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
