S&P Raises Corporate Executive Board (CEB) to 'BB'; Notes Continuous Improvement in Leverage

Standard & Poor's Ratings Services said that it raised its corporate credit rating on Corporate Executive Board Co. (NYSE: CEB) to 'BB' from 'BB-'. The rating outlook is stable.

At the same time, we raised our issue-level rating on the company's $725 million senior secured credit facility to 'BB' from 'BB-'. The '3' recovery rating remains unchanged, indicating our expectation for meaningful recovery (50%-70%) for debtholders in the event of a payment default.

"The upgrade reflects a steady improvement in CEB's leverage over the past 18 months, consistent with management's stated financial policy, as a result of debt repayment and subscriber and organic revenue growth," said Standard & Poor's credit analyst Elton Cerda. The company has also made steady progress in integrating its 2012 acquisition of SHL Group Ltd., which was a transformative acquisition at the time. We expect that the company's organic revenue and EBITDA will continue to grow, its operating performance will remain strong, and its credit measures will continue to improve. We assess CEB's financial risk profile as "significant," based on our expectation that its leverage will stay in the 3x-4x range over the next two to three years as positive revenue and EBITDA trends offset the effect of dividend increases and an active share repurchase program.

The stable rating outlook reflects our expectation that CEB's leverage will be below 3.5x and continue to moderate, discretionary cash flow to debt will be at least 15%, and the company will continue to grow its business organically and through tuck-in acquisitions. Our rating does not incorporate any large debt-financed acquisition. We view both an upgrade and downgrade as equally unlikely over the next 12-24 months.

We could lower the rating if operating missteps cause leverage to approach 3.5x, which could occur if revenue growth slows and EBITDA declines due to competitive pressure. Large, debt-financed acquisitions could also cause downgrade pressure if leverage increases significantly without a clear path to deleveraging, signaling a change in the company's financial policy.

Over the long term, we could raise the rating if CEB broadens its base of business through appropriately priced, synergistic acquisitions that don't meaningfully raise leverage, while it maintains operating momentum and profitability, together with a consistent financial policy.

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