June 28 Fitch Ratings has affirmed its ratings for Broadridge Financial
Solutions, Inc. (Broadridge).
The ratings and 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 with minimal exposure to economic
--Long-term customer contracts and customer relationships in both core
--Broadridge has a diverse customer base with no customer representing greater
than 7% of total revenue, and expectations of achieving greater geographic
diversification by capitalizing on growth opportunities in international markets
--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
--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
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 once the migration of processing services to IBM is completed;
--Free cash flow to adjusted debt is expected to remain within a range near 20%
with adjusted debt to EBITDAR of approximately 2x or less. Fitch currently
estimates free cash flow to adjusted debt at 18.2% and adjusted debt to EBITDAR
--Broadridge will utilize excess free cash flow for share repurchases and
--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 March 31, 2012 was solid at $719 million, which includes $219
million in cash and $500 million available under the company's $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
Total debt as of March 31, 2012 was $564 million, with $440 million outstanding
under a senior unsecured term loan facility which matures September 2016 and
$124 million in senior unsecured notes due June 2017.
Fitch affirms Broadridge as follows:
--Issuer Default Rating (IDR) at 'BBB+';
--Senior unsecured revolving credit facility at 'BBB+';
--Senior unsecured debt at 'BBB+'.