-- U.S.-based commercial information products company, The Dun &
Bradstreet Corp. plans to issue between $500 million and $700 million senior
unsecured notes across a five-year and 10-year maturity.
-- The company will use proceeds from the proposed notes to refinance its
existing $400 million notes due 2013, and to repay a portion of borrowings
under its revolving credit facility.
-- We are affirming our 'BBB+' corporate credit rating on the company. At
the same time, we are assigning the proposed notes an issue-level rating of
-- The stable outlook reflects our expectation that the company's
leverage will remain below 3x, the threshold for the 'BBB+' rating.
On Nov. 28, 2012, Standard & Poor's Ratings Services affirmed its 'BBB+'
long-term corporate credit rating and 'A-2' short-term rating on Short Hills,
N.J.-based The Dun & Bradstreet Corp. (D&B). The outlook is stable.
At the same time, we assigned the company's proposed senior unsecured notes
due 2017 and 2022 our 'BBB+' issue-level rating.
The rating reflects our expectation that D&B will maintain its ratio of
lease-adjusted debt to EBITDA at or less than our maximum threshold of 3x for
the 'BBB+' rating over the long term, and our assumption that management will
fund its share repurchases with discretionary cash flow and cash balances,
rather than debt.
We expect the company to use the net proceeds from the notes to redeem the
existing $400 million 6% notes due April 1, 2013, and repay a portion of the
$320 million of borrowings outstanding under its revolving credit facility as
of Sept. 30, 2012. Pro forma for the proposed notes offering, lease- and
pension-adjusted debt to EBITDA was roughly 2.9x for the 12 months ended Sept.
30, 2012, slightly below our 3x threshold for the rating. Our base-case
forecast assumes that debt leverage will remain in the high-2x area through
2013, given the company's plans to repurchase roughly $734 million of its
shares by the end of 2014. We view D&B's business risk profile as
"satisfactory," based on our criteria, because of its leading market position
in business information services and high barriers to entry, despite recent
slightly reduced visibility and revenue stability. D&B has an "intermediate"
financial risk profile, in our view, because of its good cash flow and
moderate leverage, which are balanced by a sizable share-buyback program.
D&B provides credit information products that help business customers in 200
countries manage risk exposure and enhance sales and marketing efforts. Our
reassessment of D&B's business risk profile as satisfactory is based on high
barriers to entry in its markets because of the size and quality of its
database and geographic reach, and its leading market position in third-party
business information, despite having a number of niche and established
competitors. The company's high percentage of subscription-based revenue
provides some stability and visibility to its earnings throughout the economic
cycle. Nevertheless, budgetary pressures and economic weakness have recently
caused some customers to shift from subscription-based plans to usage-based
plans at the company's North American risk management segment. The company's
business risk profile also benefits from good operating efficiencies, which it
has achieved through a series of ongoing investments and restructuring
measures. The company's undiversified business base modestly offsets these
Under our base-case scenario, we expect D&B's 2012 and 2013 revenue and EBITDA
to grow at a low-single-digit percent rate. We expect most of the growth will
continue to come from the company's markets outside of North America. We
expect operating expenses will be down at a low-single-digit percent rate in
2013. We also expect the company will direct a substantial portion, if not
all, of its discretionary cash flow to share repurchases. For the 12 months
ended Sept. 30, 2012, the EBITDA margin was 30.3%, up from 29.8% for the same
period last year. We expect modest margin expansion in 2013, supported by
lower technology investment spending, if new product launches gain momentum.
During the third quarter of 2012, operating performance was within our
expectations. D&B's revenue (excluding divested operations) increased 0.6%,
year over year, mainly because of growth in products and services and an
acquisition in the fourth quarter of 2011. Risk management segment revenue
(roughly 65% of total core revenue in the quarter) declined approximately 2.5%
during the quarter because of a decrease in project- and usage-based
subscription revenue. EBITDA increased 6.9% during the quarter, reflecting
decreased restructuring charges related to divested businesses and lower
In May 2012, D&B said practices at Roadway may have violated the Foreign
Corrupt Practices Act (FCPA) and local consumer data privacy laws in China.
