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MCO - Q1 2016 Moody's Corp Earnings Call
EVENT DATE/TIME: APRIL 29, 2016 / 3:30PM GMT
OVERVIEW:
Co. reported 1Q16 revenue of $816m, operating income of $304m and diluted EPS
of $0.93. Expects full-year 2016 revenue to increase in low-single digit percent
range and EPS to be $4.55-4.65.

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affiliated companies.

APRIL 29, 2016 / 3:30PM, MCO - Q1 2016 Moody's Corp Earnings Call
CORPORATE PARTICIPANTS
Salli Schwartz Moody's Corporation - Global Head of IR and Communications
Ray McDaniel Moody's Corporation - President and CEO
Linda Huber Moody's Corporation - EVP and CFO
Mark Almeida Moody's Corporation - President of Moody's Analytics
Michel Madelain Moody's Corporation - President and COO of Moody's Investors Service

CONFERENCE CALL PARTICIPANTS
Alex Kramm UBS - Analyst
Andre Benjamin Goldman Sachs - Analyst
Manav Patnaik Barclays Capital - Analyst
Warren Gardiner Evercore Partners Inc. - Analyst
Joseph Foresi Cantor Fitzgerald - Analyst
Vincent Hung Autonomous Research LLP - Analyst
Denny Galindo Morgan Stanley - Analyst
Peter Appert Piper Jaffray - Analyst
Craig Huber Huber Research Partners - Analyst
Doug Arthur Huber Research Partners - Analyst
Bill Warmington Wells Fargo Securities, LLC - Analyst
Henry Chien BMO Capital Markets - Analyst
Tim McHugh William Blair & Company - Analyst
Patrick O'Shaughnessy Raymond James & Associates, Inc. - Analyst

PRESENTATION
Operator
Good day, and welcome, ladies and gentlemen, to the Moody's Corporation first-quarter 2016 earnings conference call. At this time, I would like
to inform you that this conference is being recorded.
(Operator Instructions)
I will now turn the conference over to Salli Schwartz, Global Head of Investor Relations. Please go ahead.

Salli Schwartz - Moody's Corporation - Global Head of IR and Communications
Thank you. Good morning, everyone, and thanks for joining us on this teleconference to discuss Moody's first-quarter results for 2016, as well as
our updated outlook for full-year 2016. I am Salli Schwartz, Global Head of Investor Relations and Communications.
This morning, Moody's released its results for the first quarter of 2016, as well as our updated outlook for full-year 2016. The earnings press release
and a presentation to accompany this teleconference are both available on our website at IR.Moodys.com.
2
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Today's remarks may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. which can be found toward the end of our earnings release.streetevents. Before I turn the call over to Linda. 3 THOMSON REUTERS STREETEVENTS | www.President and CEO Thank you. as well as strong results at Moody's Analytics. Diluted earnings per share of $0. to better address the needs of our customers. down 16% from the same period last year. we'll be happy to respond to your questions. In the first quarter of 2016. Salli. As part of the enterprise risk solutions line of business.55 to $4.Moody's Corporation . Foreign currency translation unfavorably impacted revenue by 2%. . I'll now turn the call over to Ray McDaniel. Moody's Executive Vice President and Chief Financial Officer. an 18% decline from the prior-year period. Operating expense for the first quarter was $512 million.APRIL 29. Ray McDaniel . I also direct your attention to the management's discussion and analysis section and the risk factors discussed in our annual reports on Form 10-K for the year ended December 31. We also announced a minority investment in Finagraph. Linda will follow with additional financial detail and operating highlights. Also making prepared remarks on the call this morning is Linda Huber. and additional ratings mandates.9%. a provider of cloud-enabled automated financial data collection and business intelligence solutions for private companies. Our 2016 EPS guidance is now $4. will lead this morning's conference call.65. and in other SEC filings made by the Company. All rights reserved. This investment underscore's Moody's commitment to innovative financial technologies. I call your attention to the Safe Harbor language. In accordance with the Act. I would like to highlight two investments we made in the first quarter. Linda Huber . I'll now turn the call over to Linda to provide further commentary on our financial results and other updates. we have scaled back our revenue and earnings expectations for full-year 2016 and are managing our cost base accordingly. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. thus improving access to credit for this underserved segment of the market. In March. up 4% from first quarter of 2015. despite Moody's investor services. Moody's Analytics announced the acquisition of GGY. together with the Safe Harbor statements. a leading provider of actuarial software for the life insurance industry.Moody's Corporation . GGY will contribute to MA's regulatory solvency and capital management solutions. After our prepared remarks. As Ray mentioned. Finagraph's information and analytical solutions represent important advances in banks' risk assessments of small and medium-sized businesses. set forth important factors that could cause actual results to differ materially from those contained in any such forward-looking statements. I will then conclude with comments about our updated outlook for 2016. 2015. complementing our already strong position with global banks.Q1 2016 Moody's Corp Earnings Call Ray McDaniel. including by framing or similar means. Operating income was $304 million. which are available on our website and on the Securities and Exchange Commission's website. Moody's total revenue for the first quarter declined 6% to $816 million.EVP and CFO Thanks. 2016 / 3:30PM. I would also like to point out that members of the media may be on the call this morning in a listen-only mode.com | Contact Us ©2016 Thomson Reuters. The adjusted operating margin was 40. is prohibited without the prior written consent of Thomson Reuters. I'll begin with revenue at the Company level. was $334 million. consistent market coverage. Operating margin for the first quarter of 2016 was 37. And thank you to everyone for joining today's call. which is not sensitive to debt issuance activity. Overall revenue for Moody's Corporation of $816 million declined 6%.3%. These. Moody's President and Chief Executive Officer. Good morning. The impact of foreign currency translation on operating income was negligible. MCO .93 was down 16% from the prior-year period. I'll begin by summarizing Moody's first-quarter results. defined as operating income before depreciation and amortization. reduced global bond issuance weighed on Moody's financial performance. Republication or redistribution of Thomson Reuters content. Adjusted operating income. Given market conditions. Ray. The addition of GGY's products and specialized expertise accelerates MA's extension into financial risk management for life insurers. Before we begin.

'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. flat to the prior-year period. Foreign currency translation unfavorably impacted MIS revenue by 1%. Trailing 12-month sales for ERS increased 1%. US ERS revenue was up 14%. including by framing or similar means. MA revenue grew by 10%. Excluding revenue from GGY. US public project and infrastructure finance revenue was down 6%. as well as record customer retention. 4 THOMSON REUTERS STREETEVENTS | www. Fourth. Second. up 4% from 2015. ERS revenue remains subject to quarterly volatility. ERS revenue grew 13%. global financial institutions revenue of $95 million was up 1% from the prior-year period. This represented the lowest revenue quarter for structured finance that we have seen in 10 quarters. Non-US revenue of $336 million was down 8% and represented 41% of Moody's total revenue. while non-US revenue was up 4%. MIS other. reflecting a very difficult comparison with the first quarter of 2015. or ERS. Turning now to expense. revenue of $90 million was up 16% from last year. Looking now at each of our businesses. due to widening spreads. global research data and analytics. global corporate finance revenue of $240 million for the quarter was down 20% from the prior-year period. as US project finance activity and European infrastructure-related issuance fell amid choppy market conditions. US securitization activity slowed. Moody's first-quarter expense was $512 million. while non-US revenue was down 14%. Recurring revenue of $231 million increased 4% and represented 44% of ratings revenue. Moving now to the lines of business for MIS. Recurring revenue of $452 million increased by 7% and represented 55% of total revenue. 2016 / 3:30PM. This result reflected lower levels of global speculative grade issuance. while non-US revenue of $189 million declined 18% and represented 36% of total ratings revenue.APRIL 29. Third. first. US financial institutions revenue was down 3%. global revenue for MA of $291 million was up 11% from the first quarter of 2015. Third. as well as Moody's ongoing technology investments. down 11% from the prior-year period. US revenue of $144 million fell 12% year over year. Growth was mainly due to strong new sales of research and data. US structured finance revenue was down 15%. is prohibited without the prior written consent of Thomson Reuters. first.streetevents. And as we've noted in the past. global public project and infrastructure finance revenue of $92 million was down 9% versus the prior-year period. US corporate finance revenue decreased 10% while non-US revenue decreased 36%. The increase was primarily due to higher compensation costs in MA. Recurring revenue of $222 million increased 9% and represented 76% of MA's revenue. down 13% from the prior-year period. or RD&A. primarily from accelerated project deliveries. reflecting additional head count required to support business growth. primarily within the CMBS and CLO markets. . and non-US revenue of $147 million was up 9% and represented 51% of total MA revenue. and reduced availability of bank loan collateral. MCO . Foreign currency translations favorably impacted expense by 2%. due to the variable nature of project timing and completion.com | Contact Us ©2016 Thomson Reuters. global enterprise risk solutions. regulatory requirements. All rights reserved. US revenue declined 10% to $336 million. Second. Republication or redistribution of Thomson Reuters content. Foreign currency translation unfavorably impacted MA revenue by 2%. Turning now to Moody's Analytics. Expenses in MIS were down slightly compared to the prior-year period. US RD&A revenue was up 14%. while non-US revenue was up 17%. Moving now to the lines of business for MA. total MIS revenue for the quarter was $525 million.Q1 2016 Moody's Corp Earnings Call US revenue of $480 million was down 4% from the first quarter of 2015. while non-US revenue was up 5%. revenue of $165 million was up 10% from the prior-year period and represented 57% of total MA revenue. Non-US revenue was flat with a modest increase in Europe. starting with Moody's Investor Service. Excluding revenue from our March 2016 acquisition of GGY. as well as declines in the number of US investment grade bond offerings and in the volume of European investment grade issuance. US professional services revenue was down 6%. while non-US revenue was up 3%. global structure finance revenue for the first quarter was $91 million. which consists of non-rating revenue from Moody's majority-owned joint venture interests in ICRA and Korea Investor Service contributed $8 million to MIS revenue service for the first quarter. global professional services revenue of $37 million was flat to the prior-year period.

