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Rating Action:

Moody's confirms London Stock Exchange Group plc's ratings (A3 senior), with stable outlook

29 Jan 2021

New York, January 29, 2021 -- Moody's Investors Service (Moody's) has confirmed London Stock Exchange Group plc's (LSEG) A3 long-term issuer and senior unsecured ratings and affirmed its Prime-2 commercial paper ratings. Concurrently, Moody's has confirmed London Stock Exchange plc's (LSE) A3 issuer ratings. Moody's said LSEG and LSE have stable outlooks. Moody's rating action followed LSEG's announcement[1] that it has completed the all-share acquisition of Refinitiv (affiliated with Refinitiv US Holdings Inc., B3 review for upgrade). The rating action concludes the review for downgrade of LSEG's and LSE's long-term ratings, that was initiated on 2 August 2019 following LSEG's announcement that it had agreed to acquire Refinitiv and would seek to issue about $13.5 billion in new debt to refinance/repay all of Refinitiv's existing debt obligations upon closing. Moody's plans to withdraw Refinitiv's ratings because all of its debt will be repaid as part of the transaction.

A complete list of affected ratings and entities can be found at the end of this press release.

RATINGS RATIONALE

Moody's confirmed LSEG's ratings because its requirement to sell Borsa Italian Group (BIG) as a condition of the European Commission's approval of the Refinitiv acquisition[2], and its plan to use the net proceeds to reduce debt and for general corporate purposes[3], will significantly boost its pace of delevering. "Although LSEG's creditors bear incremental risk during its period of heightened leverage following the Refinitiv acquisition, the strategic and financial opportunities associated with this transformative deal mitigate the short-term risk, and Refinitiv's largely recurring subscription-based revenue stream with high retention rates substantially reduces the down-side risk," said Donald Robertson, Moody's Senior Vice President.

LSEG has agreed to sell BIG to Euronext N.V. for €4.3 billion (plus certain additional consideration reflecting cash generation to completion)[4], and expects the sale to occur in the first half of 2021. Moody's base case scenario for LSEG projects slightly below 4x Moody's-adjusted debt leverage at the time of the Refinitiv acquisition, improving to about 2x within two years. This is broadly consistent with LSEG's assessment that it will return to within its 1-2x net operating leverage target (by its measure) within two years.

Moody's said that corporate governance considerations were among the key factors behind the rating action. The inherent credit risk associated with LSEG's willingness to substantially increase leverage is reflected in a one-notch downward adjustment for corporate behavior in LSEG's rating configuration. This willingness to substantially increase leverage became apparent when LSEG originally announced its intention to acquire Refinitiv, and before its regulatory-mandated decision to sell BIG.

Moody's said LSEG's successful integration of Refinitiv would result in the business combination being a robust and diverse global financial infrastructure provider that could improve LSEG's financial profile by further strengthening and diversifying its cash flows. However, the complexity of the integration plan is reflected in its anticipated five-year duration and the magnitude of the integration costs and related synergy benefits. LSEG expects to incur about GBP730 million in order to realize over GBP350 million of annual cost synergies and over GBP225 million of annual revenue synergies. "Since the acquisition agreement was first announced, both firms have had an extensive period of time to plan the integration, and the related synergy targets broadly appear to be achievable," said Robertson.

Moody's said LSE's long-term issuer ratings are at the same level as LSEG's on account of LSE's own strong financial fundamentals as well as its close financial and business links with its parent. As a subsidiary operating company, LSE's obligations are structurally superior to LSEG's, and its credit profile benefits from not having issued debt. However, in comparison to LSEG's creditworthiness, these benefits are offset by LSE's concentrated business activity, since it doesn't benefit from the significant amount of business diversification that its parent derives from its activities in a number of different businesses and geographies.

Moody's said the Prime-2 ratings on LSEG's commercial paper program maps to LSEG's A3 long-term ratings, consistent with Moody's approach for determining short-term ratings using its Global Short-Term Rating Scale.

Moody's said LSEG's stable outlook reflects the scale and diversification benefits associated with the transformative Refinitiv acquisition and the related strategic and financial opportunities associated with the combination, offset by the increase in leverage incurred through acquiring and refinancing Refinitiv's debt and the inherent risks incumbent to the lengthy integration period.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Moody's said LSEG's ratings could be upgraded should strong evidence develop that the Refinitiv acquisition is being successfully integrated according to LSEG's plan. A change in financial policy towards a stronger level of targeted debt leverage could also result in an upgrade.

Indications that delevering might not occur according to schedule could trigger a downgrade, said Moody's. These indications would include evidence of substantial problems or delays in integrating LSEG and Refinitiv, failure to realize sufficient organic growth, a shift in financial policy towards a looser debt leverage target or entering into another significant acquisition. Other factors that would cause downward rating pressure include a material operational or risk control failure and changes in regulatory requirements that would worsen LSEG's financial position through increased capital or liquidity needs at its central counterparty clearing activities. A downgrade in LSEG's ratings would likely precipitate a downgrade in LSE's ratings because of the close financial and strategic ties between the two entities. LSE's ratings could also be downgraded should its financial profile be weakened by debt issuance.

The principal methodology used in these ratings was Securities Industry Service Providers Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187116. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Confirmations:

..Issuer: London Stock Exchange Group plc

.... Issuer Rating, Confirmed at A3

....Senior Unsecured Medium-Term Note Program, Confirmed at (P)A3

....Senior Unsecured Regular Bond/Debenture, Confirmed at A3

..Issuer: London Stock Exchange plc

.... Issuer Rating, Confirmed at A3

Affirmations:

..Issuer: London Stock Exchange Group plc

....Senior Unsecured Commercial Paper, Affirmed P-2

Outlook Actions:

..Issuer: London Stock Exchange Group plc

....Outlook, Changed To Stable From Rating Under Review

..Issuer: London Stock Exchange plc

....Outlook, Changed To Stable From Rating Under Review

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_1243406.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

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.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

REFERENCES/CITATIONS

[1] LSEG announcement 29-Jan-2021

[2] European Commission press release 13-Jan-2021

[3] LSEG announcement 09-Oct-2020

[4] LSEG announcement 09-Oct-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.

Donald Robertson
Senior Vice President
Financial Institutions 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

Ana Arsov
MD - Financial Institutions
Financial Institutions 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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