Fitch leaves McGraw-Hill rating unchanged following announcement of US$500M accelerated stock repurchase program
December 9, 2011
– Fitch Ratings' ratings on The McGraw-Hill Companies, Inc. (McGraw-Hill) remain unchanged after the announced $500 million accelerated stock repurchase program (ASR). McGraw-Hill announced in September its intention to repurchase $1 billion of shares before the end of 2011, which it completed. While Fitch was not anticipating additional share repurchases above the completed $1 billion target in 2011, the announced ASR is accommodated within the current ratings, given the company's liquidity and credit metrics.
The current Negative Rating Outlook for McGraw-Hill continues to reflect uncertainty around the company's financial policy post the spin-off of its Education business. Fitch believes the company could look to deploy additional liquidity towards driving shareholder returns (whether further reducing cash balances or debt funded) and leverage may further increase from the pro forma split level of 0.9 times (x). Fitch believes that any policies/actions announced by McGraw-Hill will be in the context of remaining an investment-grade rated issuer.
As of September 2011, McGraw-Hill's liquidity included $1.5 billion of cash and full availability under its $1.2 billion commercial paper (CP) program, which is backed by McGraw-Hill's $1.2 billion bank credit facility due 2013. Liquidity is also supported by the company's free cash flow (FCF) generation; September 2011 latest 12 months (LTM) FCF was $870 million.
The ratings also incorporate several other overhangs on the credit profile which Fitch has previously commented on, namely regulatory and litigation related uncertainties. The ratings could be negatively affected if regulatory and litigation-related event risks accelerate or are combined with material operating or financial metric deterioration.
The ratings reflect McGraw-Hill's prominent business franchises, its strong margins (EBITDA margins around 27%) and FCF characteristics.
Total gross debt stood at $1.2 billion and unadjusted gross leverage was 0.7x as of Sept. 2011.
For more information please see Fitch's press release on McGraw-Hill dated Sept. 13, 2011 and Fitch's 'Credit Encyclo-Media Volume IV: Fitch's Comprehensive Analysis of the U.S. Media & Entertainment Sector' dated Sept. 16, 2011. Both are available at ' www.fitchratings.com '.
Fitch currently rates McGraw-Hill's as follows:
--Issuer Default Rating (IDR) 'A-';
--Short-term IDR 'F2';
--Senior unsecured 'A-'.
The Rating Outlook is Negative.
Additional information is available at ' www.fitchratings.com '.
Applicable Criteria & Related Research:
--'Corporate Rating Methodology' (Aug. 12, 2011);
--'Credit Encyclo-Media Volume IV: Fitch's Comprehensive Analysis of the U.S. Media & Entertainment Sector' (Sept. 16, 2011).
Applicable Criteria and Related Research:
Corporate Rating Methodology
Credit Encyclo-Media Volume IV: Fitch's Comprehensive Analysis of the U.S. Media & Entertainment Sector
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