For MIS. respectively. Moody's now projects an operating margin of approximately 41%. These assumptions are subject to uncertainty and results for the year could differ materially from our current outlook. or an average cost of $89.President and CEO Thanks. These savings allow Moody's to maintain guidance for operating expenses to increase in the mid single-digit percent range.Q1 2016 Moody's Corp Earnings Call As Ray noted.3% and 40.APRIL 29. The Company repurchased 2. despite the addition of GGY's operating expenses and the negative impact of foreign currency translation. payable June 10 to stockholders of record at the close of business on May 20. As of March 31. In response to this revised revenue outlook. our forecast reflects exchange rates for the British pound and the euro at $1. which can be found on Moody's Investor Relations website at IR. we have lowered our projected base business spending for the year by approximately $50 million through expense management actions and reduced incentive compensation. 2016 / 3:30PM. while non-US revenue is now expected to increase in the low single-digit percent range.44 to one British pound. is prohibited without the prior written consent of Thomson Reuters. Moody's updated outlook for 2016 is based on assumptions about many macroeconomic and capital market factors. respectively. down 13% from the first three months of 2015.streetevents.com | Contact Us ©2016 Thomson Reuters.02 dilution from the acquisition of GGY.9% for the same period last year. Moody's had $3. which assumes weakness in the first quarter is not offset in the remainder of the year. and $1.1 billion with approximately 73% held outside the US. I'll conclude this morning's prepared comments by discussing the changes to our full-year guidance for 2016.1 million in dividends during the quarter. including by framing or similar means. reflecting weak issuance in the first quarter. During the first quarter of 2016. foreign currency exchange rates. the Company now expects 2016 EPS of $4.55 to $4. as well as expectations for variable issuance activity for the remainder of the year. and issued 1.9 million shares at a total cost of $262 million. Moody's also paid $72. and short-term investments at quarter end were $2.65.83 per share.6 million shares under its annual employee stock-based compensation plans. 2016. Capital expenditures are now expected to be approximately $125 million. Corporate finance revenue is now expected to decrease in the low single-digit percent range. Moody's had $1. MCO . while adjusted operating margin is still expected to be approximately 45%. Public.moodys. 2016 totaled 194. Our guidance assumes foreign currency translation at end of quarter exchange rates. Free cash flow is now expected to be approximately $1 billion. Structured finance revenue is now expected to decrease in the mid single-digit percent range as a result of continued challenges to US securitization activity. The full list of Moody's guidance is included in our first-quarter 2016 earnings press release.2 billion of share repurchase authority remaining. And with that. and on April 11 announced a quarterly dividend of $0. inclusive of $0.4 billion of outstanding debt and $1 billion of additional debt capacity available under its revolving credit facility. Moody's returned $334 million to shareholders via share repurchases and dividends. Moody's full-year 2016 revenue is now expected to increase in the low single-digit percent range. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. primarily due to the year-over-year decline in net income and changes in working capital. Linda. As I noted earlier. Total cash. Ray McDaniel . and the amount of debt issued. Moody's reported operating margin and adjusted operating margin were 37. Moody's effective tax rate for the quarter was 32. 5 THOMSON REUTERS STREETEVENTS | www. Specifically. .Moody's Corporation . At quarter end.37 per share of Moody's common stock. The year-over-year decline was primarily due to a change in New York City tax law relating to income apportionment. down 4% from the prior-year period. including interest rates. consumer borrowing and securitization. US revenue is now expected to decrease in the low single-digit percent range. I'll turn the call back to Ray.3 million.9%. cash equivalents.3% versus 32. project and infrastructure finance revenue is now expected to increase in the mid single-digit percent range.14 to one Euro. for the first quarter. Outstanding shares as of March 31. mergers and acquisitions. All rights reserved.com. 2016 revenue is now expected to be approximately flat. Republication or redistribution of Thomson Reuters content. corporate profitability and business investment spending. Free cash flow for the first three months of 2016 was $211 million. Now I'll provide an update on capital allocation.

I wanted to come and talk about the guidance for a second here. is prohibited without the prior written consent of Thomson Reuters. because of refinancing and everything else that we talked about three months ago. QUESTIONS AND ANSWERS Operator (Operator Instructions) And we'll take our first question from Alex Kramm with UBS.com | Contact Us ©2016 Thomson Reuters. but we're still hoping a lot for the second half? Hopefully you're getting the drift of my question. There are a number of reasons for this.Analyst Hi. 2016. and Mark Almeida.UBS . Michel Madelain will retire as President and Chief Operating Officer of MIS and will assume the role of Vice Chairman for MIS. Not only is it credit spreads. has really impacted our outlook for structured finance in the United States for not only the first-quarter results. I would like to highlight the MIS management change that we announced on April 4. Is this -. will succeed Michel Madelain as President of MIS. President and Chief Operating Officer of MIS. especially in the US. MCO . afternoon. The conditions for the structured finance market have been very challenged so far this year. We do expect more momentum in the second half of the year than we've had in the first half. All rights reserved. but also regulatory requirements that are being implemented and interpreted. 2016 revenue is now expected to increase in the high single-digit percent range. is structured finance.hey. while non-US revenue is now expected to increase in the mid single-digit percent range. I would like to extend my thanks to Michel and congratulate Rob on his new role. in combination with a challenging interest rate environment or spread environment. and we think that they are going to continue to be challenged. though.you know what. And we've already seen improvement in late March and April compared to the very weak beginning to the year in January and February. Alex. President of Moody's Analytics. as you point out. The other thing I would point you to. Rob Fauber. I would point to two things. We would be pleased to take any questions you may have. And joining us for the question-and-answer session is Michel Madelain. 6 THOMSON REUTERS STREETEVENTS | www. the first quarter was really awful. Enterprise risk solutions revenue is now expected to increase in the high single-digit percent range. and issues around the appropriate availability of collateral in areas such as CLOs. US revenue is now expected to increase in the low double-digit percent range. but there's still a lot of uncertainty here with Brexit in June and things like that. And that. This concludes our prepared comments. the second quarter is all right. And a lot of the market participants are sorting out the appropriate interpretation for new regulatory requirements around risk retention and disclosure of underlying asset information. but our outlook for the remaining nine months.President and CEO At a high level. which can affect the economics of the transaction. . but our outlook. has not really changed? Or is this also a reflection of -. Before we move to the Q&A.Moody's Corporation . 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. and the fact that we still have some tough comps in the second quarter in particular. One. Alex Kramm .APRIL 29. what was really the thinking in the EPS reduction? And I'm talking primarily from a seasonal perspective.streetevents. 2016 / 3:30PM. He will also remain on the MIS Board of Directors and MIS European boards. we feel there is still quite a bit of uncertainty for the remainder of this year at a macro level between Brexit and the potential for interest rate increases. including by framing or similar means. From a bigger picture perspective.Q1 2016 Moody's Corp Earnings Call For Moody's Analytics. data and analytics revenue is now expected to increase in the high single-digit percent range as a result of new business and an increased customer retention rate. who has been with Moody's for 11 years. but where does the near term and the remainder of the year fit into this? Ray McDaniel . Research. good morning. Effective June 1. Republication or redistribution of Thomson Reuters content. including revenue associated with the March 2016 acquisition of GGY.

