Fitch Rates Broadridge Financial's Senior Notes 'BBB+'; Outlook Stable

Wed Aug 14, 2013 11:38am EDT

Related Topics

(The following statement was released by the rating agency) CHICAGO, August 14 (Fitch) Fitch Ratings assigns a 'BBB+' rating to Broadridge Financial Solutions, Inc. (Broadridge) senior notes offering. Net proceeds will be used to repay outstanding balances on the company's senior bank facility. KEY RATING DRIVERS The ratings and Stable Outlook are supported by the following considerations: --Broadridge has a leading share in the proxy distribution market, which Fitch views as facing minimal competitive threats and pricing that is largely insulated by SEC regulations; --The company's core Investor Communications and Securities Processing business segments produce steady free cash flow (FCF) with minimal exposure to economic volatility; --The company has long-term customer contracts and customer relationships in both core businesses; --Broadridge has a diverse customer base with no customer representing greater than 6% of total revenue, and expectations of achieving greater geographic diversification by capitalizing on growth opportunities in international markets going forward; --The low capital intensity of Broadridge's business model has produced high historical returns on invested capital. Ratings concerns include the following: --Changing regulations could negatively impact Broadridge's business, particularly related to the proxy distribution business; --Broadridge's acquisition growth strategy carries integration and execution risks; --Execution risk related to the company's processing of confidential client information and the risk of security breaches as well as operating risks stemming from the mission-critical nature of the company's securities processing solutions. The ratings reflect the following financial expectations: --Broadridge can organically grow revenue in the low- to mid-single digits with periods of higher growth driven by acquisitions; --EBITDA margins should rebound closer to the historical average of 20% going forward reflecting the completed migration of processing services to IBM which had previously been a drag on profitability; --FCF-to-adjusted debt will remain within a range near 20% with adjusted debt-to-EBITDAR of approximately 2x or less; --Broadridge will utilize excess free cash flow for share repurchases and acquisitions; --Quarterly results will remain volatile depending on the level of event-driven revenues but as Broadridge continues to diversify its business beyond proxy services, year-to-year volatility in results will be reduced. Liquidity as of June 30, 2013 was solid at $766 million which includes $266 million in cash and a fully-available $500 million senior unsecured revolving credit facility which matures in September 2016. Fitch expects annual free cash flow to average between $150 million and $200 million. Total debt as of June 30, 2013 was $525 million which includes $400 million outstanding under a senior unsecured term loan facility which matures September 2016 and $125 million in senior unsecured notes due June 2017. RATING SENSITIVITIES Negative: Future developments that may, individually or collectively, lead to negative rating action include: --Potential for regulatory changes to negatively impact the proxy business or create a more competitive environment; --Risk of more aggressive or poorly executed debt-financed acquisitions. Positive: Broadridge is likely at its peak rating given the company's high reliance on the proxy business for cash flow and its relatively small size. The company's acquisition growth strategy for its investor services business could eventually result in enough diversification to consider a higher rating, but that is unlikely to occur in the near term. Fitch rates Broadridge as follows: --Issuer Default Rating (IDR) at 'BBB+'; --Senior unsecured revolving credit facility at 'BBB+'; --Senior unsecured debt at 'BBB+'. Contact Primary Analyst Jason Paraschac, CFA Senior Director +1-212-908-0746 Fitch Ratings, Inc. One State Street Plaza New York, NY 10004 Secondary Analyst Jamie Rizzo, CFA Managing Director +1-212-908-0548 Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: brian.bertsch@fitchratings.com. Additional information is available at 'www.fitchratings.com'. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.