UPDATE 2-S&P powers higher-than-expected profit at McGraw-Hill

Tue Apr 30, 2013 10:41am EDT

* Adjusted EPS $0.80 vs est $0.73

* Total revenue rises 14 pct

* Settles lawsuits with Abu Dhabi Commercial Bank, others for $77 mln

* Shares up 1 pct

By Tanya Agrawal

April 30 (Reuters) - McGraw-Hill Cos Inc posted a higher-than-expected first-quarter adjusted profit as its Standard & Poor's ratings service generated more revenue from corporate and structured debt issuance.

The company, which is fighting a $5 billion fraud lawsuit lodged by the U.S. government, reaffirmed its 2013 forecast for an adjusted profit of between $3.10 and $3.20 per share.

The government alleges S&P knowingly inflated credit ratings on risky mortgage-related securities, fueling demand and helping to trigger the 2008 financial crisis when the securities soured.

McGraw-Hill has asked a federal judge to dismiss the suit, arguing the government's case is based on vague statements that cannot be used to prove fraud.

The ratings agencies have so far escaped most liability for their actions from that time, with the courts taking the view that the ratings were opinions protected under free speech laws.

McGraw-Hill said on Tuesday it settled for about $77 million two long-running lawsuits with Abu Dhabi Commercial Bank, King County in Washington state and other investors, who sought to hold it responsible for misleading investors about the safety of risky debt vehicles that they had rated.

"These cases did not hold up on merit and that's why it led to a very reasonable settlement," McGraw-Hill Chief Executive Terry McGraw said on a conference call with investors.

The 125-year old company, which still has about two dozen lawsuits pending against it, said it was making considerable progress on the legal front and would continue to aggressively defend itself against the suits.

The company, which plans to change its name to McGraw Hill Financial pending a shareholder vote on May 1, will trade under a new symbol "MFHI" from May 14.

McGraw-Hill shares, which have gained 18 percent since the company reported fourth-quarter results, were up 1 percent at $54.60 on Tuesday morning on the New York Stock Exchange.

PROFITS RISE

Net income from continuing operations fell to $153 million, or 54 cents per share, from $158 million, or 56 cents per share, a year earlier.

But the company posted an adjusted profit of 80 cents per share on continuing operations, beating the average analyst estimate of 73 cents per share.

Total revenue rose 14 percent to $1.18 billion.

Revenue at S&P Ratings increased 20 percent to $561 million, while operating profit rose 39 percent to $259 million.

"While total corporate and structured finance issuance decreased 10 percent and 19 percent, respectively, and public finance only contributed issuance growth of 2 percent, the mix of issuance was favorable," the company said in a statement.

Worldwide high-yield issuance increased 31 percent in the quarter, while investment-grade issuance fell 16 percent. Worldwide growth of commercial mortgage-backed securities and collateralized debt obligations also rose substantially, it said.

"This is promising as securitization is an encouraging indicator that capital is being deployed into the economy and creating growth, consumer demand and jobs," the company said.

Revenue from the company's commercial and commodities markets, which include the Platts brand, increased 1 percent to $236 million but operating profit fell 2 percent to $62 million.