There's a couple of phases of regulatory requirements. 7 THOMSON REUTERS STREETEVENTS | www. But if we actually end up doing better. But as we move into that second $50 million. 2016 / 3:30PM. And in terms of that remaining 60%. 60% of it comes from the rest of the year forecast. And I'll ask if Ray has any further questions on this. And it seems like you've really now cut all the flex that you had. There will be more coming. But we have been very clear about this. there's not much that's going to change on the cost side. we are back to what I would call essential hiring and we're looking at hiring on a person-by-person basis in terms of backfilling.UBS . Is that fair? Linda Huber . is in corporate.Moody's Corporation . is prohibited without the prior written consent of Thomson Reuters. about 40%. is split about half and half between incentive compensation and other expense saving measures that we could take. So. the balance of that being structured and the remainder being in corporate for the rest of the year. The market is adjusting currently to the first phase. really clamped down on that front for two of the divisions.President and CEO The only thing I would add. but also we have moderated our expectations. MCO . We moved aggressively and we moved hard against that situation. third and fourth quarter. But in terms of how quickly that's going to recover. Alex Kramm . this excludes Moody's Analytics. Now. And then if there is any variability to what you're hopefully going to give me now. again. and we've already taken down our incentive compensation with this first pass by about $20 million. we can't turn the ship that quickly. some of the negative flex comes back and maybe some of the bonuses come back? Basically what I'm saying is. just to give you some sense of the calendarization of that. can you talk about the cost side of the equation in a little bit more detail? I think in the past you've done a great job talking on an absolute dollar basis how the trajectory looks like. about 60% of that is a reduction in structured finance.APRIL 29. is it basically if revenues actually end up being a little bit better. and the balance.EVP and CFO Alex. You should consider 40% of that is what we've already seen as weakness in the first quarter. All rights reserved.Q1 2016 Moody's Corp Earnings Call Linda Huber . as we've said before. We often talk about $50 million of expense flex.Analyst That's very great color. So we'll see how we go and we'll see what we want to do. if this gets worse. We have that in train already. and that's the issue. So we'll just have to keep an eye on that space. you probably see costs up a little bit again. So. About half of that is from reduced incentive compensation because we've just taken the guidance down. We'll see in the structured finance area how that market adjusts to different regulatory requirements. And then. We started these actions again in February. that should give you something to work with in terms of what we're seeing. we will have to see. Now.Moody's Corporation .Moody's Corporation . this does get tougher. Ray McDaniel . but you're going to have to wait for the rest of the year to see this flow through. while I have you. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. we would take different actions if we saw structural changes in the markets that we're operating in versus cyclical ups and downs. This looks largely to us to be a cyclical condition in the markets. including by framing or similar means. We have taken steps in T&E. so you should probably have a good visibility for the second. on an absolute basis.EVP and CFO Alex. Thank you. but history has said that it does adjust. most importantly. which.com | Contact Us ©2016 Thomson Reuters. For two of the divisions.streetevents. Linda. . The other half is from the expense management actions that I spoke about earlier. we have another $50 million. let me just set out the explanation for this. in hiring. we've taken down the MIS revenue outlook by a little bit more than $100 million. in a weaker revenue environment. We saw the markets were weak in the beginning of February. Republication or redistribution of Thomson Reuters content. and. secondly. We've taken it down for the first quarter.

Linda Huber . The timing in the first quarter's been a little different. I think we've just been executing quite well on project delivery. Mark Almeida . 8 THOMSON REUTERS STREETEVENTS | www. And we are absolutely on that. because if you're simply pulling business forward. MCO . So good effort by taking down expenses by$ 50 million. If we are not doing well. on the expenses. incentive compensation gets hit first and hard. like. incentive compensation might ramp up toward the end of the year. but just remind us how the absolute dollar level is changing in your expectation. $35 million to $45 million. Thanks for that.streetevents. the base outlook for the business organically is consistent with what we guided to previously. We'll ask Mark to take that.EVP and CFO Sure. Can you just give us an update? It seems like not much has changed. in the next couple of quarters. It's really driven by the GGY acquisition ticking up the ERS result at high single. Ray McDaniel . that is largely offset by additional expenses from GGY and what we view as potential unfavorable FX situation. I was wondering if you could maybe talk through the increase to guidance in that business line.Moody's Corporation . So. so we've pulled some things forward. $5 million. the watch word here is to be very careful with hiring and to be very careful with all other expense items up and down the P&L.UBS .Moody's Corporation . 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. Alex Kramm .Analyst Great. I was wondering how much of that is M&A contribution versus new business wins and other factors. is prohibited without the prior written consent of Thomson Reuters. so we're basically back to where we started. particularly the high single-digit increase from low single-digit just a few months ago.Q1 2016 Moody's Corp Earnings Call Linda Huber . up $5 million. Now.Moody's Corporation . 2016 / 3:30PM. We're looking at an expense ramp from here that we think is going to be $35 million to $45 million over the course of the year. $5 million. The $50 million we've already committed to. Operator We will now go to Andre Benjamin with Goldman Sachs. including by framing or similar means. The business is performing very much in line with what we expected coming into the year. Andre. the most variable part of that is incentive compensation.Analyst On ERS. in absolute dollars like you usually give. we do have the offset.President of Moody's Analytics I think you've got it right.com | Contact Us ©2016 Thomson Reuters.APRIL 29. just quickly. Andre Benjamin . However.UBS .EVP and CFO Alex.President and CEO Sure. And if we somehow manage to do better. All rights reserved. Republication or redistribution of Thomson Reuters content.Moody's Corporation .Analyst Excellent.Goldman Sachs . . I would think the full-year guidance wouldn't change that much. one more clarification. But the. So it's just a watch out there. Alex Kramm . And sorry. but we expect the ramp from here.

what we would call reverse Yankees.streetevents. So we're going to have to watch that closely. And for the full year. down. I was wondering if you could provide some color on how much of that is continued weakness in the high yield market versus you might be starting to see some cracks in the pipeline for investment grade. which is traditionally weaker. and $260 billion for the year. Now. positive. it's good. $340 billion in issuance.APRIL 29. we're looking at $1. may encourage further issuance. Supply was down 70%. going forward. And some increased default activity serves as a bit of a headwind. and if spreads continue to tighten we may see some progress. in the second point. So it looks like there's quite a bit to do right now. Month-to-date April. a very volatile first quarter. about $65 billion. Brexit. Going down to high yield. Again.Moody's Corporation . So investment grade. So. $25 billion. And. and tighter spreads. So dollar volume. I think you should be able to see a slide that we've put up. That goes back to the risk retention requirements. the ECB's move makes us more optimistic. Spec grade in Europe. MCO . 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. the ECB's move has sparked a renewed risk appetite and is leading to pickup in high yield activity in Europe. depending on what happens with that vote. . which is down 10% year over year. but the market is still bifurcated. these are the views of the banks. that's unusual. maybe this is a good time for us to talk about what we're hearing from the banks. Leveraged loans. stability in the macro backdrop. is that enough. because the fund outflows and the slowdown in CLO formation. which is down 25% year over year. the pipeline is robust and can pick up further because of the ECB's corporate bond purchasing program.Analyst And then on the debt outlook. down 15%. 9 THOMSON REUTERS STREETEVENTS | www. a curious situation. The issue here has been the deal count. we see $40 billion in the first quarter. Republication or redistribution of Thomson Reuters content. 2016 / 3:30PM. right now for investment grade.com | Contact Us ©2016 Thomson Reuters. is an uncertainty. It's weaker than the high yield bond market. The market tone has improved. where you did take the view down. though. again. if they widen out again. was down by about 20%. and that could sideline issuers and be harmful to the summer season. that's down 60% year over year. The question is. investment grade bonds. Investment grade in Europe. looking at the next slide. the pipeline is robust. I know you talked a bit about the split between how much came out of structured versus other buckets. There's one in the market today. That's good. So. The stronger credits are doing better. Now. Linda Huber . as well. which is about flat.2 trillion. What was less good is that the deal count. The market tone is better. again. There are some deals in the market. looking at $40 billion of issuance so far. we may see further backup. again. For the first quarter of 2016. is prohibited without the prior written consent of Thomson Reuters. about flat year over year. In corporate finance. Spread tightening has already happened. we think. this is issuance views for both financial and nonfinancial US dollar issuance. as you see in the first point. Moving across the column. As a Friday. is also aiding the leverage loan market. Year to date. And we expect the market to remain active and the backdrop is stable and companies are coming out of blackouts.Q1 2016 Moody's Corp Earnings Call Andre Benjamin . which we can talk a bit more about if you want. if we move over to Europe. including by framing or similar means. overall in Europe. $15 billion month-to-date. but deal count. the number of transactions. there have been deals in the market this week.EVP and CFO Sure.Goldman Sachs . And US corporate's continued to see that there's good value in accessing the Euro market. the market was muted. we're looking at $230 billion. And then we'll go over to Europe. And we expect that to be a heavy component of supply as it has been and will be. though. month-to-date for April. We're in about 160 basis points. So. All rights reserved. but it has been a very slow first quarter in Europe. which is not helpful to us. about the same. Conversely. Andre. dollar value. as you see in the second point between haves and have-nots.

