TEXT - S&P may cut NYSE Euronext ratings

Thu Dec 20, 2012 2:20pm EST

Overview
     -- NYSE Euronext announced that it has signed an agreement to be acquired 
by IntercontinentalExchange, Inc. (ICE; not rated).   
     -- NYSE Euronext stands to benefit from potential cost savings, as
well as a new clearing arrangement between NYSE Liffe (not rated) and ICE Clear 
Europe (not rated). However, the combined organization will carry a 
significant amount of debt, because ICE is financing a portion of the purchase 
price with existing cash on the balance sheet and borrowings under its bank 
revolver.  
     -- We are placing the 'A+/A-1' ratings on NYSE Euronext on CreditWatch 
with negative implications. 
     -- We expect to resolve the CreditWatch once ICE completes the 
transaction or calls it off. 

Rating Action
On Dec. 20, 2012, Standard & Poor's Ratings Services placed the 'A+/A-1' 
ratings on NYSE Euronext on CreditWatch with negative implications. 

Rationale
The CreditWatch action follows NYSE Euronext's announcement that it has agreed 
to be acquired by ICE. The combined organization will become a highly 
diversified exchange and clearing organization. There is little overlap 
between ICE's and NYSE Euronext's product offerings. NYSE Euronext brings the 
New York Stock Exchange, the world's premier listing venue, two U.S.-based 
option exchanges, NYSE Liffe, the U.K.-based derivatives exchange, and 
Euronext N.V. (not rated), the continental Europe equities and derivatives 
exchange company. ICE is home to U.S. and London-based commodities exchanges 
and clearinghouses, with a strong presence in energy products. It is the world 
leader in clearing over-the-counter credit default swaps. 

Although the business profile of the combined company appears strong, we view 
the financial risk profile as adequate. ICE has been a fast-growing company 
that has generated strong earnings and cash flows, but NYSE Euronext has been 
lagging, owing to declining volumes in its equities markets in the U.S. and in 
its derivatives markets in Europe. In August 2012, we revised the outlook on 
NYSE Euronext to "negative" from "stable," citing its weak financial profile 
and shareholder-friendly actions. 

ICE will finance the $8.2 billion transaction with two-thirds common stock and 
one-third cash. ICE plans to use about $1.0 billion of existing cash on the 
balance sheet and borrow $1.8 billion under its revolving credit facility to 
finance the cash portion of the deal. We estimate total debt at the combined 
organization will be approximately $4.7 billion. We calculate debt leverage 
will be high relative to existing ratings, at 2.2x, based on annualized 
year-to-date combined EBITDA. Operating cash flow should improve over the next 
two years, as NYSE Euronext wrings another $150 million of costs from its 
Project 14 plan in 2013 and the combined organization generates $300 million 
of expense synergies in 2014.  

Separate from the acquisition agreement, the two companies signed a clearing 
agreement in which ICE Clear Europe will provide clearing services to NYSE 
Liffe. This separate agreement is positive for our ratings on NYSE Euronext, 
in our view, because it reduces the costs and risks associated with the 
build-out of NYSE Euronext's own derivatives clearinghouse in London. Although 
ICE has built a versatile clearing platform, with an expertise in commodities 
and credit default swaps, it currently doesn't clear listed interest rate 
futures contracts.    
CreditWatch
The CreditWatch indicates there is a 50% probability that we could lower the 
ratings after we assess the impact of this transaction on NYSE Euronext's 
creditworthiness.

During the CreditWatch period, we will gather additional information on: the 
companies' integration plans and expected expense savings; the organizational 
structure and fungibility of cash flow among the various units of the combined 
organization; and clearing risk management and the financial safeguard 
packages at ICE's five clearinghouses. We will resolve the CreditWatch status 
upon completion of the merger, which is scheduled to occur in the second half 
of 2013. 

Alternatively, we may resolve the CreditWatch sooner if the deal falls 
through--in which case, we would re-evaluate NYSE Euronext's creditworthiness 
as a stand-alone entity.   

Related Criteria And Research
     -- Lower Trading Volumes Will Put Global Exchanges To The Test In 2013 As 
Clearinghouses Deal With Regulations, Dec. 4, 2012
     -- NYSE Euronext, Aug. 16, 2012  
     -- Research Update: NYSE Euronext Outlook Revised To Negative On 
Shareholder-Friendly Actions, Aug. 3, 2012 
     -- Standard & Poor's Updated Methodology For Rating Exchanges And 
Clearinghouses, July 10, 2006


Ratings List
CreditWatch Action
                      To                          From
NYSE Euronext
 Issuer Credit Rating
  Local Currency      A+/Watch Neg/A-1 Watch Neg   A+/Negative/A-1 Watch Neg
 Senior Unsecured     A+/Watch Neg                 A+
 Commercial Paper     A-1/Watch Neg                A-1
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