-- Janus continues to experience net asset outflows.
-- We are revising our outlook on Janus to negative from stable. At the
same time, we are affirming our 'BBB-' long-term issuer credit rating on the
-- The negative outlook reflects our opinion that lagging longer-term
investment performance could result in continued net asset outflows, which
could weaken financial performance in 2013.
On Jan. 9, 2013, Standard & Poor's Ratings Services revised its outlook on
Janus to negative from stable. At the same time, we affirmed the 'BBB-'
long-term issuer credit rating on the company.
The outlook revision reflects the potential weakening in profitability and key
credit metrics in 2013, should Janus continue to experience net asset outflows
over the next year. The continued net asset outflows in both fundamental
equities and mathematical equities are a concern. While the rest of the
industry is also experiencing negative outflow from actively managed domestic
equity products, Janus' concentration in equities magnifies the problem.
During the first nine months of 2012, fundamental equities and mathematical
equities outflows were $7.7 billion and $4 billion, respectively. As of Sept.
30, 2012, Janus had $158 billion of assets under management (AUM), of which
82% were in equities.
We believe that the key hurdle for Janus is improving investment performance
in fundamental equities in the longer term. Although Janus has significantly
improved its short-term investment performance, three- and five-year
investment performance is still lagging. On a year-to-date basis, through Oct.
31, 2012, 77% of Janus fundamental equity mutual fund assets were in the top
two Morningstar quartiles. On a three- and five-year basis, only 23% and 34%,
respectively, of Fundamental Equity mutual funds were in the top two
Morningstar quartiles through Oct. 31, 2012.
Janus' profitability declined during the first nine months of 2012 as a result
of a decline in average AUM and an increase in negative performance fees. For
nine months ended Sept. 30, 2012, Janus' performance fees were negative $61.8
million, compared with negative $2.5 million in the prior-year period. Because
Janus might not improve its longer-term financial performance for several
years, we believe that negative performance fees could persist and dampen the
company's profitability over the next few years.
Janus posted net income of $71.1 million for the first nine months of 2012,
compared with net income of $107.2 million in the prior-year period. The
EBITDA margin was 31.4% in year-to-date 2012, compared with 38.4% for the
first nine months of 2011. Janus' key credit metrics have also slightly
deteriorated in year-to-date 2012, relative to 2011, but are still in line
with other investment-grade asset managers. EBITDA interest coverage, based on
the first nine months of 2012, declined to 5.95x from 7.2x in full-year 2011.
Debt leverage, based on annualized nine months 2012 EBITDA, was 2.1x, a slight
increase from 1.7x as of Dec. 31, 2011, but still consistent with the current
Despite these difficulties, the rating affirmation recognizes that Janus had
several positive strategic developments over the last year. The company
continues to diversify its business by building out the fixed income and
international platforms. In the third quarter of 2012, fixed income AUM
exceeded $25 billion for the first time in the company's history but still
only represents 17% of total AUM. In August 2012, Janus entered into a
strategic alliance with the Dai-ichi Life Insurance Company, the third-largest
life insurer in Japan. Although the alliance is still in the early stage, we
believe it could benefit Janus in its global business development efforts.
In our opinion, Janus continues to maintain to conservative financial
policies, a factor that supports the ratings. During the past several years,
the company significantly reduced its outstanding debt obligations. The par
value of outstanding debt declined to $561.2 million as of Sept. 30, 2012,
down 49% from a peak of $1.1 billion as of Dec. 31, 2008. The next major debt
maturity occurs in 2014, when the $38.9 million 6.119% senior notes and the
$170 million 3.25% convertible notes, which can be settled in cash or
securities at management's discretion, come due in April and July,
respectively. With $353 million of cash and cash equivalents as of Sept. 30,
2012, we believe the company should have ample liquidity to service its
Janus' total equity had slightly improved to $1.39 billion as of Sept. 30,
2012. The company's tangible equity was $112.7 million as of Sept. 30, 2012, a
considerable improvement from $31.8 million as of Dec. 31, 2011, and negative
tangible equity in the prior years.
The negative outlook reflects our concerns that if Janus does not improve
three- and five-year investment performance in fundamental equities, it could
continue to experience net asset outflows. In our opinion, there is a
one-third probability that Janus' net asset outflows and negative performance
fees could seriously hamper the company's financial performance in
2013--possibly warranting a downgrade. If net asset outflows were to
accelerate and financial performance were to further deteriorate, resulting in
materially weaker credit metrics (EBITDA cash interest coverage below 5.5x and
debt leverage above 3x), we could lower the ratings. Alternatively, if Janus
can improve its longer-term investment performance, demonstrate a sustained
reversal of net asset outflows, and maintain the financial profile that
supports the current ratings, we could revise the outlook back to stable.
Related Criteria And Research
Criteria | Financial Institutions | Other: Rating Asset Management Companies,
March 18, 2004
Ratings Affirmed; Outlook Action
Janus Capital Group Inc.
Issuer Credit Rating BBB-/Negative/A-3 BBB-/Stable/A-3
Senior Unsecured BBB-