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Rating Action:

Moody's affirms Equifax sr uns at Baa1, revises outlook to negative from stable

17 May 2019

About $2.65 billion of rated debt

New York, May 17, 2019 -- Moody's Investors Service ("Moody's") affirmed Equifax Inc.'s ("Equifax") senior unsecured rating at Baa1 and short term rating at Prime-2. The rating outlook was revised to negative from stable.

RATINGS RATIONALE

The outlook revision to negative reflects weaker operating performance and credit metrics than originally expected following the cybersecurity breach in 2017. Debt to EBITDA (Moody's adjusted and excluding charges related to the security breach) was 2.5 times at year-end 2018 - Moody's expected peak - but is now expected to reach almost 3 times in 2019. Moody's current view incorporates incremental debt associated with the announced potential global litigation and regulatory investigation settlement, expected minimal revenue and margin growth in Equifax's core business through 2019 and higher than expected information technology costs stemming from the breach. Moody's view for free cash flow has also been revised to less than 5% of debt over the next 12-18 months from its prior expectation of around 13% by year-end 2019.

"Free cash flow may remain around only $150 million per year for a few years, or less than half of annual free cash flow prior to the breach," said Edmond DeForest, Moody's Vice President and Senior Credit Officer. "Diminished free cash flow limits Equifax's ability to reduce its financial leverage," he continued.

Free cash flow may remain well below historic levels above $300 million due to legal costs and information technology costs and investments as a consequence of the 2017 cybersecurity breach. Moody's expects those expenditures are in excess of $1.4 billion in total, which is materially more than its earlier estimates. The costs are also expected to be ongoing, although moderating, through 2020, but could increase further. The negative outlook incorporates this uncertainty, as well as Moody's concern that cash flow expansion and performance improvements could be slowed by pressured economic and consumer credit conditions.

Equifax's Baa1 senior unsecured rating is supported by Moody's expectations that the company will reduce debt to EBITDA to a mid 2 times range and maintain very good liquidity. Equifax's credit profile benefits from its leading market position as one of the three consumer credit reporting agencies in the US and high barriers to entry in the credit bureau business. Equifax's consumer credit information services are deeply integrated into its customers' decision processes. However, the company's critical role in consumer finance and its possession of large amounts of private consumer data increase regulatory and information security risks.

Ongoing and high cyber transformation initiative costs, along with operating and financial performance for the LTM period ended March 31, 2019 that compares unfavorably to Moody's earlier expectations and the performance of Equifax's peers, and Moody's anticipation of higher debt levels from the anticipated global litigation and regulatory investigation settlement weigh on Equifax's credit profile. A return to substantial organic revenue growth and profit margin expansion may be dependent upon improvement in U.S. consumer and mortgage credit lending market conditions, which are uncertain, in the second half of 2019. Financial policies that emphasize supplementing organic growth with acquisitions could limit the amount of free cash flow available to repay debt, slowing the pace of leverage declines. Equifax has moderate operating scale and a significant portion of its revenues are correlated to US macroeconomic cycles.

All financial metrics reflect Moody's standard adjustments. Moody's also adds back to EBITDA costs associated with cybersecurity expenses stemming from the 2017 data breach, which benefits financial leverage metrics. Those costs are anticipated to be more than $300 million in 2019. In addition, Equifax capitalizes software development costs of about $250 million per year. If EBITDA is reduced by those cybersecurity and capitalized software costs, financial leverage for the LTM period ended March 31, 2019 was around 4.8 times.

The negative ratings outlook reflects Moody's concerns that revenue may not grow and free cash flow could remain low for an extended period. The outlook could be revised to stable if Moody's anticipates free cash flow to debt will return to around 10% and cybersecurity related investments and risks will abate.

A ratings upgrade is not expected given the negative ratings outlook. Over time, ratings could be upgraded if Moody's expects Equifax to generate strong earnings growth, debt to EBITDA to decline to and remain around 2 times, free cash flow to debt to grow and be sustained above 10% and Equifax to maintain a very conservative financial risk profile.

Moody's could downgrade Equifax's ratings if the cost or time required to conclude the company's digital transformation increases. In addition, the ratings could be downgraded if a sustained deterioration in revenue or EBITDA, or a shift toward more aggressive financial policies, result in debt to EBITDA to remain around or higher than 3 times or free cash flow to debt to be sustained below 8%.

The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Moody's took the following rating actions and made the following outlook revision:

..Issuer: Equifax Inc.

....Senior Unsecured Commercial Paper, Affirmed at Prime-2

....Senior Unsecured Regular Bonds, Affirmed at Baa1

....Outlook, Changed To Negative From Stable

Equifax Inc., based in Atlanta, GA, provides information solutions, employment and income verifications and human resources business process outsourcing services. In addition to the US (about 70% of revenues), Equifax operates in Canada, Asia Pacific, Europe and Latin America, and through joint ventures in Russia and India.

On May 10, 2019, Equifax announced it had taken a charge of $690 million in its fiscal first quarter ended March 31, 2019 that represents its estimate of losses it expects to incur in connection with a potential global resolution of litigation and regulatory investigations arising from the September 7, 2017 cybersecurity breach that compromised the personal information of over 145 million U.S. consumers and a limited number of consumers in Canada and the U.K.

Moody's expects 2019 revenue of approximately $3.5 billion.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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.

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

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.

Edmond DeForest
VP - Senior Credit Officer
Corporate Finance 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

Karen Nickerson
Associate Managing Director
Corporate Finance 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.
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