Fitch Rates MHFI's Proposed Notes 'BBB+'; Outlook Stable

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has assigned a 'BBB+' rating to McGraw Hill Financial, Inc.'s (MHFI) proposed issuance of senior notes due 2025. The proceeds from the offering are expected to be used for general corporate purposes.

Fitch expects MFHI to continue deploying free cash flow (FCF) toward acquisitions and shareholder returns in the form of dividends and share repurchases, and notes that the company's capital allocation strategy and capital structure policy will remain key rating considerations. Fitch expects MHFI to remain within Fitch's leverage target pro-forma for the new senior notes.

The notes will be unsecured and unsubordinated and will rank equally and ratably with the company's existing senior unsecured and unsubordinated debt. Standard & Poor's Financial Services LLC, a wholly owned subsidiary of MHFI that provides guarantees for MHFI's existing senior notes, will also guarantee the new notes. Fitch believes MHFI has significant financial flexibility following the resolution of legal and regulatory matters relating to certain U.S. residential mortgage-backed securities and U.S. collateralized debt obligations. MHFI recorded $1.6 billion in charges that have largely been paid in 2015.

As of March 2015, unadjusted gross leverage was 0.6x and total gross debt was approximately $1.2 billion ($190 million in commercial paper [CP] outstanding, $175 million drawn under its bank credit facility, $400 million notes due 2017 and $400 million notes due 2037).

The company's liquidity position and financial flexibility remain strong given the strength of its businesses and expected FCF generation. Liquidity is further supported by cash and cash equivalents totaling $1.2 billion (approximately $117.6 million held in the U.S.) and $810 million in availability under its $1 billion CP program (backed by MHFI's $1 billion bank credit facility due June 2017) as of March 31, 2015. The company has ample cushion inside of the credit facilities' 3.25x indebtedness-to-cash flow ratio.

Under various scenarios Fitch has modeled, which include assumptions for investments in the business (including acquisitions and capital expenditures), Fitch believes that leverage could temporarily exceed 2.5x unadjusted gross leverage and sustain current ratings, providing the company significant financial flexibility at the current rating level.

RATING SENSITIVITIES:

Ratings may be upgraded when:

--The company's business and operational profile remains in line with current performance without any material deterioration;

--The cumulative effect of acquisitions and share repurchases on the credit profile post-judgments/settlements continues to reflect a conservative balance sheet and financial policy, which may include sustained leverage under 1.5x.

Negative rating actions could occur if there is:

--A shift to leverage over 2.5x and Fitch believed such elevated leverage levels would be maintained;

--Material disruption, negative operating results or a business model change at the S&P Ratings business that materially impacted margins and FCF.

Fitch currently rates MFHI as follows:

--IDR at 'BBB+';

--Short-term IDR at 'F2';

--Senior unsecured at 'BBB+';

--Commercial paper at 'F2'.

The Rating Outlook is Stable.

Date of Relevant Committee: January 21, 2015

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria & Related Research:

--'Corporate Rating Methodology' (May 28, 2014).

Applicable Criteria and Related Research:

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=985012

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View source version on businesswire.com: http://www.businesswire.com/news/home/20150520005938/en/

Fitch Ratings
Primary Analyst
Jack Kranefuss
Senior Director
+1 212-908-0791
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Brian Yoo, CFA
Associate Director
+1 212-908-9175
or
Committee Chairperson
Mike Simonton
Managing Director
+1 312-368-3138
or
Media Relations:
Alyssa Castelli, +1 212-908-0540
[email protected]
Elizabeth Fogerty, +1 212-908-0526
[email protected]

Source: Fitch Ratings

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