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Rating Action:

Moody's affirms AMG's ratings at A3; outlook changed to negative

17 Sep 2020

Baa1 rating assigned to new Junior Subordinated Notes

New York, September 17, 2020 -- Moody's Investors Service, ("Moody's") has affirmed Affiliated Managers Group, Inc.'s (AMG) A3 senior unsecured rating. The company's rating outlook is changed to negative from stable. Concurrently, Moody's has assigned a Baa1 rating to new Junior Subordinated Notes maturing in 2060, which the company is bringing to market today. The issue is a takedown from AMG's multiple seniority shelf registration which became effective in March 2019.

The following rating actions were taken:

Ratings affirmed:

Senior Unsecured (Domestic), affirmed at A3

Senior Unsec. Shelf (Domestic), affirmed at (P)A3

Junior Subordinate (Domestic), affirmed at Baa1

Junior Subord. Shelf (Domestic), affirmed at (P)Baa1

Pref. Shelf (Domestic), affirmed at (P)Baa2

Outlook: changed to Negative from Stable

Rating Assigned:

New Junior Subordinated Notes of 2060, assigned Baa1

RATINGS RATIONALE

The negative outlook reflects fundamental challenges that AMG has shared with other large asset managers, including investment performance shortfalls that have caused significant declines in new sales, resulting in net business outflows. As a consequence, the company's combined revenues have declined some 20% from their peak in 2018, leading to reduced profit and higher leverage, which recently has exceeded 2.5x (as measured by Moody's), breaching a threshold that Moody's considers key to the maintenance of the AMG's current A3 rating.

Gross leverage will rise to 2.8x on an immediate basis (despite the issue receiving 25% equity credit in Moody's leverage calculation, given the notes' subordinated status and other issuance terms). However, AMG has already issued net new debt of $250 million this year, and following the new issue of Junior Subordinated Notes, it will have extraordinary available liquidity.

Over the outlook period, Moody's will monitor steps AMG may take to reduce leverage to levels we consider consistent with an A3 rating. Such steps could include deploying its available liquidity to make acquisitions, which would be earnings accretive, or repaying amounts on its term loan facility, which had a balance of $350 million at 30 June. Either, or some combination, of these approaches could reasonably be expected to reduce leverage, assuming core business trends stabilize.

Moody's affirmation of AMG's rating reflects its scale, diversity, and profitability. For almost three decades the company has implemented a multi-affiliate investment strategy, acquiring majority and minority equity positions in boutique firms, but always leaving significant ownership in the hands of its affiliates' management teams. This approach historically has attracted successful asset management firms that value the ongoing opportunity to participate in and to further capitalize their growth. The combined assets under management of its affiliates was $638.4 billion at June 30, and revenue of its consolidated affiliates and its equity method partners was $4.8 billion for the recent trailing twelve month period. The range of products, across asset classes and traditional and alternative strategies, is broad, and the client base is predominantly institutional (57%) and high net worth (25%).

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Affiliated Managers Group is unlikely to be upgraded while the outlook is negative. Factors that could lead to an affirmation of the rating with a stable outlook include the following: 1) Debt/EBITDA declining sustainably below 2.5x; 2) improvements in AUM stability, consistent with improved net sales; or 3) the conclusion of accretive acquisitions or debt reduction.

Factors that could lead to a downgrade include the following: 1) leverage sustained above 2.5x over the next 12-18 months; 2) a decline in AMG's scale due to market events, performance weakness or AUM instability; or 3) any rupture in the cooperative relationship between AMG and its leading affiliates.

The principal methodology used in these ratings was Asset Managers Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1186105. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Affiliated Managers Group is a global asset management company that has investments in over 30 affiliates, which reported aggregate assets under management of $638.4 billion as of 30 June 2020.

The last rating action was on 2 June 2020, when Moody's assigned a rating to a new offering of AMG's senior unsecured notes.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Neal M. Epstein, CFA
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Robert M. Callagy
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
© 2021 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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