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FactSet Research Systems Inc. -- Moody's assigns first-time Baa3 senior unsecured rating to FactSet's notes issuance; outlook is stable

Rating Action: Moody's assigns first-time Baa3 senior unsecured rating to FactSet's notes issuance; outlook is stableGlobal Credit Research - 11 Feb 2022New York, February 11, 2022 -- Moody's Investors Service ("Moody's") assigned a Baa3 senior unsecured rating to FactSet Research Systems Inc.'s ("FactSet" or "the company") proposed senior notes offering. The outlook is stable.FactSet intends to raise new debt consisting of (i) a new $500 million senior unsecured 5-year revolving credit facility, (ii) a new $1,000 million 3-year senior unsecured term loan, and (iii) $1,000 million senior unsecured notes. Proceeds from the proposed funded debt issuance, along with a $250 million draw on the revolving credit facility and $275 million of cash on hand, will be used to finance the acquisition of CUSIP Global Services ("CGS") from S&P Global Inc. (A3, stable), to repay existing debt and to fund transaction fees and expenses.Governance considerations were a key ESG factor in the ratings. Moody's expects the company will allocate free cash flow to pay down debt following the completion of the CGS acquisition and sustain conservative financial policies.The following ratings/assessments are affected by today's action:New Assignments:..Issuer: FactSet Research Systems Inc.....Senior Unsecured Notes, Assigned Baa3Outlook Actions:..Issuer: FactSet Research Systems Inc.....Outlook, Assigned StableRATINGS RATIONALE"FactSet's relatively modest scale and limited end-market diversification are offset by an entrenched position in the financial information services industry, a resilient revenue base and strong profitability rates. The expectation for sustained conservative financial policies, including debt repayments following the acquisition of CUSIP Global Services, is a key assumption supporting its investment-grade rating," said Ignacio Rasero, Moody's Senior Credit Officer.FactSet's rating reflects the company's established position as one of the leading providers of financial data and analytics solutions to the global investment community. The company's subscription-based products support key front-office decision-making functions for a data-hungry client base, as well as middle- and back-office workflow efficiencies. FactSet's modular offerings can be tailored to specific information needs, which facilitates their integration within the operational workflows of its clients, creating a sticky relationship that is reflected in high customer retention rates. The company's client base is exposed to macroeconomic swings in the financial services industry, which can pressure revenue during downturns. However, a recurring revenue base, supported by subscription contracts with certain pricing protections against volume fluctuations, provides revenue stability and mitigates cyclical risks. Strong EBITDA margins, around 37% (Moody's adjusted), and low capex needs result in good free cash flow generation capacity.FactSet operates in a competitive environment against much larger information services peers with deep pockets. Competitors such as Bloomberg (unrated), London Stock Exchange Group plc (A3, stable), S&P Global Inc. (A3, stable), BlackRock, Inc. (Aa3, stable) and others could exercise pricing pressure or increase investments to develop superior products. FactSet's scale and end-market range are also relatively small compared to services providers in the rating category, which are key rating constraints. The company reported $1.8 billion in revenue as of the twelve months ending November 2021, pro forma for the announced acquisition of CUSIP Global Services ("CGS") from S&P Global, which will be mostly funded with debt.Closing leverage is very high for the rating category at roughly 3.7x as of November 2021 (Moody's adjusted), but Moody's assumes the company will allocate most of its free cash flow to pay down debt upon completion of the CGS transaction, reducing debt/EBITDA toward 2.5x over the next 12-18 months, a level more appropriate for the rating and a critical driver of the rating outcome. The rating assumes long-term conservative financial policies that will sustain more modest levels of financial leverage in the 2.0x - 2.5x range (Moody's adjusted). Importantly, the ratings could be downgraded if FactSet does not reduce debt/EBITDA toward 2.5x within 18 months. Additional transactions that extend FactSet's deleveraging timeline beyond 12-18 months post-closing of the CGS transaction would likely result in a ratings downgrade.The stable outlook reflects Moody's expectation for organic revenue growth in the mid to high single-digit range over the next 12-18 months and modestly expanding EBITDA margins in the 36% - 38% range (Moody's adjusted), as FactSet integrates CGS' higher margin assets and benefits from a larger scale and cost rationalization initiatives. Top line growth, modestly expanding profitability and, most importantly, debt repayments, are expected to reduce leverage toward 2.5x over the next 12-18 months (Moody's adjusted).FactSet's liquidity position is strong, supported by roughly $400 million of cash and equivalents (as of November 2021, pro forma for the acquisition of CGS), as well as the expectation for annual free cash flow above $350 million over the next 12 months (Moody's adjusted, after dividends, assuming the CGS acquisition closes around the end of March 2022). The company will also have partial access to a new 5-year $500 million unsecured revolving credit facility, which is expected to have a $250 million pro forma draw at closing. The proposed capital structure includes a $1 billion 3-year term loan facility with 5%, or $50 million, annual amortization requirements. FactSet's free cash flow generation capacity provides ample headroom to cover amortization payments.The senior unsecured revolver and term loan facilities are subject to compliance with two financial covenants. The Maximum Net Leverage Ratio (as defined in the Credit Agreement) must be below 4.0x, with step downs to 3.75x and 3.50x after the 5th and 9th fiscal quarters following the closing of the CGS acquisition. The ratio is expected around 2.9x at closing. The Minimum Interest Coverage Ratio (as defined in the Credit Agreement) must be at least 3.0x and will not be applicable if an Investment Grade Event (as defined in the Credit Agreement) occurs. Moody's expects an ample headroom under the financial covenants over the next 12 months.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe ratings could be upgraded if the company demonstrates sustained revenue growth and profitability over time, as well as resiliency throughout economic cycles. An upgrade would require increased scale and end-market diversification, relative to industry peers and issuers in the rating category. Conservative financial policies with debt/EBITDA sustained below 2.0x would also be required for an upgrade.The ratings could be downgraded if FactSet does not reduce debt/EBITDA toward 2.5x within 12-18 months. Additional transactions that extend FactSet's deleveraging timeline beyond 12-18 months post-closing of the CGS acquisition would likely result in a ratings downgrade. Over the longer term, the ratings could be downgraded if (i) revenue growth slows down or profitability diminishes, indicating a weakened competitive position; (ii) long-term financial policies become more aggressive with debt/EBITDA expected to be at or above 3.0x; or (iii) liquidity deteriorates.The principal methodology used in these ratings was Business and Consumer Services published in November 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1287897. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.FactSet Research Systems Inc. is a global financial data, software and analytics company serving over 162,000 asset managers and owners, bankers, wealth managers, corporates, private equity, venture capital, and other firms through the FactSet platforms. FactSet announced in December 2021 its plan to acquire CUSIP Global Services ("CGS") from S&P Global. The transaction is expected to close in the first 2022 calendar quarter. Pro forma with the acquisition, Moody's expects FactSet will generate roughly $1.9 billion in revenue for the fiscal year ending August 31, 2022.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. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.At least one ESG consideration was material to the credit rating action(s) announced and described above.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Ignacio Rasero VP - Senior Credit Officer Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Karen Nickerson Associate Managing Director Corporate Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 © 2022 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. 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