ICE Upped by Moody's on Fulfilling Deleveraging Commitments
Intercontinental Exchange Inc. (ICE) witnessed ratings upgrades from Moody’s Investor Service of Moody’s Corp. (MCO), given its consistent endeavors to reduce debt obligations, which mainly stemmed from the acquisition of NYSE in Nov 2013.
Accordingly, Moody’s lifted its senior unsecured rating to “A2” from “A3”. Additionally, the short-term rating was raised to “P-1” from “P-2”. The outlook for all ratings remain stable.
Strong Growth Outlook
Moody’s commended the proactive efforts of ICE to successfully integrate NYSE over the intermediate term. This is also reflected by the successful action taken so far to shift NYSE Liffe Europe, terminate Liffe’s New York Portfolio Clearing (:NYPC) operations, and divest the non-exchange technology units and Euronext platform of NYSE.
The company is also strongly committed to focus on an innovative growth strategy through both acquisitions and organic business development. Alongside, ICE lays emphasis on prudent enterprise risk management through steady reduction in debt and operating costs.
At Jun 2014-end, total debt was reduced to $3.9 billion from $5.1 billion at 2013-end, thereby improving financial leverage to 1.5x from the peak of over 3.0x.The company is expected to maintain this level in the coming quarters.
Such initiatives are also likely to enhance ICE’s operating leverage, given the company’s aim to realize about 44% of its $550 million (or $240 million) of targeted cost synergies by 2014-end. These savings are expected to boost fundamentals and cash flow as well as help expand margins to about 60% or more by 2016-end against about 50% in first-half 2014.
The 5-year revolving credit facility worth $3.0 billion, effective Apr 2014, along with strong cash flows and other means of funds further accentuate liquidity. Furthermore, the company has reserved about $1.3 billion from the proceeds of Euronext IPO to fund the bond redemption, due in mid-2015.
ICE’s return on invested capital (ROIC) also remains the strongest in the industry. Though intense competition, challenging regulations and changing industry dynamics have taken a toll on trading volumes, we believe that a strong product portfolio and capital position, disciplined investment, de-leveraging balance sheet and improved economy will enable ICE to generate strong shareholder value in the long run.
Currently, ICE carries a Zacks Rank #3 (Hold). Meanwhile, one could consider better-ranked peers like Markit Ltd. (MRKT) and MarketAxess Holdings Inc. (MKTX), both sporting a Zacks Rank #1 (Strong Buy).
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