and growth concerns. assuming that we see the market sort out how it is going to meet new regulatory requirements and the suitability of collateral. again. Leverage loans down 25% also is a pretty heavy hit. we frankly didn't see that. and I think you just walked through the corporate side of things.Analyst Yes. Manav. in Europe. you had oil prices collapsing. it's the market dealing with both the risk retention requirements and the interpretations for other regulatory requirements having to do with transparency around underlying assets. thank you. I think your thesis was what's changed and shouldn't we have been able to see this when we gave our initial guidance. but it will take some months for that to feed into CMBS. 10 THOMSON REUTERS STREETEVENTS | www. Now. Our change in outlook for structured finance is really centered on the US. Linda Huber . concerns about China. we may see the outlook improve and. So. Republication or redistribution of Thomson Reuters content. in the commercial mortgage-backed securities area there is a lot of refinancing that needs to occur. but having corporate hit hard.Barclays Capital .Goldman Sachs . All rights reserved.Moody's Corporation . Operator We'll now go to Manav Patnaik with Barclays. Generally around here we're okay if we have one segment off. Good afternoon. if they widen.streetevents. So. including by framing or similar means. Andre.Analyst Yes. that is what we would view as a cyclical issue in structured until the participants in that market figure out how to deal with some of these different conditions and rules. If they continue to tighten. 2016 / 3:30PM. high yield bond issuance down 60% in the first quarter is a pretty heavy hit. In the CLO area. thank you. is prohibited without the prior written consent of Thomson Reuters. pipeline is up quite substantially. and the suitability of the collateral itself. But I don't think we expected the total risk-off environment in the first quarter. Andre Benjamin .com | Contact Us ©2016 Thomson Reuters. So hope that's helpful to you. I think in the $100 million you helped break out where you are assuming what. as well as having structure having had the worst quarter it's had in 10 quarters. A lot of the big picture constraints on the issuance market don't sound much different than what it was when you gave guidance in February.APRIL 29. as Ray said. but it's still not enough to allow us to come anywhere close to holding our original guidance. I'll start.Moody's Corporation . .EVP and CFO Manav.President and CEO Yes. MCO .Q1 2016 Moody's Corp Earnings Call I think the overall view on the more speculative asset classes across the world would be keep an eye on spreads. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. we went through a pretty heavy risk-off phase there. which is now starting to right itself. maybe it's structured finance where maybe you can help us understand the different issuance categories and what changed versus February. As I had said previously. and then invite Linda or Michel to weigh in. and within the US it's focused on primarily the CMBS market and the CLO market. So. that will be detrimental. So some of the issues that we're seeing in the US are being partially offset by the international business. conversely. particularly as we go into the Brexit vote. Pipelines are not bad. As a matter of fact. Manav Patnaik . Some of that refinancing is occurring outside of securitization. So maybe some more color on what the degree of change is. we could see a pickup in CLOs later in the year. just a little bit of color and then I'll ask Michel if he wants to comment further. So you have the risk off mode happening. As you know from our prior comments. Ray McDaniel . And we are also expecting to see the volume and activity pick up in the third and fourth quarters of this year because there was very little conduit lending early in this year. and the conduits have increased their financing. We do think that situation will ease as we go into the end of the year.

I think what I was going to say is really in terms of the numbers we are seeing. Manav Patnaik . that has and probably will continue to encourage M&A. again. I'll turn it over to Michel to have him perhaps give some more thoughts about how we're viewing the balance of the year. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. As market improve. And to the extent that we're in a low growth environment. There are significant refinancing walls that begin to build in 2017 and really build for several years after that. We have seen M&A stop as we dealt with the changes in the inversion rules. But we're going to have to watch this closely. to your comments on structural versus cyclical.President and CEO Yes. The US 10-year is at 1. And then just thinking a little bit beyond the second half of the year. Linda Huber . you're correct. M&A. so maybe you could just give us a few updated comments on that. but it has been strong for a while. including by framing or similar means. And then maybe some comments on -.85.com | Contact Us ©2016 Thomson Reuters.President and COO of Moody's Investors Service Thank you. but it was worse than we thought. Michel Madelain .APRIL 29.EVP and CFO I just wanted to note that investment grade issuance conditions are really good right now. which was really quite remarkable. at least at the margins. particularly for reverse Yankees.streetevents. 11 THOMSON REUTERS STREETEVENTS | www. around some of the tax-driven deals and things of that sort. coincident with reduced activity in issuance. MCO . But how do you guys think about the puts and takes? I know you talked about the maturity backlog. Absent the Brexit concern. 2016 / 3:30PM. it sounds like a lot of this. as Ray alluded earlier.Q1 2016 Moody's Corp Earnings Call We were thoughtful. So that's an area to keep our collective eye on in terms of how much of it is cyclical and whether there are some structural changes to that market. So we'll see how that goes. On the structured finance side. clearly in the corporate sector this is cyclical.Moody's Corporation . That's what I was going to add. Unilever did a particularly attractive bond issuance recently. That's been a big driver of your issuance and your backlog and it sounds like rating evaluation services might be a little slow because of that. So. This is really a week-by-week situation with the backdrop of the Brexit vote coming up on June 23. All rights reserved. but we have to watch and see how the market deals with new requirements and what economically the market determines makes sense. As far as the cyclicality of the conditions. So it provides an unusual degree of uncertainty. With that.Moody's Corporation . And that I think. Any puts and takes there we need to call out? Ray McDaniel . particularly in Europe. our coverage has remained very consistent. is prohibited without the prior written consent of Thomson Reuters. . we're going to see a large amount of activity associated with refinancing. I think we would feel pretty good about the company's financing opportunities. So.Moody's Corporation . we should see a pickup in our own volumes.Analyst Got it. there are a number of factors that make the rest of the year a little bit tricky to predict.M&A is slowing down a bit. we have seen slower activity in our rating assessment service.Barclays Capital . there have been some bumps in the road with M&A. I view the corporate story as being very much a cyclical story with a significant refinancing wall coming upon us beginning next year. this is really the result of market volumes. Linda. And as we said. at least from your comments. which we've seen in the past. I think it's largely cyclical. So there still is appetite and there's still transactions that need to be funded. healthcare M&A came back strong. If you want to look at reverse Yankee issuance. Where we see the erosion in M&A-driven debt is. three deals this week. really. I think we saw three deals in the TMT space this week. Republication or redistribution of Thomson Reuters content. is more cyclical. And then this week. and they paid very little for that issuance.

I realize it was a pretty tough quarter for direct transaction fees. but it's also the monitoring and annual fees associated with the new rating mandates that have come in over the trailing 12 months are a significant contributor to that. . Operator We'll now go to Warren Gardiner with Evercore. our pricing is consistent around the world for global ratings. Republication or redistribution of Thomson Reuters content.Barclays Capital .Evercore Partners Inc. Maybe some of that's pricing. So my question is. It's not exactly the same everywhere but it's broadly consistent. Thanks a lot for that color.Analyst Okay. but anything to call out there in terms of the growth? Ray McDaniel .President and CEO Unfortunately. relationship fees these jumped pretty nicely from the fourth quarter. but it looks like.Analyst Great.com | Contact Us ©2016 Thomson Reuters. but broadly speaking. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies.APRIL 29. Operator We will now go to Joseph Foresi with Cantor Fitzgerald. . 2016 / 3:30PM. annual fees grow along with that. So as the stock of outstanding ratings grows. on the transaction fee side. the pricing is a bit difficult to match up. Warren Gardiner . And the European market. does that relationship also hold.Evercore Partners Inc. it's not as simple an answer as would probably be convenient. 12 THOMSON REUTERS STREETEVENTS | www. which is heavily represented by speculative grade issuers has more transaction pricing. Great. Thank you. I recall that fees in the US were pretty high relative to Europe and Asia. because we have a different mix of frequent issuer pricing agreements versus transactional-based pricing agreements by geography. That's on the monitoring fee side or relation fee side. Thank you. as well? Ray McDaniel . MCO .Analyst Okay.Moody's Corporation .streetevents. Those are less frequent issuers.Moody's Corporation . . Warren Gardiner . All rights reserved. I would just like to congratulate Michel and Rob on their new roles. the monitoring fees. And then a while back I think you guys provided some nice color around those monitoring fees across some different regions. for the most part.President and CEO Some of it is pricing. including by framing or similar means. for example. . So. Warren Gardiner . at least in structured products and corporate finance.Evercore Partners Inc. is prohibited without the prior written consent of Thomson Reuters. The US market.Q1 2016 Moody's Corp Earnings Call Manav Patnaik . which is more investment grade driven has more frequent issuer agreements.Analyst All right.

