MRO Magazine

Fitch Rates Verisk’s Proposed Notes ‘BBB+’; Outlook Stable


May 11, 2015
By Business Wire News

NEW YORK

Fitch Ratings has assigned a ‘BBB+’ rating to Verisk Analytics, Inc.’s (Verisk) proposed issuance of benchmark-sized 10-year and 30-year senior unsecured notes. The proceeds from the offering are expected to be used, together with net proceeds from a recent $743 million common stock offering, borrowings under the new $1.75 billion credit facility, and cash on hand, to finance the recently announced acquisition of Wood Mackenzie. In addition, Fitch assigned a ‘BBB+’ rating to Verisk’s new five-year $1.75 billion revolving credit facility, which is expected to replace the existing revolver subject to certain conditions. A full list of ratings follows at the end of this release.

As part of the transaction, $220 million of private placement notes issued by Insurance Services Office, Inc. (ISO), a wholly owned subsidiary of Verisk, will be paid off. As a result, ISO will no longer guarantee any of Verisk’s existing notes, proposed notes and new credit facility.

As with Verisk’s previous note issuance, the proposed notes include a change of control put offer of 101% in the event of a change of control and subsequent downgrade to non-investment grade. A change of control includes any person/entity acquiring 50% or more of voting control of the company, a majority of directors of the board cease to be continuing directors, the sale of all or substantially all the assets of the company, or the adoption of a plan for liquidation or dissolution. The proposed notes also include a limitation on liens of up to 7.5% of total assets (in addition to standard carve outs).

On March 10, 2015, Verisk announced the acquisition of Wood Mackenzie, a UK-based data analytics company focused on the energy, metals and mining and agricultural spaces, for approximately $2.8 billion (GBP1.85 billion). The acquisition is expected to be financed by a combination of approximately $721.9 million in net proceeds from a recent common stock offering (subject to close May 12, 2015), $50 million from cash on hand, and the balance from the issuance of debt and borrowing under the revolving credit facility. The transaction price represents an 18x multiple of Wood Mackenzie’s fiscal year 2014 (FY14) reported EBITDA of approximately $155.6 million (GBP100 million). Fitch expects pro forma leverage of approximately 3.5x at closing followed by a period of de-levering to the company’s 2.5x leverage target. Given the minimal overlap between the two businesses, synergies should be comprised primarily of revenue enhancements, with minimal expected expense savings. However, Fitch takes into consideration that Wood Mackenzie’s tax rate of 22% allows the company to generate greater free cash flow (FCF) than a typical U.S. acquisition candidate.

KEY RATING DRIVERS

Fitch’s ratings incorporates Verisk’s 2.5x leverage target. Fitch notes that management has a demonstrated track record of de-levering to target levels following prior debt funded acquisitions. The company has stated that it is focused on reducing leverage to 2.5x by year-end 2016. Fitch believes the company will de-lever to 2.5x within 12 to 18 months after closing based on strong EBITDA margins of 47% to 48% and annual FCF expectations of $550 million to $650 million in the projection periods.

The acquisition offers several benefits to Verisk. Wood Mackenzie is the leading data analytics intelligence provider in the energy, petrochemicals, metal & mining spaces and has strong positioning, client relationship, and earnings powers. Its business model and financial profile are very similar to Verisk’s and represents new end markets with growth dynamics.

Verisk’s dominant market position within its Property and Casualty (P&C) insurance related businesses along with Fitch’s view that Verisk’s core products are largely non-discretionary purchases for most if not all of its clients provide sufficient flexibility within the ‘BBB+’ ratings to accommodate the temporary increases in leverage. Merger and Acquisition activity will remain core to Verisk’s overall strategy to grow the company’s data and product offerings and expand internationally, thereby further diversifying its product offerings. Fitch believes the company will reduce its focus on additional acquisitions during the de-levering period. It may also reduce scheduled buybacks if additional liquidity sources are required.

As of March 31, 2015, the company had solid liquidity consisting of $152.8 million in cash, and $957.9 million availability under its $990 million revolving credit facility due 2019 ($907.9 million available as of May 8, 2015). A new five-year $1.75 billion credit facility will replace the existing facility effective upon satisfaction of certain conditions. The new credit facility will not be guaranteed by any of Verisk’s subsidiaries. Verisk’s liquidity position and overall financial flexibility is supported by FCF, which amounted to approximately $392.2 million as of March 31, 2015. Fitch calculates FCF to adjusted debt of 25%, which is solid for the ratings. Fitch expects pro forma FCF to range from $550 million to $650 million during the ratings horizon and pro forma FCF to adjusted debt to return to approximately 20%.

Pro forma the transaction, Verisk will have no material maturities until 2019 when $250 million in unsecured notes is due.

KEY ASSUMPTIONS

Fitch’s key assumptions within the rating case for the issuer include:

–De-levering to 2.5x within 12 to 18 months after close of transaction;

–Subdued acquisition activities with modest pick-up in following years;

–Buybacks modeled but with optional reduction in stressed scenarios;

–CAPEX declines as a percentage of sales;

–Modest margin improvements with FCF of $550 million to $650 million in rating horizon.

RATING SENSITIVITIES

Fitch does not anticipate an upgrade within the rating horizon given the elevated leverage and the company’s increased total leverage target. 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 within 18 months. 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’s rates Verisk and its wholly owned subsidiary, Insurance Services Office, Inc., as follows:

Verisk

–Long-term IDR ‘BBB+’;

–Short-term IDR ‘F2’;

–New Revolving credit facility ‘BBB+’;

–Senior unsecured notes ‘BBB+’.

ISO

–Long-term IDR ‘BBB+’;

–Short-term IDR ‘F2’;

–Existing Revolving credit facility ‘BBB+’;

–Unsecured private placement notes ‘BBB+’.

Additional information is available at ‘www.fitchratings.com‘.

Applicable Criteria and Related Research:

Applicable Criteria and Related Research:

–‘Corporate Rating Methodology’ (May 28, 2014).

Applicable Criteria and Related Research:

Corporate Rating Methodology – Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=984438

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Fitch Ratings
Primary Analyst:
Jack Kranefuss, +1-212-908-0791
Senior Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst:
Brian Yoo, CFA, +1-212-908-9175
Associate Director
or
Committee Chairperson:
John Culver, CFA, +1-312-368-3216
Senior Director
or
Media Relations:
Alyssa Castelli, New York, +1-212-908-0540
alyssa.castelli@fitchratings.com
Elizabeth Fogerty, New York, +1-212-908-0526
elizabeth.fogerty@fitchratings.com