Standard & Poor’s warns of possible News Corp. downgrade

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With fallout from the News of the World phone hacking scandal far from contained, corporate ratings firm Standard & Poor’s on Monday said that it was putting Rupert Murdoch’s News Corp. on its ‘CreditWatch’ list, which could result in a possible credit downgrade.

The move would be costly for a company that has already seen $8 billion in market value evaporate during the two weeks since the scandal first blew up.

News Corp. shares tumbled further Monday, closing at $14.97 a share. That is a 17% decline since July 5 when the scandal began to mushroom.

Losing its BBB+ credit rating would result in higher borrowing costs for News Corp.


Standard & Poor’s attributed its action Monday to ‘the increased business and reputation risks associated with broadening legal inquiries’ and investigations, including one by the FBI, into possible criminal behavior by News Corp. journalists and executives.

‘In our opinion this and other recent developments materially increase the reputational, management, litigation, and other risks currently faced by News Corp. and its subsidiaries,’ Standard & Poor’s credit analyst Michael Altberg said in his company’s release.

The ratings firm also pointed to a ‘weakening of the company’s executive bench strength.’

Two senior News Corp. executives resigned on Friday. Murdoch’s son, James Murdoch, has acknowledged approving large settlements to victims of the wiretapping. Some observers doubt whether the younger Murdoch, who has been in charge of the company’s European and Asian operations since 2007, will be able to weather the controversy. A week ago, News Corp. took the unprecedented step of shutting down the 168-year-old News of the World to try to contain the damage. Rupert Murdoch acquired the tabloid in 1969. From there, he began to build the U.K. corner of his global media empire.

Reporters and operatives for the News of the World are believed to have hacked into the cellphones of members of the royal family, celebrities, a slain schoolgirl and even fallen members of the military.

On Tuesday, Rupert Murdoch and James Murdoch are expected to answer questions about the scandal before a committee of Parliament. Rebekah Brooks, a longtime Murdoch confidant, has also been called for questioning. Brooks -- the former head of Murdoch’s British subsidiary, News International, who resigned on Friday -- was arrested on Sunday.

‘We see the risk that, if evidence arises sufficient to bring a criminal charge against the company or any current or former employee of the company, then prosecuting authorities in the U.S. could proceed with those charges,’ Altberg said.

The U.K. headaches of News Corp. are getting more attention from analysts here who are monitoring the situation to see if it will affect the company’s U.S. holdings, primarily its 27 television stations, which are licensed to the company by the Federal Communications Commission.

‘Felonies, particularly involving moral turpitude and/or false statements to the FCC or other government authorities, and bad behavior that relates somehow to the ability to run a media operation, would post the greatest risk,’ wrote Stifel Nicolaus analysts Rebecca Arbogast and David Kaut. ‘It would be a grave problem if the company is found in the United States to have committed a massive coverup of misconduct or questionable links with law enforcement and politicians that is emerging in the U.K.’


News Corp.'s U.K. problems hit U.S. shores

Top News Corp. executives resign in wake of scandal

News Corp. taps Lord Anthony Grabiner to lead internal probe of phone-hacking scandal

-- Meg James