that's $60 billion that we could see that has to move.streetevents. Now. again. Ray McDaniel .Analyst Okay. I think we're seeing a little bit of reduced voluntary turnover.Cantor Fitzgerald .EVP and CFO Keep in mind there's also the announced M&A pipeline that still needs to be funded. including by framing or similar means. it sounded like you've seen some people come back to the market on the M&A side.Cantor Fitzgerald . we have taken down our incentive compensation. let's talk about that. How do we think about that given the current environment? Linda Huber . But there's still going to be a reasonable amount of activity. So. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. And as a result of that. assuming that Brexit is resolved in a reasonable way in terms of how the market interprets it. Are you expecting a rebound in the next two to three quarters in M&A? Again. for example. but that would be my narrative around it. We had cited that at $200 billion at the beginning of the year and only some of that financing has moved through the pipeline. that would probably be the reason why we're seeing a slight reduction in voluntary turnover.President and CEO I would not anticipate M&A to be running for the remainder of the year at the pace it ran last year. But it's only moved a few tenths of a percentage point off of our high single-digit view of things. 13 THOMSON REUTERS STREETEVENTS | www. If one is looking for a job in the financial sector right now.Moody's Corporation . Joseph Foresi .com | Contact Us ©2016 Thomson Reuters. that's a pretty challenging place to look at this point in time.Analyst Okay. Ray McDaniel . for incentive compensation. Joseph Foresi . is prohibited without the prior written consent of Thomson Reuters.Moody's Corporation .APRIL 29.EVP and CFO Sure. 2016 / 3:30PM.Cantor Fitzgerald . Linda Huber . And then the assumption in global corporate finance.Analyst Hi. We're thinking about the [Teva] deal and also the Dell deal alone. sorry. Republication or redistribution of Thomson Reuters content.Q1 2016 Moody's Corp Earnings Call Joseph Foresi . . We've got some very big deals.President and CEO We do think that Europe is going to be relatively stronger in the second half of the year once we get through the Brexit vote and with the corporate sector purchase program through the ECB.Moody's Corporation . Is it fair to think you're building in a steady environment in Europe in your non-US assumptions? Then I've got a couple other ones. we think it's going to be a very attractive spread environment for corporate. So. That's very helpful. We would still see that there is some opportunity there. We had started the year with 100% of our bonus targets being set at the $4. We've pulled that down to $4. So.60. particularly if one is looking for a job in the banking sector. I'm just trying to get at the assumptions behind some of the guidance that's out there. And that's supporting what should be good year-on-year growth for our European corporates. but we think that companies are going to choose their spots pretty carefully. And then just on the cost-cutting side.80 we had previously seen for guidance. I wanted to ask about some of your assumptions. given the macro environment. I don't have a number on that for you. All rights reserved. because it sounded like you're touching on them in some of your earlier points. have you seen any change in attrition rates among employees? And then it sounded like the compensation was perhaps flexible in the sense that if we had a better second half of the year we could see that compensation number go up. MCO .Moody's Corporation . and with that June purchase program kicking off.

which you might think of as retail pricing as opposed to wholesale pricing.Analyst Okay.Autonomous Research LLP . Vincent Hung . and reduced performance will reduce the incentive comp line formulaically. That's just the way it goes. Operator We will now go to Vincent Hung with Autonomous. you would expect that we would take incentive compensation back up.Moody's Corporation .com | Contact Us ©2016 Thomson Reuters. And we would like to capture the upside of that through higher transactional pricing. for the first quarter last year.Analyst Got it. including by framing or similar means.President and CEO And this does react formulaically. We're looking from good ideas from Michel going forward in his new role and from Rob in his new role. anticipate business as usual. So. 14 THOMSON REUTERS STREETEVENTS | www. so we've cut incentive comp accordingly. but maybe not all exactly the same business. Rob and Michel are not the same person. On the frequent issuer programs. And if we're not going to hit our numbers. are you happy with the proportion of MIS by frequent issuer. if we see a change in the growth opportunity in global debt markets we would consider whether a different pricing model makes more sense and we would adjust. Vincent Hung .President and CEO There is some volatility that we are accepting in order to have more transactional pricing as opposed to frequent issuer pricing. So. In terms of the $32 million number.streetevents. in that respect. That being said. you should think of it as business as usual.Cantor Fitzgerald . Thank you. So. it really is driven by our view of whether global debt is likely to continue to grow. So $4. or longer term would you prefer that to be higher? Ray McDaniel .Autonomous Research LLP .80 was 100% and $4. That being said.APRIL 29. incentive compensation was $38 million.60 we're predicting now. Republication or redistribution of Thomson Reuters content. But if we do considerably better than the $4.Moody's Corporation . outside of cyclical conditions. We're looking for good ideas. the employees are not paid as well. is prohibited without the prior written consent of Thomson Reuters.Q1 2016 Moody's Corp Earnings Call For example. MCO . Joe. Joseph Foresi . Just last one for me. we pulled down incentive compensation pretty hard to deal with this new lower forecast. can you talk about the management change in MIS? Is it going to be business as usual or should we expect maybe a different approach? Ray McDaniel . So. 2016 / 3:30PM. But.Moody's Corporation .President and CEO We're very pleased with all the work that Michel Madelain has done since he's been the President of MIS. Ray McDaniel . we would see that it will ramp a bit as we go into the fourth quarter if things go right. improved performance will cause higher accruals. and this year in the first quarter it's come down to $32 million.Analyst Good afternoon. . All rights reserved.60 is below that. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies.

And. 2016 / 3:30PM. But we've also seen some stories coming out about IFRS 9 and the equivalent GAAP rules. of course.Q1 2016 Moody's Corp Earnings Call Vincent Hung . which added some expense. Thanks for taking my questions.Morgan Stanley . we're trying to match the expense support for the revenue growth in the business. very active management of our expenses. and that some of the things we had already started at the very beginning of 2016 we have a very good handle on that right now. is really not a very large part of the revenue profile for MIS. Operator We'll now go with Denny Galindo with Morgan Stanley. That's helpful.Moody's Corporation .APRIL 29. a little bit more color. And we can't do that instantaneously. Most of the $50 million that we have already put in process on expense management will come from shared services.Moody's Corporation . which was even greater. . And we continue to make prudent technology investments. The further reason for the growth in that incentive compensation for the first quarter year over year was because of some of the additions we made in head count last year. which supported revenue growth. Those other businesses. two to three years. thank you.Autonomous Research LLP . though.com | Contact Us ©2016 Thomson Reuters. First one on the expenses. In this first quarter of 2016. of course. which seem like it might give you guys a pretty nice runway in ERS over the next.Analyst Hi. rating assessment service and that sort of thing.President and CEO No. All rights reserved. and then also to MIS. we did see the acquisition of GGY. And then that's a good segue into Moody's Analytics. It's really based off of volumes. So very careful. Its compensation view will be slightly different perhaps than the rest of the Corporation. the incremental margins were very high in MIS. Denny Galindo . MA expenses grew 9%. is prohibited without the prior written consent of Thomson Reuters. including by framing or similar means. there. say. Most of the guidance increase seems to be from the acquisition. Have you been able to size that opportunity in any better way since we last spoke on IFRS 9 and these changes to the GAAP provisioning rules? 15 THOMSON REUTERS STREETEVENTS | www. If it performs according to its targets. which you can see is performing beautifully. its incentive compensation would be at target or perhaps even higher.EVP and CFO Denny. And you might want to ask why that was. That's the support part of the business. The majority of that growth was to continue to support the growth in Moody's Analytics. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies.Morgan Stanley . That was a little strong. Denny Galindo . And I was wondering how much of that was due to losing some of these things like rush fees and new issuer fees that might be a higher margin profile than some of the pure transaction-based fees that you guys charge? Ray McDaniel . it's not a big contributor to changes in revenue or margin.Analyst Okay. Linda Huber . were slightly down and. We're being very cautious to match what we're doing here with where we're seeing growth. Moody's Analytics is performing well and we will continue to invest in it. And we're throttling back on those areas. expenses increased 4% over 2015. particularly the support areas where we can do that.streetevents. MIS expenses. I really think the focus should be on transaction volumes in terms of the change.Analyst Great. in fact. even though we appreciate when that area is more active. But this is very carefully planned expense management where we need it to support the growth areas. which through the first quarter it has and even better. which I run for the most part. Republication or redistribution of Thomson Reuters content. MCO . So.

