OREANDA-NEWS. S&P Global Ratings today assigned its 'BBB' issue-level and '1' recovery ratings to Nielsen Finance LLC's proposed $500 million senior secured class B-3 term loan. The '1' recovery rating indicates our expectation for very high recovery (90%-100%) of principal for debtholders in the event of a payment default. Nielsen Finance is a wholly owned subsidiary of New York City-based global information and measurement company Nielsen Holdings PLC (Nielsen).

Nielsen will use the proceeds from the proposed debt to repay its term loan B-1 due May 2017 ($490 million outstanding).

We view Nielsen's business risk profile as satisfactory. As the leading global provider of media measurement and retail sales and market share data, Nielsen benefits from superior market positions in its two principal businesses: "What Consumers Watch" and "What Consumers Buy." Nielsen's television audience measurement service, which is part of the "Watch" segment, is the industry standard in the U. S. and is unlikely to be displaced over the next five years. The "Buy" segment benefits from a global footprint, but its clients' spending is vulnerable to economic cycles and its financial results could be more cyclical. We expect that Nielsen's operating performance will remain stable, given the high proportion of its sales under multiyear contracts and the strong renewal rates (85% of the "Watch" and 60% of the "Buy" business segments' revenues, in aggregate, are recurring)

Our business risk profile assessment also incorporates our view that the company's strong market position could come under pressure in the long term. Nielsen's superior position in TV audience measurement could become less important as audience fragmentation accelerates and smaller players develop innovative audience measurement services. To remain competitive, Nielsen must continue to make significant capital investments in new products that measure online usage and engagement, including for mobile media usage, and gain acceptance of them with ad agencies and clients. Increased competition, together with business reinvestment, could temper cash flow growth. We believe Nielsen's "Buy" segment could benefit from an improving global economy and international growth in the middle class. Regional economic weakness, such as in Europe, could temper this because consumer products companies could choose to delay or postpone new product launches in those regions.

We view Nielsen's financial risk profile as significant, based on our view that the company is committed to maintaining adjusted leverage at or below the 4x threshold we've set for the 'BB+' rating. Although adjusted leverage could rise above 4x due to seasonal variability (revenues and cash flow generally are lower during the first half of the year versus the second half), we expect it to remain, on average, below 4x on a sustained basis, beginning in 2017. Due to the company's aggressive share repurchase program over the last 18 months (it planned to purchase $1 billion in stock by mid-year 2016), its adjusted leverage was 4.5x as of June 30, 2016. We believe the company will significantly curtail its repurchase activity going forward. Nielsen has $500 million left on its current authorization, which we expect the company to largely use by the end of 2017. Our adjusted leverage calculation includes adjustments for operating leases, pensions, and accrued interest, and it includes surplus cash. We also include restructuring and acquisition costs in our EBITDA calculation.

Nielsen has publicly committed to a net leverage target "in the 3x area," which is roughly 0.4x below our adjusted leverage calculation. In addition, the company's long-term capital allocation plan for its free cash flow consists of 45% allocated to dividends, 40% to stock buybacks and small tuck-in acquisitions, and 15% to debt amortization payments. We believe that leverage reduction will be modest under this plan, and it will be determined by organic EBITDA growth and the size and frequency of Nielsen's capital markets activity to fund the shareholder-friendly actions.