S&P: Bats Global Markets Inc. Ratings Placed On CreditWatch Positive On Announced Acquisition By CBOE
"The CreditWatch action follows CBOE Holdings Inc.'s announcement that it plans to acquire Bats Global Markets," said S&P Global Ratings credit analyst Olga Roman. The purchase price is approximately $3.2 billion, including a mix of stock and debt. CBOE intends to fund the cash portion of the consideration and the refinancing of Bats' debt through available cash and new borrowings of $1.65 billion.
In our view, this transaction could strengthen Bats' financial risk profile by reducing the company's outstanding debt and supporting cash flow generation by lowering interest expenses. Additionally, our ratings on Bats likely will benefit from implicit support from CBOE holdings, according to our group rating methodology.
Bats Global Markets Inc. is a nonoperating holding company, which through its subsidiaries develops and operates electronic markets for the trading of listed cash equity securities in the U. S. and Europe, listed equity options in the U. S. and a foreign exchange market globally. In the U. S., Bats operates four national securities exchanges: Bats Exchange Inc. (BZX), Bats Y-Exchange Inc. (BYX), EDGX Exchange Inc. (EDGX), and EDGA Exchange Inc. (EDGA). All trade listed cash equity securities and exchange-traded products, but each target different customer segments by offering different pricing alternatives. BZX and EDGX also operate markets for trading listed equity options, and the company also lists exchange-traded funds (ETFs) on BZX.
Our ratings on Bats reflect the company's solid market position in U. S. and European equities, globally diversified customer mix, and scalable technology platforms. However, the company's revenue still depends heavily on the trading volumes of the U. S. equity markets. The company's significant leverage weighs on its financial risk profile. Based on EBITDA in the 12 months ended June 30, 2016, the company's debt to adjusted EBITDA and FFO to debt were about 2.3x and 29%, respectively.
During the CreditWatch period, we will gather additional information on the transaction as well as determine our view of Bat's strategic importance to CBOE. We will resolve the CreditWatch status upon the completion of the merger. Alternatively, we may resolve the CreditWatch sooner in the event acquisition plans are called off. In this case, we would reevaluate Bat's creditworthiness as a stand-alone entity.