Moody’s Corporation Q4 2009 Earnings Call Transcript

| About: Moody's Corporation (MCO)

Moody’s Corporation (NYSE:MCO)

Q4 2009 Earnings Call Transcript

February 4, 2009 11:30 am ET

Executives

Liz Zale – VP, IR

Ray McDaniel – Chairman and CEO

Linda Huber – EVP and CFO

Analysts

Michael Meltz – JP Morgan

Peter Appert – Piper Jaffray

William Bird – Bank of America/Merrill Lynch

Craig Huber – Access 342

Edward Atorino – Benchmark

Brian Shipman – Jefferies

Michael Meltz – JP Morgan

Operator

Good day and welcome ladies and gentlemen to the Moody's Corporation fourth quarter and fiscal year-end 2009 earnings conference call. At this time, I would like to inform you that this conference is being recorded and that all participants are in a listen-only mode. At the request of the company we will open the conference up for questions-and-answers following the presentation.

I will now turn the conference over to Liz Zale, Vice President Investor Relations. Please go ahead.

Liz Zale

Thank you, operator. Good morning everyone and thanks for joining us on this teleconference to discuss Moody's results for 2009. I am Liz Zale Vice President of Investor Relations.

Moody's release its results for full year of 2009 this morning. The earnings release and a presentation to accompany this teleconference are both available on our website at IR.Moody's.com. Ray McDaniel, Chairman and Chief Executive Officer of Moody's Corporation will lead this morning's conference call. Also making prepared remarks on the call this morning is Linda Huber, Chief Financial Officer of Moody's Corporation.

Before we begin, I call your attention to the Safe Harbor language, which can be found toward the end of our earnings release. Today's remarks may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In accordance with the act, I also direct your attention to the management's discussion and analysis section and the risk factors discussed in our annual report on Form 10-K for the year ended December 31, 2008 and in other SEC filings made by the company, which are available on our website and on the Securities and Exchange Commission website. These, together with the Safe Harbor statement set forth important factors that could cause actual results to differ materially from those contained in any such forward-looking statements. I should point out that members of the media may be on the call this morning in a listen-only mode.

I'll now turn the call over to Ray McDaniel.

Ray McDaniel

Thanks Liz. Good morning and thank you everyone for joining today's call. I'll begin with a brief summary of Moody's fourth quarter and full year 2009 results. Linda will follow with additional financial detail and operating highlight and I'll then speak to recent developments in the regulatory and legislative areas and provide Moody's outlook for 2010. After our prepared remarks we'd be happy to respond to your questions.

Fourth quarter revenue $486 million increased 20% over the prior year reflecting meaningful improvement in credit market activity compared to the conditions experienced globally at the end of 2008. Excluding the favorable impact from foreign currency translation revenue grew by 17%. Operating income for the fourth quarter was $179 million, 43% higher than the same period last year. Without a favorable impact of foreign current translation operating income increased 39%.

Diluted earnings per share of $0.43 for the fourth quarter of 2009 included a benefit $0.01 related to previously announced restructuring activities. Excluding the restructuring in both periods' diluted earnings per share of $0.42 increased 14% from $0.37 in the prior year period.

Regarding full year results, Moody's full year results reflected gradual improvement in credit markets throughout 2009. Strength in corporate debt issuance in growth from Moody's analytics provided a slight increase in total revenue from the prior year but activity remained limited in other areas. Revenue for 2009 was approximately $1.8 billion, an increase of 2% from full year 2008.

Operating income of $688 million declined 8% from a year ago. Excluding the unfavorable impact of foreign currency translation revenue grew 4% from the prior year period while the impact of foreign currency translation and operating income was negligible.

Diluted earnings per share of 1.69 for 2009 declined 10% and included a net charge of $0.01 reflected cost related to previously announced restructuring plans partially offset by a benefit from certain legacy tax matters. Excluding these items in both years diluted earnings per share of $1.70 for the full year 2009 decreased 7% from $1.82 in 2008.

At this point, I'll turn the call over to Linda to provide further details on our financial performance and other updates.

Linda Huber

Thanks Ray. I'll begin with revenue for the fourth quarter. Global revenue for Moody's corporation increased by 20%, U.S. revenue grew 25% year-over-year to $245 million our revenue generated outside the U.S. rose by 16% to $241 million and represented 50% of Moody's total revenue.

Recurrent revenue of $290 million was up 2% from the fourth quarter of last year and represented 60% of total revenue. Looking at each of our businesses first Moody's Investor Service revenue for the quarter was $332 million, 31% above the prior year period.

