S&P Lifts Issuer Ratings on Janus Capital (JNS) to 'BBB/A-2', Outlook Stable

Standard & Poor's Ratings Services said it raised its issuer credit ratings on Janus Capital (NYSE: JNS) to 'BBB/A-2' from 'BBB-/A-3'. The outlook is stable. At the same time, we raised our senior unsecured debt ratings to 'BBB' and assigned a 'BBB' issue rating on Janus' proposed $300 million senior unsecured notes due in 2025.

"Janus is planning to issue $300 million senior unsecured notes and intends to use the net proceeds, together with balance sheet cash, to redeem $344.5 million of its 6.7% notes due June 15, 2017," said Standard & Poor's credit analyst Olga Roman. "In our view, this transaction will further improve the company's financial risk profile." Therefore, we have revised our financial risk profile assessment to "modest" from "significant" and raised the ratings.

Janus' gross debt was $553 million, including $344.5 million senior notes due in 2017, $107.5 million convertible senior notes due in 2018, a $91.5 million adjustment for the present value of future lease payments, and about $9 million of unamortized discount on the company's convertible notes as of June 30, 2015. We apply the default 25% haircut for calculating surplus cash and subtract the surplus cash amount from gross debt to calculate the company's debt. Adjusted for operating leases and surplus cash, debt to EBITDA and EBITDA interest coverage were about 0.9x and 10.7x, respectively, for the last 12 months ended June 30, 2015. Although the company's leverage ratio is below the 1.5x threshold that we consider a "minimal" financial risk assessment, its supplemental leverage ratio--adjusted EBITDA to interest--is still more in line with a "modest" financial risk profile. We expect that the company will operate with debt to EBITDA below 2x and will reduce its interest expense and improve interest coverage as the result of the proposed debt issuance.

The other main factor we consider in our rating on Janus is its business risk profile, which we view as "satisfactory." Janus is a midsize asset manager that provides investment management, administration, distribution, and related services to individuals, institutional clients, and financial advisers. The company had $189.5 billion of assets under management (AUM) as of June 30, 2015. Janus offers mutual funds, other pooled investment vehicles, separate accounts, and subadvised relationships in both domestic and international markets through its three fully consolidated subsidiaries: Janus Capital Management LLC (JCM), INTECH Investment Management LLC, and Perkins Investment Management LLC.

The stable outlook reflects our expectation that Janus will maintain its recent improvements in asset flows and will continue to operate with debt to EBITDA below 2x. We could lower the ratings if the company's AUM decline significantly, either as a result of market depreciation or net asset outflows caused by investment performance, and this decline puts pressure on revenues, causing profitability and cash flow and leverage metrics to weaken materially. Additionally, we could lower the ratings if the company issues additional debt, bringing its leverage to more than 2x. If Janus continues to operate with a debt-to-adjusted EBITDA ratio of less than 1.5x and improves its adjusted EBITDA interest coverage ratio to more than 15x, we could revise our financial risk assessment to "minimal" and upgrade the company.

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