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Rating Action:

Moody's affirms S&P Global's A3 rating following merger announcement with IHS Markit; outlook remains stable

30 Nov 2020

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

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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