TEXT-Fitch rates Dun & Bradstreet's senior note offering 'BBB+'
Nov 28 - Fitch Ratings has assigned a 'BBB+' rating to the Dun & Bradstreet Corporation's (D&B) proposed senior unsecured note offering due 2017 and 2022. Proceeds from the issuance are expected to be used to redeem or repurchase all of the $400 million 6% senior notes due April 2013 and reduce credit facility borrowings ($320 million outstanding as of Sept. 30, 2012). Fitch currently has a 'BBB+' Issuer Default Rating (IDR) for D&B. The Rating Outlook is Negative. A full rating list is provided at the end of this release. The notes will be issued under the indenture dated March 14, 2006. Terms are similar to previous issuances by D&B, and include: --A limitation on liens (excluding standard carve-outs) of up to the greater of a) 10% of shareholder's equity or b) $450 million, as well as an account receivables securitization limit of $200 million. --Holders have the right to require D&B to repurchase the notes at 101% of par upon a change of control and a subsequent downgrade below investment grade. Change of control triggers include: acquisition by any person of 50% or more of D&B's voting stock; a majority of the current board members cease to be directors; a sale of all or substantially all of the company's assets; or a liquidation/dissolution of the company. Similar to D&B's 2.875% note due 2015, there are no financial covenants, no cross-default or cross-acceleration with D&B's other debt, and no coupon step-up provision (triggered upon downgrade of D&B's credit rating below investment grade). In August 2012, D&B announced that the Board of Directors approved an increase in the share repurchase authorization from $500 million to $1 billion. The company intends to complete these share repurchases in 2014. Year to date September 2012, D&B has repurchased $236 million in shares and has $734 million available under its increased authorization program. The Negative Outlook reflects the uncertainty relating to the level of absolute debt and leverage the company is willing to incur. However, Fitch believes that any policies announced or actions taken by D&B will be in the context of remaining an investment grade rated issuer. Fitch calculates current leverage at 1.9x. The ratings may be stabilized or downgraded based on the level of indebtedness/leverage the company incurs within the next 12 to 24 months and/or depending on the clarity of its financial policy. Most recently, news organizations reported that D&B is no longer pursuing a sale of the company (media reports issued in July/August indicated the company was exploring a sale). Fitch believes the event risk of an LBO of D&B will be an overhang on the credit for the near term. Fitch notes that bond holders benefit from a 101% put offer upon a change of control and subsequent downgrade to below investment grade; which may provide a floor for investors. RATING RATIONALE: --The ratings are supported by D&B's ability to generate strong, consistent free cash flow (FCF); its solid credit-protection measures; high barrier to entry relating to its database; and the company's ability to leverage its database into multiple revenue-generating products. Ratings also reflect the visibility of the company's revenue base, as well as Fitch's belief that management will be financially prudent with acquisitions. --Rating concerns include limited revenue diversification (over 60% of total revenue is from D&B's Risk Management product line ), and potential pricing pressures in the Sales & Marketing (SMS) segment, which account for approximately 30% of revenues. --The ratings incorporate the recent pressures in the North American RMS (approximately 40% of total revenues); revenues are down 4% as of September 2012 year to date. The decline has been driven in part by non-DNBi customers opting for lower usage base contracts. Fitch does not believe this is a secular trend and is driven by customers taking advantage of near-term savings in response to weak economic trends. --Ratings reflect increased legal costs associated with the investigation into Shanghai Roadway D&B Marketing Services LTD's (Roadway) potential violation of Chinese consumer data privacy laws and the U.S. Foreign Corrupt Practices Act (FCPA). The company self-reported the potential FCPA violations to the U.S. Securities and Exchange Commission and U.S. Department of Justice. Currently, the timing and potential fines related to these investigations are unknown. D&B has shut down Roadway, and the impact on consolidated operations will be minimal. Fitch notes that in 2011 the Roadway operations generated approximately $23 million in revenues and $2 million in operating income. Given the size of the operations, Fitch believes any fines would be manageable within the company's consolidated credit profile and liquidity. LIQUIDITY PROFILE: D&B has adequate liquidity, supported by approximately $480 million of availability under its $800 million credit facility due 2016 and $137 million in cash, as of Sept. 30, 2012. Fitch believes that most of the cash balance is located outside the U.S. The company's maturity schedule is manageable and consists of (excluding the proposed transaction) $400 million senior notes due April 2013, $300 million senior notes due November 2015, and $320 million revolver balance due October 2016. Fitch expects D&B to have sufficient liquidity and access to the capital markets to meet all debt maturities. The company's latest 12 months (LTM) FCF (after dividends) was $206 million, with a strong FCF to debt ratio of 20%. Fitch expects annual FCF to be approximately $200 million to $225 million in 2012 and 2013. D&B's total pension plans were underfunded by approximately $590 million at year-end 2011. However, only roughly 73% of the pension obligation is related to the U.S. qualified plan, which is approximately $290 million underfunded and was frozen in 2007. Fitch believes the company will have sufficient liquidity to handle its funding obligations, in accordance with the Pension Protection Act, and is reflected in Fitch's FCF expectations. WHAT COULD TRIGGER A RATING ACTION Negative: Future developments that may, individually or collectively, lead to a negative rating action include: --Unadjusted gross leverage exceeding 2.5x. Positive: The current Rating Outlook is Negative. As a result, Fitch's sensitivities do not currently anticipate a rating upgrade. Fitch currently rates D&B as follows: --IDR of 'BBB+'; --Bank credit facility of 'BBB+'; --Senior unsecured of 'BBB+'; --Commercial paper and short-term IDR of 'F2'. The Rating Outlook is Negative. Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings. Applicable Criteria and Related Research: --'Corporate Rating Methodology' (Aug. 8, 2012). Applicable Criteria and Related Research: Corporate Rating Methodology
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