Moody's: News Corp. Scandal Won't Affect Credit Rating

Affected buisnesses are only minor contributors to company's overall revenue and earnings
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Moody's Investors Service Tuesday said it doesn't think that phone hacking scandal will affect News Corp.'s credit ratings.

The ratings agency said that the businesses most affected by the scandal, notably its British newspapers, are minor contributors to the company's overall revenue and earnings.

It added in a statement that it does not believe that the company's other segments will "suffer materially from loss of confidence as happens with many business-to-business operations."

"It is likely that advertisers will remain attracted to the company's stable cable and broadcast network viewership, that the general public will continue to see the company's films and television shows on an uninterrupted basis, and that the bulk of the company's businesses will not be influenced by the negative media headlines about the company," said Neil Begley, a Moody's senior VP.

Begley added that CEO Rupert Murdoch has had a positive influence on the company's credit rating. "Any change in governance from this perspective would cause uncertainty and could potentially outweigh for bondholders any perceived benefits of new leadership resulting from the scandal," he said. There have been reports News Corp. was considering making COO Chase Carey CEO.

Moody's said it expects that the company will face rising cost pressures tied to the investigations and legal defenses, as well as any potential for fines or judgments. But the company had about $12 billion in cash and equivalents as of March 31, 2011 and should easily be able to fund them.

"The scandal has caused the company to back away from its pursuit of acquiring the approximate 61% of BSKYB it doesn't already own, and it is unlikely to embark on a renewed bid over the near to intermediate-term, in our view," stated Begley.

Moody's noted that the company's share price has been under pressure and the company has announced a $5 billion share repurchase program over the next year. Moody's believes that the company has the wherewithal to fund the program without impacting its credit standing.

Moody's believes that the large cash balance represents a very important cushion against uncertainty during times of distress

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"At this time, we anticipate that the company will maintain its large cash balance for the foreseeable future," added Begley.

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