Roadway contributed roughly $22 million of revenue, but only about $2 million
of operating income. D&B has shut down the business, having self-reported the
potential FCPA violations to the Securities Exchange Commission (SEC) and
Department of Justice (DOJ). On Sept. 28, 2012, The Shanghai District
Prosecutor charged Roadway with illegally obtaining private information on
Chinese citizens. A criminal fine will likely be imposed on Roadway. The
timing of a resolution and the size of any penalties are uncertain.
D&B has good cash flow generating ability. Conversion of EBITDA into
discretionary cash flow was 39% for the 12 months ended Sept. 30, 2012.
Capital spending and shareholder dividends are moderate, currently 13.8% and
13.3%, respectively, of EBITDA. We expect share repurchases to consume all of
D&B's discretionary cash flow in 2012 and 2013, up from 82% during 2011.
We regard D&B's liquidity profile as "adequate," based on the following
expectations and assumptions:
-- For the next 12 to 18 months, we expect liquidity sources to exceed
uses by more than 1.2x.
-- We expect net sources to remain positive, even if EBITDA declines by
15% to 20%.
-- Because of D&B's good conversion of EBITDA to discretionary cash flow,
we believe it could absorb low-probability, high-impact shocks.
-- D&B has well-established relationships with its banks and a generally
high standing in the credit markets.
The short-term rating on D&B is 'A-2'. Sources of liquidity include $137
million of cash balances as of Sept. 30, 2012; pro forma for the transaction,
access to nearly the entire $800 million revolving credit facility due in
2016; and expected funds from operations of about $350 million to $375 million
in 2013. We expect cash uses to consist of manageable working capital needs,
about $75 million to $85 million of capital expenditures, and roughly $70
million to $75 million of dividends in 2012 and 2013. As a result, we expect
D&B to generate discretionary cash flow between $200 million and $225 million
in 2013. D&B likely will direct a substantial portion, if not all, of its
discretionary cash flow to share repurchases and, potentially, acquisitions.
In August 2012, the board approved an additional $500 million share repurchase
program for a total program authorization of $1 billion. As of Sept. 30, 2012,
the company had $734 million of shares remaining and plans to complete the
share repurchase program in 2014.
Apart from the $400 million notes due April 2013, which the company will
redeem with a portion of proceeds from the proposed notes, the company's next
debt maturities are for its $300 million senior notes due March 2015 and its
revolving credit facility due in October 2016. We do not anticipate any
difficulty in the company refinancing these maturities.
Our stable rating outlook reflects our expectation that over the intermediate
to long term, D&B will maintain its lease-adjusted debt to EBITDA within our
3x maximum threshold, which we consider appropriate for a 'BBB+' rating. We
could lower the rating if weak operating performance and debt-funded share
repurchases cause leverage to rise above 3x over the intermediate term with no
expectation of returning below our leverage threshold. Specifically, share
repurchases of roughly $275 million per year, on a sustained basis, would
likely lead the company to borrow under the revolver, in our view, causing the
debt leverage to increase above 3x in 2013 and beyond.
The potential for a rating upgrade is minimal, given D&B's focus on
shareholder returns and slightly lower revenue visibility and resilience. A
rating upgrade would likely result from D&B moderating leverage to the low-2x
area, and expressing and adhering to a commitment to a more conservative
Related Criteria And Research
-- Business Risk/Financial Risk Matrix Expanded, Sept. 18, 2012
-- Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011
-- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008
-- 2008 Corporate Criteria: Rating Each Issue, April 15, 2008
-- 2008 Corporate Criteria: Ratios And Adjustments, April 15, 2008
Dun & Bradstreet Corp. (The)
Corporate Credit Rating BBB+/Stable/A-2
Dun & Bradstreet Corp. (The)
Senior unsecured notes due 2017 BBB+
Senior unsecured notes due 2022 BBB+
Complete ratings information is available to subscribers of RatingsDirect on
the Global Credit Portal at www.globalcreditportal.com. All ratings affected
by this rating action can be found on Standard & Poor's public Web site at
www.standardandpoors.com. Use the Ratings search box located in the left