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Rating Action:

Moody's changes outlook on Duff & Phelps' B2 rating to negative; New Second-Lien Facility rated Caa1

11 Aug 2015

New York, August 11, 2015 -- Moody's Investors Service, ("Moody's") today affirmed Duff & Phelps Corporation's B2 corporate family rating (CFR) and the B2 rating on its senior secured first lien bank credit facility, and assigned a B2 rating to its extended $75 million revolving credit facility and a Caa1 rating to the company's second lien bank credit facility. At the same time, the rating outlook was changed to negative. The rating action follows the company's announced intention to borrow up to an additional $152 million on its credit facilities and pay a dividend to shareholders of up to $195 million.

RATINGS RATIONALE

The borrowing consists of an increase of up to $42 million in the firm's first-lien facility as well as the addition of a $110 million second lien facility. The increase comes on top of an incremental $160 million which Duff & Phelps borrowed at the beginning of this year to finance two acquisitions. As a result, the firm's total bank debt outstanding on a pro forma basis as of June 30, 2015 of $785 million will be nearly two-thirds as much as the $478 million outstanding a year earlier. Notwithstanding an improvement in the firm's earnings and cash flows over the same time frame, the resulting pro forma cash flow leverage is significant. On a Moody's adjusted basis, pro forma debt/EBITDA is estimated to be 7.6x on a trailing twelve months basis including the two acquisitions as if they were fully owned for the entire time period.

Sustained leverage at this level would be inconsistent with Duff & Phelps current ratings. However, Moody's expects additional improvements in the firm's cash flows over the medium term as integration and retention expenses related to the recent acquisitions decline and operating leverage is realized. Notwithstanding the firm's aggressive financial policies, these improvements, together with scheduled amortization and mandatory excess cash flow prepayments are expected to reduce the firm's cash flow leverage back down to levels more consistent with its current ratings. Moody's expects that debt/EBITDA on a Moody's adjusted basis will fall to at least 6.2x by the end of 2016, and below 6x soon thereafter.

However, the planned incremental borrowing leaves the firm with no headroom for additional leverage at the current rating level. This may prove to be a challenge for the firm to adhere to given its professed desire to continue to make additional bolt-on acquisitions. To the extent such acquisitions are funded with additional borrowings, including any draw-down on the firm's revolver for other than temporary liquidity needs, the firm's ability to return its leverage to levels consistent with the current rating over the medium term would likely be impaired. Moody's said the negative outlook reflects this risk to the current ratings.

The rating assigned to the $110 million in second lien debt reflects the relatively small amount of such debt compared to the total debt obligations of the firm as well as the limited degree of asset coverage. As such, Moody's expects that severity of loss on the second lien in the event of default would be extremely high, resulting in a two notch differential between the CFR and the rating on the second lien facility.

What Could Change the Rating -- Up

Strong and sustainable organic revenue growth, positive operating leverage, and improved debt service capacity could result in upward rating pressure, unless offset by increased leverage.

What Could Change the Rating -- Down

The absence of anticipated improvements in cash flows, or a further increase in debt, could result in a downgrade, particularly if it becomes less likely that the firm will be able to de-lever below 6x by early 2017. Evidence of weakening financial flexibility such as through the maintenance of limited cash balances and/or ongoing utilization of the company's revolving credit facility could also result in a downgrade.

The principal methodology used in these ratings was Global Securities Industry Methodology published in May 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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 following information supplements Disclosure 10 ("Information Relating to Conflicts of Interest as required by Paragraph (a)(1)(ii)(J) of SEC Rule 17g-7") in the regulatory disclosures made at the ratings tab on the issuer/entity page on www.moodys.com for each credit rating:

Moody's was not paid for services other than determining a credit rating in the most recently ended fiscal year by the person that paid Moody's to determine this credit rating.

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.

Donald Robertson
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Robert Young
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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

Moody's changes outlook on Duff & Phelps' B2 rating to negative; New Second-Lien Facility rated Caa1
No Related Data.
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