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31 May 2007
Moody's Expects to Assign Issuer Rating of A3 to MF Global Ltd.
New York, May 31, 2007 -- Moody's Investors Service announced that it expects to assign a Long-term
Issuer Rating of A3 to MF Global Ltd. (formerly Man Financial Inc),
a soon-to-be public company being spun off from its long-time
parent, UK-based Man Group plc (senior at Baa1). Man
Financial Inc is currently the specialty brokerage division of Man Group
plc. The rating will be assigned upon completion of the transaction
and assuming that all material aspects of the transaction remain consistent
with Moody's expectations.
According to Moody's, the expected A3 rating reflects the
low to modest risk of MF Global's specialty brokerage business model
and the firm's position as a major global player in the high-growth
exchange (and increasingly OTC) derivatives business. The company
generates the preponderance of its revenues from client commissions and
matched-principal trading. Matched-principal trading
poses slightly higher risk than pure agency brokerage, but the risk
is relatively small and appears to be well managed at MF Global Ltd.
The firm's prudent risk management and culture (which is validated
by historical financial results and little to no credit losses) is an
important rating consideration.
MF Global has a number of strengths and weaknesses that shape its credit
-Leading independent futures and options broker
-Strong secular growth trends in derivatives underlies cashflow
-Minimal market risk with agency and matched-principal brokerage
-Sound risk management embraced at highest levels of the firm
-Operation as clearing broker requires strong capital and liquidity
-Well diversified by client type, product, and geography
-Long-tenured, experienced management team
-New to managing conflicting demands of a public company
-Operational risks of a clearing broker, including legal
-Small absolute earnings base
-High comprehensive double leverage
-Modest pretax margins
-Competitive threats from market electronification and larger competitors,
Moody's believes that a clearing broker needs strong capital and
liquidity bases, not only to meet regulatory requirements,
but also to demonstrate financial strength to clients. In Moody's
view, MF Global Ltd. has expended significant effort to establish
appropriate capital and liquidity structures to support its specialty
brokerage model as a newly public company. Notwithstanding regulatory
capital requirements and the need to assure client confidence, MF
Global Ltd.'s specialty brokerage business is largely self-funding,
with only modest need for debt, other than to bolster liquidity
to acceptably strong levels.
Given that MF Global has no track record operating as a public company,
Moody's believes that it is important to observe how the firm deals
with its various constituencies (shareholders and creditors) over time,
and what impact public ownership may have on the firm's financial policy
and strategic decisions.
Though the firm's current earnings scale is small, underlying
secular growth trends are expected to remain favorable and should help
drive profitability, earnings growth and debt service capacity.
Man Financial Inc., the predecessor company to MG Global
Ltd., began operations in 1981 as ED&F Man International.
Man Group plc is an asset management company domiciled in the UK and with
total funds under management estimated to be over $61billion at
31 March 2007. Man Group plc traces its history back over 200 years
to 1783 when ED&F Man was established as a commodities broker.
Blaine A. Frantz
Senior Vice President
Financial Institutions Group
Moody's Investors Service
Financial Institutions Group
Moody's Investors Service
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.
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