Analyst That was very helpful. or did the formula not come out with more aggressive buybacks in that quarter? And is this something that maybe we could increase that number if there's an attractive opportunity with the price in the second quarter or third quarter? Maybe just thoughts around on how that buyback number will progress. MCO . is prohibited without the prior written consent of Thomson Reuters. So. Then if Ray wants to chime in. We're working with the guidance of approximately $1 billion in buybacks. . and so on. That's it for me. because it's applicable to many more institutions all over the world. we are very optimistic about IFRS 9. And in fact. the stock was in the high $90s and $100. Denny Galindo . And maybe Ray has some further thoughts. So. So we'll have to see where we want to go with that allocation over the rest of the year. you end up buying more shares. because you could see a couple of points that might be concerning around Brexit. And typically the way you formulaically do this. We have a good pipeline and we have very good expectations for what we can do there. So. we decided to keep our allocation pro rata across this year. And then just one last one. we had some heavy tiering in place and when the stock price fell to $78. it's Linda. around the US election. we've talked about this. but we've also taken up guidance in RD&Ajust. I think that's it.Moody's Corporation . for that initiative. we have to do this in advance for the coming quarter and we can't change that allocation until we move into another window period. So we started out spreading our money pro rata across the year. Ray McDaniel . frankly. But. we were at $89-and-change for average repurchase price in the first quarter. on the capital allocation guidance. 16 THOMSON REUTERS STREETEVENTS | www. We had good strength across MA in the first quarter. Denny Galindo . really very broad-based strength for Moody's Analytics.Moody's Corporation . We've taken up guidance in ERS because of the GGY acquisition. you had this $1 billion number out there. IFRS 9 we think is going to be a very nice growth driver for the business. reflecting strong underlying growth in the business.Morgan Stanley . And demand for the things we're doing continues to be very strong. including by framing or similar means. In the absence of better information when we did this close to 90 days ago now.APRIL 29. We've had some success thus far.President and CEO Denny. So. All rights reserved. I hope that's helpful to you. every region was up double digits organically. We actually think that the prospect for IFRS 9 is probably richer for us than what we've gotten from stress testing. Until yesterday. 2016 / 3:30PM. Now. But you're absolutely right. So.Morgan Stanley .President and CEO No. Was there something stopping you from. and we have to set our plan as we finished the previous quarter's earnings call. Republication or redistribution of Thomson Reuters content. Linda Huber .Analyst Okay.Q1 2016 Moody's Corp Earnings Call Ray McDaniel . I was a little surprised that only roughly 25% of the annual buyback rate occurred in the first quarter. we felt pretty good about that. we feel that the business is just poring just performing very well.EVP and CFO Denny. we were able to buy back more shares quite cheaply. On a constant dollar basis. that's the technical explanation of what's going on.com | Contact Us ©2016 Thomson Reuters. or spending more whenever the stock price is down. again. I'm sure he will do so.Moody's Corporation .streetevents. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. It's still early days.

our coverage was very strong. the way I'd answer that is. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies.Analyst Thanks. it's also hard for me to imagine that in the short run it wouldn't have a chilling effect on issuance. I think the story probably does revolve around the fact that we have more transactional-based pricing than our competitor.Analyst So. And not only because of an exit by the UK.APRIL 29.so that was impacting our 2016 growth rate.President and CEO Certainly. God forbid. The MIS revenue performance in the first quarter lagged just a little bit against your primary competitor. partly because of the pull-forward that we saw at the end of 2015. That being said. frankly -.Piper Jaffray . Peter Appert . do you interpret that as a fundamental structural change in the market that might just reduce the issuance opportunity coming out of the EU? Ray McDaniel . is prohibited without the prior written consent of Thomson Reuters. So. let's say.com | Contact Us ©2016 Thomson Reuters. lastly. It's quite speculative to try and anticipate what the overall consequence of this would be. for some period of time that is going to be a disruptive influence in the European market. I wonder if that brings down your backlog number. I don't see this impairing growth in the business going forward. .Moody's Corporation . Mark Almeida . we've got. 2016 / 3:30PM. Republication or redistribution of Thomson Reuters content.President and CEO No. Anything to read into that in terms of changes in the market share dynamic? Ray McDaniel . We had pulled a pretty sizable chunk of revenue into late 2015 from 2016. Understood. but whether that causes any other nations to rethink their position in the EU or in the Euro Zone. Peter Appert .Piper Jaffray . MCO . All rights reserved. Peter Appert . I think. for Mark.Analyst Makes sense. And then. Peter Appert .and we talked about this last time -.Piper Jaffray .Q1 2016 Moody's Corp Earnings Call Operator We'll now go to Peter Appert with Piper Jaffray.streetevents. I think that's where you see the difference show up.Analyst Right. on the Brexit issue. just because of the confusion about what the longer-term consequences would be. Ray. is that the message? 17 THOMSON REUTERS STREETEVENTS | www.for ERS we've got a pretty modest revenue growth outlook this year. including by framing or similar means. So I think we're going to be in good shape as we move into 2017. in a low volume quarter. I'm wondering if it's possible for you to give us any color around a backlog metric for the ERS business to help us better understand the sustainability of growth. I would think. The business is still performing well. 1% over prior year. We expect double-digit sales growth for the rest of this year.Piper Jaffray . I think that's really a question of difficult comps in this past quarter and in the second quarter of last year. they make the wrong decision and decide to go. I'm asking this in the context of you've cited accelerated deliveries as a driver of revenue. that therefore makes the revenue growth number going forward look maybe less compelling.President of Moody's Analytics Peter.Moody's Corporation . Trailing 12-month sales are now down to.Moody's Corporation . So I don't think that's part of the story. net new sales are running at a double-digit rate currently.

18 THOMSON REUTERS STREETEVENTS | www. we've got difficult comparables in this period. and about 12. we are projecting double-digit sales growth in ERS.Moody's Corporation . when you say double-digit sales growth. First.high 3%s.streetevents.Analyst And where are you seeing the default rates for non energy companies and high yield in the US right now? Ray McDaniel . I'm sorry. Moving ahead into quarter two.Huber Research Partners . That obviously is elevated compared to the global 2016 forecast of about 4. is prohibited without the prior written consent of Thomson Reuters. MCO . trailing 12-month sales are up only 1% over where they were this time last year. are you talking about new billings.Piper Jaffray . Thanks for taking my questions. Peter Appert . we're forecasting at year end 6% in the US and about 2% in Europe. three and four of 2016. or are you talking about recognized revenue? Mark Almeida . Republication or redistribution of Thomson Reuters content. . Got it.Moody's Corporation . Ray or Linda. billings would be the right metric. including by framing or similar means.com | Contact Us ©2016 Thomson Reuters. that might help these numbers tick down. Craig Huber . hi. Very good.President of Moody's Analytics No. we had very strong growth in the second quarter of last year and in the first and second quarters of last year. That said. 4%. what are the default rates right now for the energy commodity companies.President and CEO Our forecast for the energy sector for the one-year forecast is for a 10% default rate. So. if you separate those default rates there versus the rest of the market for high yield? Ray McDaniel .APRIL 29.President and CEO For our high yield US.Analyst I'm sorry. But we'll have to see. I'm talking about sales as opposed to revenue recognized on the P&L.Moody's Corporation . Craig Huber .Huber Research Partners .Piper Jaffray . The energy sector has been quite volatile through the first quarter and was a source of money both leaving the high yield sector. but then also money coming back in later in the quarter. can you just talk a little further about the high yield market out there in the US. The global number would be about 4% -.5%.Analyst Yes. So. With the recent relative strength in energy prices. Peter Appert . Operator We will now go to Craig Huber with Huber Research Partners. maybe in the context.Analyst Okay. Thank you. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. it has contributed to the volatility and availability of funding based on the overall flows in and out of that sector.President of Moody's Analytics Again. 2016 / 3:30PM. to be very precise.Moody's Corporation .5% in metals and mining.Q1 2016 Moody's Corp Earnings Call Mark Almeida . So. All rights reserved.

