Fitch Affirms Tullett Prebon at 'BBB-'; Outlook Stable

Tue Jun 24, 2014 4:49pm EDT

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(The following statement was released by the rating agency) LONDON, June 24 (Fitch) Fitch Ratings, London/Barcelona, 24 June 2014: Fitch Ratings has affirmed Tullett Prebon plc's (Tullett) Long-term Issuer Default Rating and senior debt at 'BBB-' and its subordinated debt at 'BB+'. The Outlook on the Long-term IDR is Stable. A full list of rating actions is at the end of this rating action commentary. KEY RATING DRIVERS - IDRS AND SENIOR DEBT Tullett's ratings are primarily driven by its company profile as one of the largest inter-dealer brokers (IDB) with a strong market share in voice/hybrid broking, which should help the company mitigate continuing margin pressure and lower trading volumes. Transaction volumes have continued to decline as market volatility and interest rates remain low. We expect Tullett to remain more concentrated on the voice/hybrid segment than some of its peers, but the company also generates earnings from its post-trade services. The acquisition of PVM Oil Associates Limited announced in May 2014 will enlarge the company's franchise in commodities brokerage. The ratings also reflect our expectation that Tullett will continue to manage its cost base carefully to compensate for revenue pressure. Revenue fell 6% in 2013, but reduced operating expenses, including staff costs, meant that the decline in adjusted EBITDA was more moderate at 5%. In May 2014, Tullett announced further measures to reduce annual fixed costs by GBP20m. Fitch considers Tullett's capitalisation adequate with a gross debt/adjusted EBITDA ratio of 1.7x at end-2013, compared with 1.8x at end-2012. Exposure to credit and market risk is low given the company's business model where the bulk of transactions is undertaken on a name give up or matched principal basis. Operational and reputation risks are material, and Tullett will have to continue to manage these risks adequately. RATING SENSITIVITIES - IDRS AND SENIOR DEBT Tullett's ratings are based on our expectation that the company will continue to successfully execute its strategy, and that it will manage to control operating expenses sufficiently to mitigate margin pressure and weak transaction volumes affecting revenue. The ratings would come under pressure if operating margins deteriorated, or if weaker earnings resulted in a deterioration of core leverage ratios. Tullett's non-broking business remains somewhat smaller than at some peers, which means that it is less diversified. We expect the company to maintain a strong franchise and to manage product diversification carefully. Any material erosion of its market share would put the rating under pressure. KEY RATING DRIVERS - SUBORDINATED DEBT The rating of Tullett's subordinated bonds is one notch below the company's Long-term IDR to reflect loss severity. RATING SENSITIVITIES - SUBORDINATED DEBT As the notes' rating is notched off the company's IDR, the issue rating is sensitive to the same factors as the IDR. The rating actions are as follows: Long-term IDR affirmed at 'BBB-'; Outlook Stable Senior debt affirmed at 'BBB-' Subordinated debt affirmed at 'BB+' Contact: Primary Analyst Christian Scarafia Senior Director +44 20 3530 1012 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Erwin Van Lumich Managing Director +34 93 323 8403 Committee Chairperson Joo-Yung Lee Managing Director +1 212 908 0560 Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153, Email: Elaine.Bailey@fitchratings.com. Additional information is available on www.fitchratings.com Applicable criteria, Global Financial Institutions Ratings Criteria, dated 31 January 2014 and Securities Firms Criteria, dated 31 January 2014 are available at www.fitchratings.com. Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria here Securities Firms Criteria here Additional Disclosure Solicitation Status here 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.

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