Fitch Rates TP ICAP's GBP500m Senior Bond 'BBB-'
The bond proceeds are being used to refinance a GBP470m drawing on a debt facility that had been put in place to finance the acquisition of NEX Group plc's (NEX) global voice and hybrid broking business completed on 30 December 2016 (see 'Fitch Affirms NEX Group plc's Subsidiaries and TP ICAP on Transaction Completion', dated 10 January 2017 and available on www. fitchratings. com). Consequently, we do not expect the bond issue to lead to a meaningful increase in TP ICAP's overall cash flow leverage.
KEY RATING DRIVERS
The senior unsecured bond is rated in line with TP ICAP's Long-Term Issuer Default Rating (IDR) and existing senior unsecured debt ratings as Fitch views the probability of default on senior unsecured debt as the same as the probability of default of the entity. The bond's rating is therefore driven by the same considerations that drive TP ICAP's Long-Term IDR. (See our 10 January 2017 commentary for a summary of TP ICAP's key rating drivers).
The rating of the senior unsecured bond is primarily sensitive to changes in TP ICAP's Long-Term IDR.
Upside to TP ICAP's Long-Term IDR is limited given higher leverage following the acquisition and our view of continuing pressure on traditional broking revenues.
Larger-than-expected revenue declines or material delays in realising cost synergies, which would negatively affect EBITDA, could lead to a downgrade of TP ICAP's Long-Term IDR. Should TP ICAP's gross-debt/adjusted EBITDA exceed 2.5x on a sustained basis, this would put pressure on the Long-Term IDR. We expect TP ICAP's cash-flow leverage to peak at 2.4x in 2017.
Although not expected by Fitch, should the bond proceeds not be applied to reduce outstanding drawings on the debt facility, this could put pressure on the entity's cash flow leverage, Long-Term IDR and consequently senior unsecured debt ratings.