Fitch Affirms Invesco Ltd. at 'A-'; Outlook Revised to Positive

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has today affirmed Invesco Ltd.'s (IVZ) long-term Issuer Default Rating (IDR) and senior unsecured debt rating at 'A-'. The Rating Outlook has been revised to Positive from Stable. A full list of rating actions is at the end of this press release.

These actions have been taken by Fitch in conjunction with a broader traditional investment manager industry review, which includes 7 publicly-rated traditional investment managers. For more commentary on the broader sector review, please see 'Fitch Completes Traditional Investment Manager Review; Upgrades AMG and Man; Revises Invesco to Positive', available at 'www.fitchratings.com'.

KEY RATING DRIVERS

IDRS AND SENIOR UNSECURED DEBT

The affirmation of IVZ's ratings reflects the firm's strong investment management franchise, AUM growth and diversification and stable leverage. These strengths are balanced against the sensitivity of the business model to broader financial markets; continued seeding of new investment strategies; leverage, interest coverage and margin levels which although strong, are weaker relative to more highly rated peers; and moderate exposure to the money market fund business, which introduces regulatory and contingent liability risks.

The revision of the Outlook to Positive reflects continued strong operating and investment performance, levelling of seed capital investments and an increased focus on organic growth over debt-funded acquisitions, which has resulted in stable leverage. The Positive Outlook also reflects Fitch belief that the company will continue to focus on organic growth and building cash on its balance sheet while maintaining or reducing leverage.

AUM growth has been robust over the past year, driven both by strong equity market performance and net inflows in its long-term funds. At April 30, 2015, IVZ managed $812 billion in client assets, a 4.1% increase year-on-year. IVZ remains the third largest public asset manager globally and the largest in Fitch's rated peer universe, by asset size. These rankings have not changed over the past two years. Long-term fund flows have been positive for the past four years; however, IVZ experienced total net outflows in 2014 due to negative flows in its short-term funds (Invesco PowerShares QQQ and institutional money market funds).

The company's AUM is relatively concentrated in equity products, at 49% of the total at March 31, 2015, which is at the upper end of its historical 40%-50% range; however, Fitch recognizes that the level of exposure to equity products is in-line with peers. Heavy exposure to equity products is of some concern to Fitch, since it makes the firm sensitive to weak equity markets, as negative investment performance could trigger AUM outflows, and give rise to revenue volatility. However, IVZ's three- and five-year equity fund performance, which largely remains above those of peers and stated benchmarks, should continue to attract investment and should mitigate some of the risk.

IVZ continues to report strong operating margins, which are above peer averages and in-line with the company's target of 40%. The adjusted operating margin was 40.8% in first-quarter 2015 (1Q15), level with prior year results, but up from 35.7% in FY12, with the increase primarily driven by market-driven revenue growth. IVZ's results have also been supported by relatively good flows in its long-term funds as well as increases in global equity markets.

Leverage, as measured by gross debt-to-adjusted TTM EBITDA, was 0.93x at March 31, 2015, down from 1.06x the prior year. Fitch believes IVZ's leverage could continue to decline if the firm maintains the revenue growth and its robust operating margins, without incurring substantial acquisition-related debt or materially increasing shareholder returns. Interest coverage remains strong though lower, coming in at 24.2x in 1Q15, compared to 28.5x the prior year. The ratio declined due to changes in long-term financing arrangements which increased the overall borrowing costs. IVZ reported a strong liquidity position of $2.3 billion at March 31, 2015, comprised of $1.2 billion in cash and $1.1 billion in revolver availability.

SUBSIDIARY COMPANY

Invesco Finance PLC's IDR and senior unsecured debt rating have also been affirmed at 'A-' as a result of this rating review. Invesco Finance PLC is a wholly-owned subsidiary of IVZ whose debt ratings are equalized with IVZ's because of shared branding and IVZ's ownership stake of 100%

RATING SENSITIVITIES

SENIOR UNSECURED DEBT

Positive rating momentum could be supported by a further reduction in leverage from current levels, continued expansion and diversification of the IVZ franchise organically, as opposed to through acquisitions, and continued stabilization of seed capital investments. Conversely, ratings and/or the Positive Outlook could come under pressure if there is a severe and prolonged decline in equity markets, a large acquisition that increases leverage, operational losses or significant net redemptions.

SUBSIDIARY COMPANY

Invesco Finance PLC's ratings are equalized with those of IVZ, and therefore, could be affected by the sensitivities outlined above.

The rating actions are as follows:

Invesco Ltd.

--Long-term IDR affirmed at 'A-'; Outlook revised to Positive

--Senior unsecured debt affirmed at 'A-'.

Invesco Finance PLC

--Long-term IDR affirmed at 'A-'; Outlook revised to Positive

--Senior unsecured debt affirmed at 'A-'.

Additional information is available on www.fitchratings.com

Applicable Criteria

Global Non-Bank Financial Institutions Rating Criteria (pub. 28 Apr 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=865351

Related Research

2015 Outlook: Investment Managers (Growing Scale Offsets Moderate Fee Pressure)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=811788

Traditional Investment Managers: Implications of an Interest Rate Shock (AUM Mix and Duration Management -- Keys to Weathering Interest Rate Risk)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=797988

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=986415

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=986415

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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View source version on businesswire.com: http://www.businesswire.com/news/home/20150615006272/en/

Fitch Ratings
Primary Analyst
Tyra Junaid
Director
+1-212-908-0291
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Nathan Flanders
Managing Director
+1-212-908-0827
or
Committee Chairperson
Joo-Yung Lee
Managing Director
+1-212-908-0560
or
Media Relations:
Alyssa Castelli, +1 212-908-0540
[email protected]

Source: Fitch Ratings

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