Moody's Investors Services late Thursday downgraded The Thomson Corp.'s senior unsecured debt rating from A3 to Baa1, the minimum investment grade rating, due to its agreement to take on the news agency Reuters.

“Thomson's agreement to acquire Reuters makes its debt more risky because it is not only borrowing to swing the deal, but selling off a property not significantly affected by business cycles,” Moody's stated. "The downgrade reflects the significant increase in Thomson's leverage that will result from the pending Reuters acquisition, with pro forma 2007 debt-to-EBITDA at approximately 3.1x (incorporating Moody's standard adjustments) and free cash flow-to-debt of less than 5 percent."

Thomson agreed to purchase Reuters for $17.9 billion in May. Of that approximately $9.3 billion in cash and approximately $8.6 billion in stock in a new entity called Thomson Reuters Plc, which will become Reuters holding company.

To swing part of the purchase, Thomson intends to raise $7 billion from selling its education business, Thomson Learning, and by taking on new debt.

"The increase in leverage is occurring at a time when the overall business profile of Thomson is more cyclical as a result of the divestiture of the Thomson Learning assets and acquisition of Reuters," Moody's stated, adding that its outlook on Thomson is "stable," which means it does not foresee further downgrades now, according to Editor & Publisher.

Moody's expects Thomson's debt-to-EBITDA to decline to a 2.7x range by 2009, “which is line with our expectations for the Baa1 rating.”