Fitch Ratings Affirms 21st Century Fox's (FOXA) Ratings; Outlook Stable

Fitch Ratings has affirmed the 'BBB+' Issuer Default Ratings (IDRs) of Twenty-First Century Fox, Inc. (FOXA) and its wholly owned subsidiary 21st Century Fox America, Inc. (21CFA). Fitch has also affirmed the specific issuer ratings assigned to 21st Century Fox America, Inc. The Rating Outlook remains Stable.

Approximately $19.8 billion of debt outstanding as of Sept. 30, 2015, pro forma for October 2015 maturities and subsequent issuances, is affected by Fitch's action. A complete list of rating actions follows at the end of this release.

KEY RATING DRIVERS
--FOXA's portfolio of cable networks, including regional sports networks, and leading brands underpin the ratings. Fitch believes these businesses position the company with solid growth prospects and the ability to generate meaningful levels of free cash flow (FCF).

--Fitch expects that FOXA will use its excess liquidity to further reinvest in its core businesses and growth initiatives while supporting shareholder returns within the context of managing to its leverage target of between 2.5x and 3x.

--Shareholder returns (dividends and stock repurchases) that exceed FCF generation are incorporated into current ratings to the extent that leverage remains below Fitch's 3x total leverage threshold.

--FOXA's liquidity position and financial flexibility remain strong for the rating. Fitch anticipates FOXA will generate annual FCF between $2.5 billion - $3.5 billion during the rating horizon.

--FOXA is well positioned to address the secular threats and opportunities presented by alternative digital distribution platforms and continued audience fragmentation across the media and entertainment landscape.

Fitch holds FOXA's overall strategic positioning in high regard, as its businesses consist of a strong collection of cable and regional sports networks, leading television and film studios, national television network with robust sports-programming rights, and local television broadcast stations. Each of FOXA's businesses has the scale characteristics to operate at high margins and generate meaningful levels of FCF. In addition, they position the company to address the secular threats and opportunities presented by changing media consumption patterns and continued audience fragmentation across the media and entertainment landscape. In Fitch's view they offer solid growth prospects and the ability to generate meaningful levels of FCF, and, balanced against the risks inherent within the company's operating profile, place FOXA solidly within Fitch's parameters for a 'BBB+' rating.

FOXA's financial priorities remain consistent. The company's leverage target of between 2.5x and 3x, along with its $5 billion share repurchase program highlight its capital allocation policy. FOXA is capitalizing on the capacity and flexibility within its balance sheet and intends to repurchase $5 billion of its common stock during fiscal 2016. FOXA reiterated its 2016 share repurchase amount during the fourth-quarter 2015 (Q415) earnings call.

Outside of potential merger and acquisition activity, Fitch expects that FOXA will continue investing in its core businesses and growth initiatives, and support shareholder returns within the context of managing to its leverage target. Shareholder returns that exceed FCF generation are incorporated into current ratings, to the extent that leverage remains below Fitch's 3x total leverage threshold.

FOXA's capital structure and credit protection metrics remain stable and within Fitch's expectations for the current rating. Consolidated leverage as of the latest 12 months (LTM) ended Sept. 30, 2015 was 2.88x. Fitch estimates leverage, pro forma for the repayment of 21CFA's $200 million of senior unsecured note due October 2015 and issuance of $400 million of senior unsecured notes due 2045 and $600 million of senior unsecured notes due 2025, is 3x. Fitch expects leverage will be near the top end of the company's 2.5x to 3x leverage target during the rating horizon.

Scheduled maturities are well laddered and manageable considering the company's FCF, reliable market access and back-up liquidity. Upcoming maturities total $400 million due during fiscal 2017 (8% senior debentures due October 2016) and $350 million due during fiscal 2018 (7.25% senior debentures due May 2018). FOXA repaid $200 million during the F2Q16 (7.6% senior debentures due October 2015).

FOXA is well positioned to address the secular threats and opportunities presented by emerging alternative distribution platforms and continued audience fragmentation across the media and entertainment landscape. The alternative distribution platforms generate incremental demand for high-quality content across all major end-markets (broadcast, cable networks and subscription video on demand), and large, well-capitalized content providers such as FOXA will remain crucial to the industry. The ratings incorporate expected earnings volatility generated by the company's Filmed Entertainment segment, given the general hit-driven nature of the movie industry.

KEY ASSUMPTIONS
Fitch's key assumptions within our rating case for the issuer include:

--Fitch anticipates low-double-digit affiliation fee growth. The revenue growth within the company's cable network programming business reflects the company's ability to secure affiliate fee rate increases. The company's investment in original programming and acquisition of sports rights support affiliate fee growth.

--The ability to grow higher affiliate fee revenues at a similar pace as programming costs will contribute to stable margins at the cable network programming segment. From a margin perspective, the base case reflects the company's investment in original programming and costs associated with acquired programming.

--Fitch assumes typical volatility within the Filmed Entertainment business. The Television segment benefits from the stable economy and growing retransmission consent revenues while incorporating a typical political advertising revenue cycle. Fitch assumes a slightly weaker television advertising environment as digital media continues to take share from traditional advertising revenues. Fitch expects political advertising to contribute to positive growth during 2016.

RATING SENSITIVITIES
Positive: Positive rating action would likely coincide with FOXA adopting a more conservative financial policy highlighted by a gross leverage target of 2x or lower. Meanwhile, FOXA will need to demonstrate that its operating profile can sustain itself amidst ongoing competitive pressures, changing media consumption patterns and evolving technology platforms.

Negative: Negative rating actions are more likely to coincide with a material shift in financial policy including, but not limited to, the company adopting a more aggressive financial strategy or event-driven merger and acquisition activity that drives leverage beyond 3x in the absence of a credible de-leveraging plan while exhausting excess cash balances. A negative rating action based solely on operational performance is unlikely over the short term.

LIQUIDITY
Fitch believes FOXA's liquidity position and financial flexibility are strong for the rating given the strength of its businesses and expected FCF generation. The company generated approximately $1.6 billion of FCF during the LTM period ended Sept. 30, 2015. FCF generation is pressured somewhat due to the company's increased investment in film and television production, and higher costs to acquire programming (including sports programming) across the company's portfolio of cable and television networks. The company's liquidity position is supported by existing cash balance totaling $5.8 billion as of Sept. 30, 2015 ($950 million held by foreign subsidiaries as of June 30, 2015) and the borrowing capacity from its $1.4 billion revolver which expires May 2020.

FULL LIST OF RATING ACTIONS

Fitch has affirmed the following ratings with a Stable Outlook:

Twenty-First Century Fox, Inc.
--IDR at 'BBB+'.

21st Century Fox America, Inc.
--IDR at 'BBB+';
--Senior unsecured at 'BBB+'.

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