Fitch: Verisk's Rating Unaffected by $300MM Share Repurchase Authorization
OREANDA-NEWS. Verisk Analytics, Inc.'s (Verisk) 'BBB+' Issuer Default Rating (IDR) is not affected by the $300 million incremental share repurchase program approved by the company's board of directors, according to Fitch Ratings.
As of September 2015, Verisk had $189.8 million remaining under its existing $2 billion repurchase program. Fitch believes Verisk has sufficient free cash flow (FCF) generation to de-lever back to the company's target leverage of 2.5x and while supporting a modest level of buybacks. As of the last 12 months ended Sept. 30, 2015, Fitch estimates Verisk's pro forma total leverage to be approximately 2.9x (incorporates a full year of Wood Mackenzie [Wood Mac] which closed in May 2015.)
On Oct. 28, 2015, Verisk announced it is exploring strategic alternatives for Verisk Health (Health), its healthcare analytics business. Verisk is exploring alternatives given Health's lower margins and proprietary data concentration, and greater competition and capital intensity relative to Verisk's other businesses. Although Verisk did not disclose terms of any potential transaction, Fitch expects any proceeds generated would be used to repay bank debt, accelerating Verisk's delivering efforts.
Fitch's ratings incorporate the expectation that Verisk will de-lever back to 2.5x by year-end 2016 given strong FCF generation. Fitch projects annual pro forma FCF of approximately $515 million to $615 million (includes full year of Wood Mac and excludes Health.) Fitch notes that management has a demonstrated track record of de-levering to target levels following debt-funded acquisitions. Although Fitch assumes Verisk would use potential proceeds from a Health transaction to repay bank debt, we do not believe such an action is required for Verisk to de-lever back to 2.5x by year-end 2016.
In May 2015, Verisk completed the acquisition of Wood Mac, a UK-based data analytics company focused on the energy, metals and mining and agricultural spaces, for approximately $2.89 billion. The acquisition was financed by a combination of approximately $721.9 million in net proceeds from a common stock offering, $50 million from cash on hand, and $2.11 billion from the issuance of debt and borrowings under the revolving credit facility (RCF).
As of Sept. 30, 2015, the company had solid liquidity consisting of $168.8 million in cash, and $850 million available under its $1.75 billion RCF due May 2020. Verisk's liquidity position and overall financial flexibility is supported by FCF. Verisk reported $481 million in FCF as of September 2015. Verisk will have no material maturities until 2019 when $250 million in unsecured notes is due.
Fitch does not anticipate an upgrade within the rating horizon given the elevated leverage and the company's recent increase in its total leverage target from 2.0x to 2.5x. Fitch could upgrade the ratings if the company were to return to its previous leverage target of 2x with a rationale for such target and FCF-to-adjusted debt in the 20%-25% range.
Ratings may be pressured if the company's performance does not materially meet Fitch's expectations and leverage is unable to return to the 2.5x target level. While not expected, material share-buyback activity or additional debt-funded acquisitions that delayed the company's planned leverage reduction may also pressure the ratings.
Fitch currently rates Verisk as follows:
--Long-term IDR 'BBB+';
--Short-term IDR 'F2';
--Revolving credit facility 'BBB+';
--Senior unsecured notes 'BBB+'.