But right now we're in a more opportunistic environment. et cetera. that non energy companies. Linda or Ray. Craig Huber .Analyst And then lastly.Analyst Two other questions. of course.Huber Research Partners . the health of those high yield companies are in much better shape. if you would just give us an update for the first quarter. high yield.Huber Research Partners . bank loans.Analyst That's the non energy-related companies or the overall? Ray McDaniel . is prohibited without the prior written consent of Thomson Reuters. MCO . there's really no new news to offer there. on the DOJ front? Could they potentially come after your Company like they did a few years ago with S&P? Ray McDaniel . That disclosure has remained very consistent. please. So if we were moving out 12 months or 18 months.Analyst I guess you're inferring.Huber Research Partners . Craig Huber .Moody's Corporation . . I would say this spread environment is certainly supportive of refinancing for maturing debt. Craig Huber .President and CEO Yes.com | Contact Us ©2016 Thomson Reuters.Huber Research Partners . 19 THOMSON REUTERS STREETEVENTS | www. investment grade.Moody's Corporation .President and CEO That's looking at overall spec grade. the spreads have certainly come in from where they peaked in early February.Moody's Corporation . All rights reserved. please.President and CEO No.President and CEO Exactly.streetevents. then. how those revenues broke down.Q1 2016 Moody's Corp Earnings Call Craig Huber . Ray McDaniel . 2016 / 3:30PM. I think it would be beneficial for them to continue to come in because there's not a lot of refinancing that has to happen this year.APRIL 29. They have come in significantly. Linda. inquiries being made of us from the DOJ and states attorneys general. is there any update. Republication or redistribution of Thomson Reuters content.Huber Research Partners . 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. One. the default rates. the breakdown of the revenues in your four ratings areas. So. so more firms can wait and see if spreads continue to tighten or not. Craig Huber . We've been disclosing in our Qs and K that we continue to have investigations.Analyst Does that give you a reason for optimism for high yield as you think out here over the next 12 months for high yield debt issuance overall? Ray McDaniel . It is more opportunistic. including by framing or similar means.Moody's Corporation .

That's 31% of the FIG total. about $20 million for the first quarter this year versus $21 million last year. In fact.5 million and 3%.Moody's Corporation . . Project and infrastructure is where we saw some weakness. down a bit. $41. FIG does not move around as much as the other lines. including by framing or similar means. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. All rights reserved. So that's about 40% of the PPIF line and about an 18% decline. which is $240 million. Commercial real estate. That was 28% of the total for CFG. That is less than half of last year's $62. And PPIF.EVP and CFO Sure. if we have one of these engines has a bit of a challenge. We're looking at Q1 2016 compared to 2015. close to $30 million in insurance versus $25 million last year. PFG sovereigns is about $55 million.not too much difference in FIG. 2016 / 3:30PM.Analyst Great. pretty close. 2016 versus 2015. with banking about the same. it was about $63 million. again.5 million last year and 17% of the total. And then PPIF off 9%. For investment grade in 2016. we had $66 million of revenue from investment grade. we can usually figure it out and make it up somewhere else. FIG -. Last year we had $87 million in investment grade and $298 million in corporate. About flat to last year. For banks. For the first quarter this year.6 million and 43% of the total for CFG. Then the other line is negligible for PPIF. Last year in the first quarter. Percentage was up to 23%. down 9% year over year. Spec grade is where the story is. Operator We will now go to Doug Arthur with Huber Research Partners. Other. Total of $95 million for the first quarter of 2016.3 million versus $44. that's a little bit tricky. Last year. we're about $59 million. about $4 million flat to last year in dollar and percent. Managed investments. as well. I'll start with the corporate sector and investment grade. about $36. about flat. Percentage is about 62%. again. here again was where we saw a more dramatic difference. Again. Craig. This year we have a little bit less than $92 million.Q1 2016 Moody's Corp Earnings Call Linda Huber . quarter over quarter. also flat in dollar and percent at about $2. asset backed securities. about $94 million. Percentage is about flat at 22%. So that's the story in structured. Craig Huber .Huber Research Partners .7 million. this was another less than pleasant surprise.5 million versus last year's $44. We had three out of four of the businesses having some challenges. And other. Bank loans. this was up in the first quarter of 2016 to almost $21 million versus about $18 million last year. Structured credit. Going to structured. MCO . so you see the results in the quarter numbers. $102.5 million. ABF. Structured. about $28 million in the first quarter of this year versus $33 million last year. also not that much movement. which is our second biggest business. Republication or redistribution of Thomson Reuters content. Insurance did perform better. $22 million this year versus almost $29 million last year. but three out of four of the MIS engines down. and 24% of the total. Thanks for going through all of that. we had $30. which was obviously not helpful.3 million. about flat to last year's $56 million. PPIF in 2015 did $100 million. 20 THOMSON REUTERS STREETEVENTS | www. Percentage is about 31% this year. off.streetevents.APRIL 29. PPIF in total. with corporate down the most in dollar and percent terms. is prohibited without the prior written consent of Thomson Reuters. Again. And this year we're looking at spec grade being 13% of the total. RMBF.com | Contact Us ©2016 Thomson Reuters. so the percentage stayed about the same at 28%. also a more dramatic change.

I think the answer to that is that we did reopen our 30-year notes in November of 2015. is prohibited without the prior written consent of Thomson Reuters.streetevents. great. What was actually going on within RD&A? That's normally a pretty steady. that's what that's all about. We've talked about it a lot. but a number of the analysts have completely missed that we took on $300 million worth of debt in the fourth quarter in November. So.6 million in the first quarter of 2016.Huber Research Partners . But it does follow the cycles of debt issuance activity. Linda. Now. there's been a bunch of indirect questions on this on the call. including by framing or similar means. just a technical question per se. MCO . Bill Warmington .Huber Research Partners . again. adding another $300 million of debt in November. The first quarter.President and CEO Bill. It's a subscription business. Operator We will now go to Bill Warmington with Wells Fargo. Interest expense on an absolute basis was up quite a bit sequentially from the fourth quarter. predictable business and it's coming in on the upside. All rights reserved. LLC .Huber Research Partners . Part of it's coming from the inclusion of GGY. but just trying to get a better sense of the trend in mandates globally right now. So.Moody's Corporation . And 21 THOMSON REUTERS STREETEVENTS | www.Analyst Good afternoon. we only add obviously a partial inclusion of that debt in the fourth quarter and we had a full quarter of that interest expense in the first quarter. but despite that some folks have completely missed.EVP and CFO Let me take a look at that.8 million and that bumped up to $34.APRIL 29. everyone.Moody's Corporation .Analyst That clarifies it.President and CEO Obviously we're continuing to see a significant number of new mandates. The fourth quarter we had interest expense of $31. I'm trying to understand within your tranches of debt. I think the short answer is we had. but then RD&A also came in better than expected in Q1. Q1 over Q4. Doug Arthur .Q1 2016 Moody's Corp Earnings Call Doug Arthur . that's going to result in more revenue that gets recognized for the full year in 2016. that it remains a very important fundamental long-term driver of the business. they were down a little bit compared to the first quarter of last year. We thought we did. So we are convinced. 2016 / 3:30PM. And. we had very strong sales at the end of last year and at the beginning of this year. Ray McDaniel . Republication or redistribution of Thomson Reuters content. That would be typically associated with the reduced debt market activity.com | Contact Us ©2016 Thomson Reuters.Moody's Corporation . having sales come in a bit stronger than we expected. Then I've got a followup. Two questions. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. but everybody should note that we added $300 million to those 2044s in November. Thank you.Wells Fargo Securities. Ray. A question for you on the improved outlook for Moody's Analytics. Ray McDaniel .Analyst Thanks.Analyst Okay. And then. . Doug Arthur . sorry if we didn't signal this strongly enough. So I was going to ask for some color on what's driving that. not to call anybody out. I'm convinced. so it was off slightly in the first quarter compared to last year. did anything materially change there Q1 over Q4? Linda Huber . So.

we're doing well all over the world. and especially if the environment remains as it is right now? Any color you can provide.BMO Capital Markets .000.EVP and CFO Bill.1 billion in cash.Analyst Okay. . Republication or redistribution of Thomson Reuters content. is prohibited without the prior written consent of Thomson Reuters. so we got a little bit of a bump from that. Operator We will now go with Jeff Silber with BMO Capital Markets. good afternoon. MCO . Our cash position is fine to continue with our share repurchase and we'll continue to run our plans as we have guided. $1. If we do decide to move toward the end of the year. All rights reserved. New sales production has been very strong. I just had a follow-up question on MIS. But yes. that would be appreciated.Q1 2016 Moody's Corp Earnings Call it was a combination of a number of things. just to ask if it's too early to ask what you're thinking about doing with that. Looking at the non-transaction revenues. we have 73% of our cash offshore. that may or may not be included. how should we think about that for the rest of the year. depending on what the breakeven looks like.000. I think if we do anything. and we'll take a look at that.com | Contact Us ©2016 Thomson Reuters. including by framing or similar means. one way to say it is we're firing on all cylinders. 22 THOMSON REUTERS STREETEVENTS | www. Your point is very good. But we're watching the markets carefully. Could you remind us how much of that is offshore? And how do you feel about taking on some additional leverage at this point to support stock repurchases? And then I might as well ask about the private placements coming due in 2017. to be exact.Wells Fargo Securities. Bill Warmington .streetevents.Analyst Hi. given the amount of mandates you already have. But since we did $300 million more in the fourth quarter in November. as I just said. LLC .066. 2016 / 3:30PM. We're doing quite well there. Henry Chien . Pricing has been good. Ray McDaniel . their growth will not change dramatically for quarters two. On the RD&A side. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. The business is just quite strong and it added to the expectation for the year and prompted us to just move the guidance up.5 billion is onshore.APRIL 29. it might be more weighted toward the back half of the year. Linda Huber . Bill Warmington . Customer retention continues to improve. three and four. We do have some room within our leverage.Wells Fargo Securities. but given that we did the $300 million addition in the fourth quarter of last year. that we have a private placement with a particularly high coupon coming due in 2017. It's Henry Chien calling in for Jeff. We got the biggest bump in the first quarter as we moved into the new year.Moody's Corporation . And then we'll continue to see growth but it will be more modest through the remainder of the year.Analyst And then a balance sheet question for you.5 billion is offshore and a little bit more than $0. We're running the breakevens on that right now. We'll wait and see what the end of the year looks like.President and CEO For the monitoring fees. LLC . You've got about $2. And as I mentioned earlier. We're watching the markets very closely. So. I think our view would be we're fine for right now.. Thank you for the insight. we could potentially put on a little bit more debt. And the total amount that we have is $2.Moody's Corporation . so that contributed.

