Duff & Phelps (DUF) Ratings Affirmed by Moody's Amid Intention to Borrow $160M

Moody's Investors Service affirmed Duff & Phelps Corporation's (NYSE: DUF) B2 corporate family rating and B2 senior secured bank credit facility rating, after the company announced its intention to borrow up to $160 million via an incremental increase in term loan capacity under its existing credit agreement in order to fund two acquisitions. The rating outlook remains stable.

RATNGS RATIONALE

An incremental $160 million borrowing would represent a one-third increase in the company's existing $477 million first lien loan balance. The company intends to immediately utilize about $80 million in order to repay a recent $30 million draw on its revolving credit facility and to replenish cash that was utilized to complete its recent acquisition of Kinetic Partners, a regulatory consulting and compliance firm focused on financial services. In due course, it plans to draw the remaining amount of borrowing capacity necessary to finance its planned acquisition of another firm.

Moody's expects that Duff & Phelps will successfully integrate these acquisitions. The two companies are profitable and operate in similar businesses as Duff & Phelps. Nevertheless, the simultaneous integration of two significant companies clearly demonstrates the company's appetite for acquisition-fuelled growth.

The stable outlook reflects Moody's assessment that Duff & Phelps' two acquisitions will improve the company's profitability, and debt will be reduced over time via scheduled principal amortization and mandatory excess cash flow prepayments. Accordingly, Moody's expects that Duff & Phelps' debt/EBITDA in 2015 should trend below the 6.4x calculated on a trailing twelve month basis through September 2014.

Moody's also said that Duff & Phelps benefits from a stable management team that has demonstrated the ability to successfully integrate a number of previous acquisitions. Management has also implemented cost savings initiatives which have helped to improve its EBITDA.

What Could Change the Rating - Up

Strong organic revenue growth and improved debt service capacity could result in upward rating pressure.

What Could Change the Rating - Down

A further increase in debt that would worsen the company's debt service capacity could result in a downgrade, particularly if the increase in debt is used to fund an ownership distribution, or for further acquisitions of a nature where it is less likely that the company will be able to de-lever below 6x. Evidence of weakening financial flexibility such as through the maintenance of limited cash balances and/or ongoing utilization of the company's revolving credit facility could also result in a downgrade. The incurrence of significant unforeseen costs or integration issues related to the prospective acquisitions could also result in downward rating pressure.

The principal methodology used in these ratings was Global Securities Industry Methodology published in May 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

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