Standard & Poor's Ratings Services said that it affirmed its 'A+' long-term and 'A-1' short-term issuer credit ratings on Visa Inc. (NYSE: V). The outlook remains stable.

The affirmation follows Visa's announcement of a €21 billion ($23.9 billion) acquisition of Visa Europe. The company has indicated it will offer an upfront purchase price of €16.5 billion ($18.6 billion), consisting of €11.5 billion ($13.0 billion) in cash and up to €5 billion ($5.6 billion) in preferred stock, and a contingent earnout of up to €4.7 billion ($5.3 billion) payable after four years, if Visa Europe achieves incremental net revenue targets.

Although Visa would be introducing a substantial amount of debt to its capital structure (potentially $15 billion to $16 billion), we believe that Visa's current capital structure (with no debt) allows substantial debt capacity without weighing on our assessment of the company's financial risk profile.

In our view, the transaction bolsters Visa's strong business risk profile to the degree that it improves the company's already strong competitive position in the global payments network industry, and we expect it to be accretive to the company's diversified revenue sources and earnings growth. We expect over time the company should be able to cut costs by pooling innovation costs across its expanded global base of clients.

We consider litigation and regulatory risk to be exceptionally high for Visa, and the merger increases the company's potential risk in this regard, given potential claims related to multilateral interchange fees in the U.K. and the European Union. Nevertheless, we consider that the company's expected issuance of preferred stock to absorb potential future litigation costs associated with Visa Europe--together with a buffer from share repurchases that can be flexed--provide it with financial flexibility that is adequate for the rating.

The company's financial metrics will remain consistent with levels that support our "minimal" assessment of the group's financial risk profile, with or without earnouts. In particular, we estimate that adjusted debt to EBITDA will remain below 1.5x over the next two years, taking account of surplus cash remaining on the balance sheet, which we net against gross debt. We also project that interest coverage will remain above 15x, consistent with our minimal assessment with or without earnouts.

The stable outlook reflects our view that, even after the Visa Europe merger, Visa will maintain adjusted debt to EBITDA below 1.5x , in line with our current financial risk profile assessment. Moreover, the outlook reflects our expectation that the company's plan to manage litigation risk from Europe provides it with financial flexibility that is adequate for the rating.

At the same time, the stable outlook also reflects our view that the retrospective responsibility plan effectively shields Visa from the remaining covered litigations in the U.S., most notably the multidistrict litigation (MDL 1720).

We could raise the ratings during the next two years if we believe there is sufficient ongoing evidence to show that, all else being equal, financial flexibility remains high, and execution risk associated with the Visa Europe merger--resulting from changes to the revenue composition model and systems integration costs--does not meaningfully add to variability in the company's profitability.

Conversely, we could lower the ratings if the company was to adopt a more aggressive financial policy, exhibiting an FFO-to-debt ratio materially below 60% on a sustained basis, or an ongoing appetite for increasing leverage while accelerating shareholder payouts. Furthermore, we could lower the ratings if the company was to face new, material litigation that significantly exceeds management's plans, such that these disputes adversely impact its business risk and financial risk profiles. We may also lower the rating in case of significant deterioration in the credit risk profile of Visa's financial institution (FI) customer base.