S&P Pares NYSE Rating a Notch - Analyst Blog
14 Marzo 2013 - 7:08PM
Zacks
Standard & Poor's Ratings Services’ (S&P) concern over
the $8.2 billion acquisition of NYSE Euronext Inc.
(NYX) by IntercontinentalExchange Inc. (ICE)
climbed higher as it trimmed the credit and debt ratings of NYSE.
The ratings agency is skeptical about the raised debt amid weak
fundamentals.
Accordingly, the ratings agency cut NYSE’s long-term issuer
credit rating (ICR) and senior unsecured debt rating to “A” from
“A+.” S&P had kept NYSE on a CreditWatch with negative
implications since Dec 2012, when it assigned an ICR of “A+/A-1” to
the company. A CreditWatch acts as a red flag and allows a company
to monitor its actions before causing a detrimental effect on
ratings.
S&P remains wary of NYSE’s inflated debt position, which the
company plans to carry in the merged company as well.With a
long-term debt of $2.1 billion at the end of 2012, NYSE bears the
brunt of higher borrowing costs, which further constricted margins.
At present, higher debt and capital expenditure has led NYSE’s
debt-to-EBITDA ratio to deteriorate to 2.5x at 2012-end from 1.6x
at 2011-end, which again underscores ample financial and operating
risks.
The ratings agency has also casted a concerned outlook on the
merger, which is expected to culminate by the second half of 2013,
subject to the fulfillment of regulatory compliances in the U.S.
and Europe. The financial risks from the higher debt obligations do
not make this potentially strong merger any less risky.
This is due to the fact that IntercontinentalExchange plans to
squeeze all of its cash of $1.0 billion and raise another $1.8
billion from its revolving credit facility. According to S&P,
this leaves the combined entity with a debt burden of about $4.7
billion and debt-to-EBITDA ratio of 2.2x, which still remains in at
a risky level. Hence, S&P expects to continue with the
CreditWatch until the NYSE-IntercontinentalExchange deal culminates
or falls apart.
Others
While both NYSE and IntercontinentalExchange carry a Zacks Rank
#3 (Hold), other strong performers in the financial sector include
Euronet Worlwide Inc. (EEFT) and Moody’s
Corp. (MCO), both of which carry a Zacks Rank #1 (Strong
Buy).
EURONET WORLDWD (EEFT): Free Stock Analysis Report
INTERCONTINENTL (ICE): Free Stock Analysis Report
MOODYS CORP (MCO): Free Stock Analysis Report
NYSE EURONEXT (NYX): Free Stock Analysis Report
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