, while maintaining large cash balances and low net debt relative to investment grade peers,” Moody’s said.

The agency noted that Fox has maintained an average cash balance of $7.5 billion, compared to the $1 billion to $3 billion other media companies have. It attributed Murdoch’s conservative financial posture to “his experience during the economic downturn in the early 1990s, when Fox managed to barely pull itself out of its financial liquidity crisis and a stressful situation with its lenders.”

The younger Murdoch doesn’t have a track record of his own, Moody’s notes.

“Since it is unclear at this point how James Murdoch and the new management team will steer the company from a financial risk perspective when [Rupert] Murdoch fully removes his hands from the helm, we believe that there is moderate risk of negative consequences for bondholders, should the company align its practices with many of its lower-rated peers and deviate from prudent practices exhibited over the last two decades,” the agency said.

The bottom line is that “Moody's cautions that over the long-run the company's ratings could come under pressure if management adopts substantially more shareholder friendly policies, abandons its history of superior liquidity, or does not sustain or remain committed to leverage levels expected for the Baa1 rating.”

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