S&P Raises MasterCard (MA) ICR to 'A/A-1', Outlook Stable
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Standard & Poor's Ratings Services today said it raised its issuer credit ratings on MasterCard Inc. (NYSE: MA) to 'A/A-1' from 'A-/A-2'. The outlook is stable.
"The upgrade is the result of an improved and, in our view, sustainable level of profitability and cash flow generation, which bolster the company's already healthy financial risk profile," said Standard & Poor's credit analyst Charles Rauch.
MasterCard also has a very good business profile. The company has a valuable brand and holds the number two global market share position in electronic payments--important factors that contribute to its ability to generate strong cash flows through all stages of an economic cycle. While the company remains vulnerable to lawsuits and regulatory uncertainty, including the current U.S. merchant class multidistrict litigation (MDL) claim, we believe the company's consistently robust operating performance and strong liquidity support an 'A' rating.
MasterCard's business is highly scalable and exhibits a high degree of operating leverage. Its operating performance benefits from the strong secular growth in gross dollar volume and the number of transactions processed through its systems. These have been key to the company's ability to increase its operating margin during the past several years to where it now exceeds 55%.
MasterCard continues to benefit from positive secular trends in payment mechanisms, specifically the migration toward cards and electronic payments from cash and checks. Cash and checks still represent the majority of global payment transactions (approximately 85%), and, thus, card and electronic payments could grow substantially in the long term, particularly in certain emerging markets such as India, China, and Brazil, as well as certain developed markets such as Germany and Japan.
MasterCard's financial position is sound--an important factor in our ratings. We consider MasterCard's liquidity profile to be strong in relation to its potential credit exposure (settlement guarantee) and operational risks. As of June 30, 2013, MasterCard had $2.3 billion in cash and cash equivalents and $2.7 billion in available for sale investment securities on the balance sheet. It had no debt outstanding.
"The stable outlook reflects our expectation that MasterCard will maintain its strong number two global market position and continue to generate robust earnings and cash flows from operations," said Mr. Rauch.
Our stable outlook also assumes MasterCard will continue to manage its liquid balance sheet prudently as a precaution against any adverse outcomes from pending or future lawsuits/regulatory rulings or an unforeseen credit event.
We could raise our ratings if the company reverses its lagging market share in global credit/charge cards, without sacrificing its strong financial position or cash flow generation. However, since any meaningful market share gains will take several years, we do not anticipate another upgrade during the 18-24 month outlook period.
Conversely, we could lower the ratings should adverse court rulings or regulatory actions or the concentrated powers of a few very large banks or merchants fundamentally alter the company's business model in such a way as to materially dampen profitability. We could also lower the ratings if the company were to issue a large amount of debt, perhaps to accelerate a share buyback.
"The upgrade is the result of an improved and, in our view, sustainable level of profitability and cash flow generation, which bolster the company's already healthy financial risk profile," said Standard & Poor's credit analyst Charles Rauch.
MasterCard also has a very good business profile. The company has a valuable brand and holds the number two global market share position in electronic payments--important factors that contribute to its ability to generate strong cash flows through all stages of an economic cycle. While the company remains vulnerable to lawsuits and regulatory uncertainty, including the current U.S. merchant class multidistrict litigation (MDL) claim, we believe the company's consistently robust operating performance and strong liquidity support an 'A' rating.
MasterCard's business is highly scalable and exhibits a high degree of operating leverage. Its operating performance benefits from the strong secular growth in gross dollar volume and the number of transactions processed through its systems. These have been key to the company's ability to increase its operating margin during the past several years to where it now exceeds 55%.
MasterCard continues to benefit from positive secular trends in payment mechanisms, specifically the migration toward cards and electronic payments from cash and checks. Cash and checks still represent the majority of global payment transactions (approximately 85%), and, thus, card and electronic payments could grow substantially in the long term, particularly in certain emerging markets such as India, China, and Brazil, as well as certain developed markets such as Germany and Japan.
MasterCard's financial position is sound--an important factor in our ratings. We consider MasterCard's liquidity profile to be strong in relation to its potential credit exposure (settlement guarantee) and operational risks. As of June 30, 2013, MasterCard had $2.3 billion in cash and cash equivalents and $2.7 billion in available for sale investment securities on the balance sheet. It had no debt outstanding.
"The stable outlook reflects our expectation that MasterCard will maintain its strong number two global market position and continue to generate robust earnings and cash flows from operations," said Mr. Rauch.
Our stable outlook also assumes MasterCard will continue to manage its liquid balance sheet prudently as a precaution against any adverse outcomes from pending or future lawsuits/regulatory rulings or an unforeseen credit event.
We could raise our ratings if the company reverses its lagging market share in global credit/charge cards, without sacrificing its strong financial position or cash flow generation. However, since any meaningful market share gains will take several years, we do not anticipate another upgrade during the 18-24 month outlook period.
Conversely, we could lower the ratings should adverse court rulings or regulatory actions or the concentrated powers of a few very large banks or merchants fundamentally alter the company's business model in such a way as to materially dampen profitability. We could also lower the ratings if the company were to issue a large amount of debt, perhaps to accelerate a share buyback.
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