(The following was released by the rating agency)Overview
-- Broadridge Financial Solutions Inc. (BR), a U.S. leading
provider of investor communications and securities processing
services, has reported consistent operating performance.
-- It has maintained a moderate financial policy over the 12
months ended March 2012.
-- We are affirming our 'BBB' corporate credit rating and
revising the outlook to positive from stable.
-- The positive outlook reflects our expectation that
Broadridge will continue to maintain its current financial
profile, consistent with its publicly stated financial goals,
over the next two years.
On May 24, 2012, Standard & Poor's Ratings Services revised
the outlook on Lake Success, N.Y.-based Broadridge Financial
Solutions Inc. (BR) to positive from stable. We also affirmed
our 'BBB' corporate credit rating on the company.
The outlook revision reflects Broadridge's consistent
operating performance and cash flow, and our expectation that it
will maintain its current financial profile in accordance with
its financial policy, which includes maintaining leverage below
the 2x area, avoiding debt-financed shareholder returns, and
pursuing only modest tuck-in acquisitions.
The rating reflects our expectation that Broadridge will
grow revenues in the low- to mid-single-digit range with stable
margins and that it will maintain "intermediate" financial risk
(as our criteria define the term). Additional factors include a
"satisfactory" business profile with a strong franchise in its
core businesses, partly offset by a moderately acquisitive and
With revenues for the past 12 months ended March 2012 of
about $2.3 billion, Broadridge provides a wide range of services
to the global financial services industry. Investor
Communication Solutions (ICS), which provides proxy mailing and
vote processing, is the company's core business and largest
segment. Broadridge's reputation for consistently delivering
communications in compliance with regulatory requirements allows
it to maintain its strong position in the industry. The trend
for corporate issuers to communicate more with their
shareholders electronically because of the SEC's amendments to
the proxy rules (the Notice and Access Rule) would affect
revenues, but not necessarily profits because of lower
distribution costs associated with electronic delivery.
Broadridge's Securities Processing Solutions segment
provides order execution, trade confirmation, settlement,
accounting, and other back-office outsourcing services to
broker-dealers. Performance in this segment can be somewhat
volatile because the revenue correlates with industry trading
Broadridge's well-established competitive positions in the
investor communications and securities-processing businesses are
significant for the rating. However, consolidation in the U.S.
financial services industry combined with somewhat concentrated
customers (its top five customers represent 24% of revenue)
presents modest risk to the client base.
We expect Broadridge to deliver revenue growth in the low-
to mid-single digits in fiscal 2013, as acquisition activity has
moderated in fiscal 2012, with EBITDA margins in the high-teen
area. Fiscal year-to-date revenue growth has been resilient at
8%, with organic sources contributing 4% in the face of declines
in event-driven revenue. Event-driven revenue was down
significantly in fiscal 2011 ended June, and continues to be
depressed in 2012. The rating does not incorporate an
expectation of a rebound to normal levels in event-driven
revenue. The IBM data center migration could also modestly
We view the company's financial profile as intermediate,
with debt to EBITDA for the past 12 months at 1.6x as of March
2012. Cash flow is relatively stable, largely because of the
high proportion of recurring revenue. We expect operating cash
flow to continue to support solid ratios of interest coverage
and leverage. Management has indicated it remains committed to
maintaining a debt to EBITDA ratio below the 2.0x area in the
In our view, liquidity and financial flexibility are
"adequate," as a result of the company's free cash flow
generation in the $260 million area in the 12 months ended March
2012, limited debt maturities, and its revolving credit
facilities. On March 31, 2012, cash and cash equivalents were
$219 million and Broadridge has full availability under its $500
million revolving credit facility (expiring 2016).
Our assessment of Broadridge's liquidity includes the
following expectations and assumptions:
-- Sources will exceed uses by 20% over the next 24 months.
-- Net sources would be positive, even with a drop in EBITDA
-- Covenants have adequate headroom.
The positive outlook reflects our opinion that Broadridge
has demonstrated resilient operating performance and a moderate
financial policy. We could raise the rating if the company
maintains operating stability and manages the company in a
manner consistent with its publicly stated financial objectives
over the next 12 to 24 months. Conversely, if the company
increases leverage above the 2x area as the result of
debt-financed acquisitions or shareholder returns, we could
revise the outlook to stable.