MOODY'S CONFIRMS RATINGS OF NEWS AMERICA AND FOX KIDS AND FOX SPORTS AFFILIATES
NEW YORK, 06-30-98 -- Moody's confirmed the debt and preferred stock ratings of The News Corporation's News America Inc., Fox Kids, and Fox Sports affiliates. The confirmation follows News Corp.'s announcement that it will raise capital through a public stock offering for approximately 20% of Fox Group, a new entity to be formed that will include News Corp.'s TV network and station group, its movie and TV studios, its Fox Kids and Fox Sports cable networks, and its interest in the Los Angeles Dodgers and other U.S. sports teams. Moody's believes the offering would provide at least $2.5 billion of proceeds and probably more.
In Moody's view, the Fox Group offering, if completed in the form currently contemplated, would be positive for the creditors of News America and its affiliates. The offering proceeds, together with consolidated cash balances of nearly $3 billion and about $800 million of cash expected from the sale of the company's TV Guide property to United Video Satellite Group, provide News Corp. with substantial liquidity.
However, the ratings confirmations reflect Moody's view that News Corp. will ultimately use some of this new-found flexibility provided by this stock offering such that the operating and financial risks remain in line with Baa3 senior rating. The company has long demonstrated broad global media expansion plans in both its content and its distribution businesses, and Moody's expects this trend to continue. Furthermore, News Corp.'s $1 billion stock buyback plan at the parent company will stay in place.
To their credit, News Corp. has built one of the leading media franchises in the world. In achieving this, however, the company has been a net user of financial flexibility over the past several years. In 1995, Moody's upgraded the News America debt to Baa3 following a planned $2 billion investment by MCI Communications. Since then, the company has completed an extensive series of investments and initiatives that have, in the aggregate, increased the risk profile of the company, despite extensive use of non-voting preferred stock as acquisition currency.
The company has also invested heavily in building its cable network content operation in the U.S. and its direct broadcast satellite (DBS) operations globally. On the cable network side, the company has developed Fox News, Fox Sports (a joint venture with Liberty Media and Rainbow Media) and Fox Kids (a joint venture with Saban Entertainment). News Corp. has helped form and capitalize Fox Sports, a series of regional sports networks across the U.S., by investing over $850 million of equity and raising nearly $1.5 billion of non-recourse debt at its Fox Liberty joint venture. It also helped form and capitalize Fox Kids by contributing assets of International Family Entertainment (IFE), which News Corp. acquired for nearly $2 billion in cash and raising nearly $1.5 billion of non-recourse debt at the Fox Kids venture to help pay for IFE. Both these ventures have spent heavily to build their respective content libraries.
On the satellite front, News Corp.'s British Sky Broadcasting (BSkyB) is the strongest DBS provider in the world. Over the past several years, News Corp. has invested heavily to broaden its distribution to cover Asia, Latin America, and the U.S., all of which are in much earlier stages of development than BSkyB. Most notably, Moody's is concerned about News Corp.'s plan to enter the U.S. DBS business at a cost of nearly $1.2 billion that it shares through a joint venture with MCI, and the ventures' subsequent troubled attempts to exit the business. The U.S. Department of Justice's has filed a lawsuit to block the transfer of the ventures orbital slot and two high-power satellites to PRIMESTAR, citing concern about, among other things, the control of PRIMESTAR by a consortium of cable companies. If the PRIMESTAR transfer fails, News Corp. and MCI would either have to try to sell these assets to another third party, for which the universe of logical buyers is diminishing, or launch the service at considerable expense.
News Corp.also added to its TV distribution network through the acquisition of New World Communications. While most of the consideration was stock, the transaction still added over $1 billion of debt to News Corp.'s balance sheet.
While News Corp.'s stated use of funds from the offering is for general corporate purposes, including debt repayment and stock repurchases, the precise allocation for the use of proceeds is unclear. Moody's notes that formation of the Fox Group will add a level of structural complexity. Many of News Corp.'s core and strong cash flow-generating operations will be part of Fox Group, while its weaker publishing and satellite operations are not part of Fox Group and may or may not benefit from the offering. Moody's expects that proceeds will be used for both Fox Group and non-Fox Group purposes, and that funds will flow extensively between enterprises. Despite this complexity, Moody's does not believe the structure significantly compromises Fox Group's ability to support News America debt.
Rating Confirmed are:
News America Incorporated
Senior Unsecured, Baa3
Fox Kids Worldwide, Inc.
Senior Unsecured, B1
FCN Holding, Inc.
Senior Secured, Ba2
Fox/Liberty Networks, LLC
Senior Unsecured, B1
Fox Sports Net
Senior Unsecured, Ba2
The News Corporation Limited, with its headquarters in Sydney, Australia, is one of the world's largest media companies and has operations in the production and distribution of motion picture and television programming; television, satellite and cable broadcasting; the publication of newspapers, magazines, books and promotional free-standing inserts; the development of digital broadcasting; conditional access and subscription management systems; and providing computer information services.
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