S&P: CME Group Inc. 'AA-/A-1+' Ratings Affirmed; Outlook Remains Stable
"CME Group has performed slightly better than we expected for the 12 months ended June 30, 2016," said S&P Global Ratings credit analyst Olga Roman. "The company's revenue in the first six months of 2016 was up approximately 11% from the same period in 2016." CME Group's total average daily volume (ADV) was about 16 million contracts for the first six months of 2016, up 13% from 14.1 million in the first half of 2015, driven by both financial and commodity products. The company's EBITDA margin was 70% as of June 30, 2016, and we expect the company to continue to operate with an EBITDA margin around 70%, above most of its peers'.
Our rating reflects the company's market position as one of the largest derivatives exchanges in the U. S. and in the world. Additionally, the company's strong market liquidity, vertically integrated business model, diversified product offerings, and global client base support its business position.
As of June 30, 2016, the company's gross debt totaled $2.5 billion, including $2.2 billion of long-term debt and about $288 million of operating leases that we consider debt. The company had about $1.2 billion of cash and cash equivalents, of which we consider about $1 billion restricted because it is held at regulated entities. CME Group's funds from operations (FFO) to debt and adjusted debt to EBITDA were 71.9% and 0.95x, respectively, as of June 30, 2016.
The stable outlook reflects our expectation that CME Group will remain a leader in the global derivatives markets and will maintain minimal financial risk over the next 18-24 months. The outlook also factors in our assumption that CME Group clearinghouses will not relax their financial safeguards as a means to protect market share from potential competitive threats.
We could lower the ratings on CME Group if it loses substantial market share in some of its more important listed contracts or if it pursues more aggressive financial policies, such that FFO to debt declines below 50% or adjusted debt to EBITDA increases to more than 1.75x on a sustained basis. Additionally, we could lower the ratings if its financial safeguards materially weaken.
We consider an upgrade unlikely in the next two years.