New York, November 30, 2020 -- Moody's Investors Service ("Moody's") affirmed
S&P Global Inc.'s (S&P Global or the Company) ratings
including the A3 long term unsecured rating, and P-2 short
term rating. The outlook is stable.
S&P Global (NYSE: SPGI) and IHS Markit Ltd (NYSE: INFO,
"IHS", Ba1 positive) today announced[1] they have
entered into a definitive merger agreement to combine in an all-stock
transaction which values IHS at an enterprise value of $44 billion,
including $4.8 billion of net debt. Upon completion
of the transaction, current S&P Global shareholders will own
approximately 67.75% of the combined company on a fully
diluted basis, while IHS Markit shareholders will own approximately
32.25%. The transaction is expected to close in the
second half of 2021, subject to, among other things,
the expiration or termination of the applicable waiting periods under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, other antitrust and regulatory approvals, and
other customary closing conditions. The transaction requires the
approval of shareholders of both S&P Global and IHS Markit and is
not subject to any financing conditions.
Moody's views the transaction as credit positive. If transaction
synergies are realized, revenue will rise and EBITDA margins will
expand, driving leverage back to near 2x over the next 12-18
months -- well inside our leverage tolerance. Additionally,
the company's pro forma combined scale will increase significantly,
by approximately 1.6x, free cash flow will rise to near $3.5
billion (net of dividends) in the next 12-18 months, and
the business model will become more diversified, balanced and predictable,
with a larger base of recurring revenue (76% pro forma) with entry
in certain markets that are new to S&P. The growth profile
will also be improved, with IHS segments exhibiting generally higher
revenue growth trends. The consolidation of a competitor in adjacent
markets with complementary product offerings and similar customer bases
will create cross-selling opportunities, operational efficiencies,
and broader service offerings. According to management, the
company will be able to offer comprehensive and differentiated solutions
across data, platforms, benchmarks and analytics, and
expect to be able to leverage S&P's Kensho technology to extract
more value from the IHS data lake. There are particularly compelling
opportunities to develop and sell solutions in ESG, private markets,
and indices. We do not expect any material change in the excellent
liquidity profile of S&P post-merger. We expect the
IHS Markit legal entities to become wholly-owned subsidiaries of
S&P Global and for the senior unsecured instruments to be pari-passu
with the existing senior unsecured notes at S&P Global, achieved
either through cross guarantees or an obligation exchange settled shortly
after the transaction closes.
Initially, however, we expect the combination to result in
higher leverage and lower margins, and for financial policy to become
less conservative, with the leverage target increased to between
2.0x-2.5x (up by .25x, from 1.75x-2.25x)
and a higher shareholder return target of 85% (inclusive of 20%-30%
for dividends), versus 75% (both changes effective at transaction
close). We also expect, based on strong histories of execution,
that the targeted synergies are likely to be realized but are dependent
on the pace of execution.
Affirmations:
..Issuer: S&P Global Inc.
....Senior Unscured Shelf (Local Currency),
Affirmed (P)A3
....Senior Unsecured Commercial Paper (Local
Currency), Affirmed P-2
....Senior Unsecured Regular Bond/Debenture
(Local Currency), Affirmed A3
Outlook Actions:
..Issuer: S&P Global Inc.
....Outlook, Remains Stable
RATINGS RATIONALE
S&P Global Inc.'s credit profile benefits from its large scale
(rising to near $11.6 billion, Moody's projected
pro forma 2020 fiscal year end excluding synergies), and diversified
business model across a range of countries, market segments,
products, and end customers. There is a high degree of recurring,
and high margin revenues, from many customers across a range of
verticals with limited concentration. The company has leading market
positions in several its business including ratings, with significant
competitive barriers, pricing power, and growth opportunities.
S&P's data and analytics, indices, and commodities
pricing businesses are supported by sustainable demand drivers and good
profitability despite cyclicality in some segments. Likewise,
the addition of IHS will add leading positions in its financial services,
transportation, resources, and consolidated market solutions,
with better growth, slightly weaker margin profiles, and similar
exposure to cyclicality.
Key credit constraints for the combined company include S&P's
financial policy, with a leverage tolerance up to 2.5x (gross,
on Agency adjusted basis) and significant shareholder distributions.
Other credit risks include the cyclicality of certain segments and sensitivity
to market volatility, exposure to regulatory oversight which can
lead to increased compliance costs and business risks, and the potential
for increased competition that can threaten market position or operating
performance and or create the potential for a more aggressive M&A
posture or investment program.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
SPGI's liquidity is excellent, supported by substantial free cash
flow, a large cash balance, a large undrawn revolving credit
facility, no near-term maturities, and significant
covenant cushion.
The stable rating outlook reflects Moody's expectation for good
top line growth in the mid to high single digit percent range, strong
EBITDA margins of at least 50%, and strong free cash flows,
with low borrowing costs and limited capital intensity. We expect
shareholder returns of 75%-85%, leverage and
free cash flow to debt to remain inside our tolerances, and liquidity
to remain excellent.
Moody's could consider an upgrade if :
» Gross debt/EBITDA (Moody's adjusted) is sustained below 1.5x,
and
» FCF/debt (Moody's adjusted) is sustained above 30%
A positive rating action would also be considered if liquidity remained
excellent, financial policy turned more conservative, there
was lower exposure to regulatory and legal risks, less sensitivity
to market volatility, and a low probability of event risk that could
negatively impact the credit profile.
Moody's could consider a downgrade if:
» Gross debt/EBITDA (Moody's adjusted) is sustained above 2.50x,
or
» FCF/Debt (Moody's adjusted) is sustained below 20%
A negative rating action would also be considered if scale or diversity
declined, liquidity deteriorated, financial policy became
more aggressive, operating performance or business model weakened
materially, or there was a substantial decline in market share.
The principal methodology used in these ratings was Business and Consumer
Service Industry published October 2016, and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1037985.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
S&P Global Inc., a public company headquartered in New
York, is a leading provider of independent ratings, benchmarks,
analytics and data to the capital and commodity markets worldwide.
The Company's divisions include S&P Global Ratings, S&P
Global Market Intelligence, S&P Dow Jones Indices and S&P
Global Platts. S&P Global has approximately 22,500 employees
in 33 countries. Revenue for the last twelve months (LTM) ended
September 30, 2020 was approximately $7.3 billion.
IHS Markit Ltd. provides information, research, analytics
and other services to enterprise and government customers in several industries.
We expect about $4.6 billion in revenues for the fiscal
year ending November 2020.
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.
REFERENCES/CITATIONS
[1] Form 8-K (SEC) 30-Nov-2020
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.
Jason Cuomo
Senior Vice President
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
Lenny J. Ajzenman
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
