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Rating Action: Moody's affirms Broadridge at Baa1; revises outlook to negative following debt financed acquisitionGlobal Credit Research - 30 Mar 2021New York, March 30, 2021 -- Moody's Investors Service ("Moody's) affirmed Broadridge Financial Solutions Inc.'s ("Broadridge") senior unsecured debt rating at Baa1 and revised the outlook to negative from stable. The negative outlook revision follows the announcement of Broadridge's planned debt funded acquisition of software provider Itiviti Holding AB ("Itiviti") in an all-cash transaction valued at approximately $2.5 billion expected to close by the end of FY21 (ending June). Broadridge plans to finance this transaction through a new $2.55 billion term credit agreement.Moody's believes the acquisition will improve the company's scale and product capabilities, particularly with respect to front office trading offerings for Broadridge's capital markets clients, while concurrently extending the company's international presence as well as adding product diversity to the overall business. However, this transaction will result in an entity with a meaningfully more levered capital structure. Pro forma LTM Debt/EBITDA (Moody's adjusted for operating leases and pensions) will increase to 3.5x at closing from about 2x prior to the transaction and Moody's projects that debt leverage after factoring in anticipated debt repayment will approximate 2.3x at the end of FY23.Moody's took the following rating actions:Affirmations:..Issuer: Broadridge Financial Solutions Inc.....Senior Unsecured Regular Bond/Debenture, Affirmed Baa1Outlook Actions:..Issuer: Broadridge Financial Solutions Inc.....Outlook, Changed To Negative From StableRATINGS RATIONALEBroadridge's Baa1 senior unsecured debt rating is supported by the company's steady, recurring fee-based revenue and its leading position in proxy and other investor communication services which provides healthy business visibility and cash flow predictability. The company maintains a business model supported by the SEC's proxy filing requirements, long-term customer contracts, and the long-term growth of equity positions. In particular, the company's core Investor Communication Solutions segment ("ICS"), that accounts for over 70% of Broadridge's pro forma revenues, experiences little volatility as the vast majority of revenues are recurring annually and only a modest amount are derived from event-driven activities. The company's credit quality is also bolstered by the quality of Broadridge's management team which has demonstrated a solid track record in recent years for achieving stated operating performance targets and the company's largely independent board of directors which limits corporate governance concerns. However, Moody's believes that the Broadridge's higher leverage, shift to a more aggressive financial strategy with a raised leverage target of 2.5x , intensified pursuit of acquisitions to support overall revenue growth, and ongoing long term focus on shareholder returns including dividends and share repurchases present incremental credit risk. Additionally, despite Broadridge's recurring revenue model, the company has a business profile marked by relatively high customer and geographic concentration in the financial services industry, which is exposed to macroeconomic cyclicality, increased regulation, and the possibility for further consolidation.Broadridge's liquidity is supported by an available cash balance of $365.6 million and revolver availability under its multicurrency facility of nearly $968 million as of December 31, 2020. In addition, Moody's expects free cash flow (after dividends) of approximately $450 million over the coming year which is projected to be used principally for debt repayment associated with the Itiviti acquisition.The negative rating outlook reflects Moody's expectation of more aggressive financial policies that may lead to additional acquisitions and a higher leverage threshold. Moody's expects that Broadridge's revenues, on an organic basis, will expand at a mid single digit rate over the coming year with operating leverage benefits driving strong pro forma EBITDA growth during this period. Pro forma Debt/EBITDA is expected to decrease to 3x by the end of FY22.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSBased on Broadridge's negative outlook and current business profile, a rating upgrade is unlikely over the near term. Over the long term, the ratings could be upgraded if Broadridge maintains its leading market position while increasing its overall size and scale and sustains adjusted debt to EBITDA in the low 1x range.The ratings could be downgraded if revenues decline on a sustained basis, operating margins deteriorate towards 10%, or Broadridge's adjusted debt to EBITDA is expected to exceed 2.5x on a sustained basis.With projected annual revenues of more than $5.1 billion in FY22, Broadridge is the market leader in proxy distribution and processing services. The company also provides other investor communications, securities processing, securities clearing and operations outsourcing services for the financial services industry.The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1037985. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. 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