Fitch Expects to Rate Invesco Finance PLC's $500MM Sr. Unsecured Notes 'A-'
KEY RATING DRIVERS
SENIOR UNSECURED DEBT
Invesco Finance's expected unsecured notes rating is equalized with Invesco's Issuer Default Rating (IDR) of 'A-', reflecting the parent guarantee provided to Invesco Finance by Invesco and the fact that the debt is expected to rank pari passu with existing notes issued by Invesco Finance in terms of payment priority.
Leverage, as measured by gross debt-to-adjusted trailing 12 months (TTM) EBITDA, which was 0.93x at June 30, 2015, is expected to increase to 1.21x pro forma for the transaction. While elevated, pro forma leverage remains consistent with Fitch's articulated leverage threshold of 1.5x or less for traditional investment managers rated in the 'A' category. Furthermore, until and unless the debt proceeds are deployed, the firm's net debt-to-adjusted EBITDA is not expected to be affected.
Invesco's IDR reflects the firm's strong investment management franchise, AUM growth and diversification and stable leverage. These strengths are balanced against the sensitivity of the business model to broader financial markets; continued seeding of new investment strategies; leverage, interest coverage and margin levels which although strong, are weaker relative to more highly rated peers; and moderate exposure to the money market fund business, which introduces regulatory and contingent liability risks.
SENIOR UNSECURED DEBT
Fitch revised Invesco's Rating Outlook to Positive from Stable on June 15, 2015, reflecting continued strong investment performance, levelling of seed capital investments and an increased focus on organic growth over debt-funded acquisitions, which resulted in stable leverage. Fitch views Invesco's planned increase in gross leverage with caution relative to the Positive Outlook.
At a minimum, deleveraging as a result of increased EBITDA generation and/or sustained retention of the debt issuance proceeds in cash or cash equivalents would be necessary for the Positive Outlook to translate into positive rating action. Conversely, if deleveraging does not occur over time or if debt issuance proceeds are deployed into acquisitions, this could have negative rating implications.
Longer term, positive rating momentum could be supported by a reduction in leverage to below 1.0x on a gross debt-to-adjusted-EBITDA basis, continued expansion and diversification of the Invesco franchise organically, as opposed to through acquisitions, and continued stabilization of seed capital investments. Conversely, ratings and/or the Positive Outlook could come under pressure if there is a severe and prolonged decline in equity markets, a large acquisition that increases leverage, operational losses or significant net redemptions.