S&P Upgrades Nielsen (NLSN) to 'BB+'; Sees Maintaining Lower Leverage Levels

Standard & Poor's Ratings Services said today that it raised its corporate credit rating on New York City-based global information and measurement company Nielsen N.V. (NYSE: NLSN) to 'BB+' from 'BB'. The rating outlook is stable.

At the same time, we raised our issue-level rating on the company's senior secured debt to 'BBB' from 'BBB-'. The '1' recovery rating remains unchanged, indicating our expectations for very high recovery (90%-100%; high end of the range) of principal in the event of a payment default.

We also raised our issue-level rating on Nielsen's senior unsecured debt to 'BB+' from 'BB'. The '3' recovery rating remains unchanged, indicating our expectations for meaningful recovery (50%-70%; high end of the range) of principal in the event of a payment default.

"The upgrades reflect Nielsen's lower leverage and our expectation that the company will remain committed to maintaining adjusted leverage below 4x on a sustained basis, which translates to about 3.6x, as the company reported," said Standard & Poor's credit analyst Naveen Sarma. "We estimate that adjusted leverage, which includes adjustments for pensions, other postemployment benefits (OPEBs), operating leases, and surplus cash, declined to 4x as of Dec. 31, 2014."

Our stable rating outlook reflects our expectation that average adjusted leverage will remain below 4x on a sustained basis. We expect that dividends, share repurchases, and acquisitions could exceed free cash flow generation, with the deficit financed by modest annual incremental debt issuance. We view a downgrade as more likely than an upgrade.

We could lower our rating if Nielsen's adjusted leverage rises above 4x on a sustained basis, which could occur with a change in financial policy (including more aggressive share repurchases and a higher dividend payout), debt-financed acquisitions, or indications that competition is intensifying and leading to revenue, EBITDA, or margin deterioration.

We view an upgrade as unlikely, given the company's publicly stated goal of maintaining leverage (based on its definition, which does not include our adjustments) in the 3x area, which results in an adjusted leverage, based on our methodology, in the mid- to high-3x area. At a minimum, given our "satisfactory" business risk assessment, the company would likely need to commitment to a more conservative leverage threshold for us to consider raising the rating to an investment-grade ('BBB-' or higher) level.

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