S&P Places Janus Capital (JNS) Ratings on CreditWatch Positive Amid Merger Agreement

October 4, 2016 8:13 AM EDT

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S&P Global Ratings said it placed its 'BBB/A-2' issuer credit ratings on Janus Capital Group Inc. (NYSE: JNS) on CreditWatch with positive implications. We also placed our 'BBB' issue rating on Janus' senior unsecured debt on CreditWatch positive.

The CreditWatch action follows Janus and Henderson Group plc's announced agreement to an all-stock merger of equals. Henderson and Janus shareholders are expected to own approximately 57% and 43%, respectively, of Janus Henderson Global Investors' shares on closing, based on the current number of shares outstanding. The merger is currently expected to close in the second quarter of 2017, subject to requisite shareholder and regulatory approvals.

"In our view, this transaction could create a combined company with stronger business and financial risk profiles compared with Janus' as a stand-alone entity," said S&P Global Ratings credit analyst Olga Roman. On pro forma basis, the combined entity's assets under management (AUM) would be $322 billion as of June 30, 2016 (Janus' AUM were $195 billion and Henderson's AUM totaled $127 billion). We believe the transaction would improve geographic diversification and reduce Janus' AUM concentration in equities.

Although Janus has improved its adjusted debt-to-EBITDA ratio to less than 1x, its supplemental leverage ratio--adjusted EBITDA to interest--is still more in line with modest financial risk. As of June 30, 2016, Janus' debt to EBITDA was 0.7x and adjusted EBITDA interest coverage was 13.3x. Given that Henderson Group did not have any debt as of June 30, 2016, we expect the financial risk profile of the combined entity to improve.

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. Each of Janus' subsidiaries specializes in specific investment styles and disciplines. JCM offers growth and core equity, global and international equity, fixed-income, and retail money market investment products. INTECH offers mathematical-based equity investment products, and Perkins offers classic value-disciplined investments. Additionally, Janus recently acquired VelocityShares, a sponsor of unique exchange-traded products, and Kapstream Capital, a global macro fixed-income asset manager located in Australia.

Our ratings on Janus reflect the company's position as a midsize independent asset manager in a very competitive industry, concentration in equity products, and continued net outflows, which weigh on its business risk profile. Janus' well-known brand name, multiple distribution channels, and variable cost structure partially offset those weaknesses.

The CreditWatch positive indicates that we could raise the ratings if the merger strengthens business and financial profiles of the combined company. We expect to resolve the CreditWatch status upon the completion of the merger as we will gather additional information on the transaction. Alternatively, we may resolve the CreditWatch sooner in the event acquisition plans are called off. In this case, we would reevaluate Janus' creditworthiness as a stand-alone entity.

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