Analyst Okay. in other 23 THOMSON REUTERS STREETEVENTS | www. We received the question why do we deal with our guidance right now on the first quarter call. All right. Operator We'll now go to Tim McHugh with William Blair. are you also assuming some margin expansion or additional margin expansion for the segment. those continue to be a work in progress. Linda Huber . it's Linda. Mark's progress is garnering him a little bit more overhead.Analyst Got it. All rights reserved. Henry Chien . Okay. but just one quick one. which makes his life a little bit harder on the margin line. Thanks so much. we're continuing to work and execute on all the plans we have in place to drive margin expansion in MA over the next several years. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. That's helpful. Linda Huber . in the no good deed goes unpunished category. MCO . because we do most of that work after we look at what's clearly trackable and traceable for overhead allocation.EVP and CFO Henry. To be clear about this. if things got worse than you've anticipated.BMO Capital Markets . we report our margins fully loaded with overhead costs. let me just make one thing clear. I know the incentive comp is formulaic. That plan remains intact.streetevents.Moody's Corporation . thanks. Okay. So.Moody's Corporation .Analyst Yes. So.com | Contact Us ©2016 Thomson Reuters. But nevertheless.Analyst Got it. I would ask you to look at that very carefully compared to others who are in the same business. including by framing or similar means. how deeply would that require you cutting at that point? At this point it sounds like you've gone to essential hiring. That's a little bit early for us. the work we're doing to drive margin expansion. given the maturity of the business and the scale that we're achieving. So. for 2016? Ray McDaniel .Q1 2016 Moody's Corp Earnings Call Henry Chien . but that next tranche of cuts. And in terms of your guidance. And perhaps the less than happy outcome for him is that he's now allowed to carry more of the overhead allocation. Thank you so much.Moody's Corporation . Henry Chien . Republication or redistribution of Thomson Reuters content. But. as well.APRIL 29. Most of my questions have been asked. the raised guidance for MA. Mark's business has been particularly successful of late.EVP and CFO Tim. . If you have to make the additional $50 million of cuts. got it. I'm just trying to get a sense of how painful that would have to be if that's where you had to go. Tim McHugh .President and CEO We don't provide guidance on the margin outlook. is prohibited without the prior written consent of Thomson Reuters. that's based on the revenue view. as we've discussed. but what would be required to make that next layer.William Blair & Company . 2016 / 3:30PM. that's something you might want to think about a little bit. Obviously the acquisition we did will have some impact on the margin in the near term.BMO Capital Markets .BMO Capital Markets . Part of the reason why we did that is a change in guidance triggers the reduction in incentive compensation for us.

We view that as cyclical. there are certain things we need to do around here and it gets harder with the second pass. less so insured services.Q1 2016 Moody's Corp Earnings Call words. I think we've largely done that. All rights reserved. to the extent that some of these market headwinds are impacting your customers. and some other cost cuts that we could make. . we have not historically seen that as a headwind for RD&A and maybe even a benefit to RD&A. as he's outlined. Tim. perhaps.Moody's Corporation . down 100 bps. But the first hit goes to incentive compensation.Analyst No. I hope that helps in terms of your questions. But again. We probably need to keep with some essential hiring. But in this kind of an environment. we have not historically seen very much correlation between head count cutbacks on the sell side and the RD&A revenue. MCO . and particularly the sell side capital markets groups. does that potentially pose some threat to your RD&A revenues. Projects that we could postpone or dial back. So. in the guidance. Patrick O'Shaughnessy . The question is. arguably. which is still pretty healthy. is prohibited without the prior written consent of Thomson Reuters. Tim McHugh . We're taking another pass through that. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies.Raymond James & Associates. The next thing that would happen on $50 million is we would be about evenly split between another $25 million in incentive compensation if our performance is weaker than we expect now. so we are holding the margin. We would like the shareholders to note that it is our intention to hold the margin at about 41%. and we're waiting to see what happens for the rest of the year. . We will look at now how we perform according to where we are. with the mid point being $4.William Blair & Company . We have better coverage proportionately in structured finance. including by framing or similar means. we've had tough conditions in the first quarter. Mark Almeida . which has been hit hard in the first quarter. Again. for the most part. as they cut back on head count. 24 THOMSON REUTERS STREETEVENTS | www. And. So. in fact. those organizations become more dependent on people like us as providers of information and analytical support. let me know. Inc. We've moved the margin guidance down from about 42 to about 41.Moody's Corporation . Thank you. Patrick.streetevents.APRIL 29. Operator And we will go to Patrick O'Shaughnessy with Raymond James. be it on the sell side or on the buy side. we think we're being prudent.Analyst Hi. we've just taken out about close to $20 million in incentive compensation for the first quarter and the rest of the year. Where we saw a real impact on the business is when you're in a very bad environment.com | Contact Us ©2016 Thomson Reuters. We would like Mark to continue with his hiring plans in MA because they are doing really well. And we've got to be thoughtful about what we're doing with our technology spend. That is the result of our pulling down the guidance. Republication or redistribution of Thomson Reuters content. but certainly in MIS. like what we saw in 2009.60.President and CEO I'll let Mark talk to that. that's helpful. 2016 / 3:30PM. If I missed anything.President of Moody's Analytics Patrick. or are those mostly on the buy side and pretty sticky? Ray McDaniel . And incentive compensation is what we're going to do in order to keep the margin from being hit.

THERE MAY BE MATERIAL ERRORS.Analyst Great.803 25 THOMSON REUTERS STREETEVENTS | www. All Rights Reserved. Such forward-looking statements are based upon current expectations and involve risks and uncertainties. IN NO WAY DOES THOMSON REUTERS OR THE APPLICABLE COMPANY ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY EVENT TRANSCRIPT. I will turn the call back over to Mr. In the conference calls upon which Event Transcripts are based. therefore. Inc. ©2016.Q1 2016 Moody's Corp Earnings Call Patrick O'Shaughnessy .streetevents. or other information on this web site without obligation to notify any person of such changes. OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE CONFERENCE CALLS. . there can be no assurance that the results contemplated in the forward-looking statements will be realized. All rights reserved.President and CEO Okay. Thank you. OMISSIONS.APRIL 29. McDaniel for any additional or closing remarks. any of the assumptions could prove inaccurate or incorrect and. Thank you. Actual results may differ materially from those stated in any forward-looking statement based on a number of important factors and risks. MCO . Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. Thank you. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S CONFERENCE CALL ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS. companies may make projections or other forward-looking statements regarding a variety of items. Operator And it appears that there are no other questions at this time.30 pm Eastern time on Moody's website. 2016 / 3:30PM. I just want to thank everyone for joining the call today and we look forward to speaking with you again in July. Although the companies may indicate and believe that the assumptions underlying the forward-looking statements are reasonable. .Moody's Corporation . content. Republication or redistribution of Thomson Reuters content.Raymond James & Associates. Operator This concludes Moody's first-quarter earnings call. including by framing or similar means. DISCLAIMER Thomson Reuters reserves the right to make changes to documents. THE INFORMATION CONTAINED IN EVENT TRANSCRIPTS IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION. Ray McDaniel . That's helpful.com | Contact Us ©2016 Thomson Reuters. As a reminder. which are more specifically identified in the companies' most recent SEC filings. a replay of this call will be available after 3. 5974864-2016-04-29T20:12:54. is prohibited without the prior written consent of Thomson Reuters.