Excluding the favorable impact of foreign currency translation revenue grew 26%. U.S. ratings rose by 42% compared to growth of 19% outside the U.S. Revenue from outside the U.S. represented 46% of total ratings revenue.

Global corporate finance revenue of $115 million in the fourth quarter nearly doubled from a year ago primarily driven by activity in the high yield bond market. Revenue increased 106% year-over-year in the U.S. and 90% outside the U.S. Global structured finance revenue for fourth quarter was $79 million down 14% from a year earlier.

Within the U.S. structure finance revenue increased 5% from a year ago period reflecting increased issuance of asset tax securities and real estate investment trust fund. Non-U.S. structured finance revenue decreased 25% driven by revenue declines across all asset classes as improved credit market conditions load the use of securitization for central bank supported programs.

Global financial institutions revenue of $72 million increased by 27% from the fourth quarter of 2008, due to gains from the banking sector. Revenue rose by 18% in U.S. and 35% outside the U.S. Global revenue for public project and infrastructure finance grew 36% to $66 million year-over-year. The increase of 36% in U.S. revenue was primarily driven by public finance issuance related to stimulus programs such as Build America Bond. Outside the U.S. revenue increased 35% with strong issuance in European infrastructure finance.

Turning now to Moody's analytics. Global revenue of $154 million increased 3% from the fourth quarter of 2008 with negligible impact from foreign currency translation. Beginning with the fourth quarter reporting period, we slightly modified the reporting categories from Moody's Analytics revenue to better reflect our groupings. For the leverage data and analytics business which represent most of the product previously reported in the subscription category, revenue $106 million declined by 1% from the prior year period.

In the risk management software category which includes software licenses, maintenance fees and associated services, revenue of $42 million was 21% higher than in the fourth quarter of 2008. And in the professional services category which captures revenue from our training services and other customers specific project work, revenue of $6 million was down 26%.

From Moody's Analytics U.S. revenue declined 5% to $66 million reflecting the effect of customer attrition due to financial market disruption in late 2008 and early 2009. Outside the U.S. revenue increased 10% over the prior year period to $88 million, primarily attributable to growth in the risk management software business and represented 57% of total analytics revenue.

Turning now to expenses. Moody's fourth quarter operating expense $307 million increased 10% over the prior year period. Excluding the impact of the foreign currency translation, reported expenses grew by 8%. The increase was primarily driven by higher accruals for performance based compensation and also reflected continuing investments across all areas of the business including technology infrastructure and investor outreach.

Moody's reported operating margin for the quarter was 36.8%. Excluding the restructuring adjustment in the current period expenses were 11% higher than the prior year period and operating margin was 36.6% compared to 31.1% in the fourth quarter of 2008.

Our effective tax rate for the quarter was 38.3% compared with a somewhat unusual 28.6% in the fourth quarter of 2008. The increase was primarily due to a favorable through up of the full year 2008 tax accrual in the fourth quarter of 2008. In addition the 2008 effective tax rate included realization of U.S. manufacturing and leverage credit and deductions.

I'll like turn now to an update on capital allocation and stock buyback. Moody's remains committed to using our strong cash flow to create value for shareholders by investing in growing areas of our business, reinvesting in rating quality initiatives, making selective acquisitions and related businesses, purchasing our stock and paying a quarterly dividend. We intend to uphold our commitment to returning capital to shareholders in a manner that is consistent with maintaining liquidity.

On the December 15 of last year, we announced 5% increase in our quarterly dividend and in 2010 we expect to resume share repurchases at modest levels subject to available cash flow and other ongoing capital allocation division. During the fourth quarter of 2009 Moody's did not repurchase shares and issued approximately 400,000 shares under employee stock-based compensation plans. Outstanding shares as of December 31, 2009, totaled 237 million representing 1% year-over-year increase. As of December 31, 2009, Moody's had $1.4 billion of share repurchase authority remaining under its program.

Now for some details on the balance sheet. Moody's had $1.2 billion of outstanding debt at year-end with approximately $550 million of additional capacity available under our revolving credit facility. We reduced total outstanding debt by $87 million during the fourth quarter and $274 million for the full year of 2009 and we expect to continue to repay short-term debt during 2010.

As in December 31, 2009 our net debt position or total debt minus cash and cash equivalence was $720 million a decrease of 41% from year-end 2008. Last update I'd like to provide is on CapEx. For the full year of 2009 our total capital expenditures were $91 million and included the fit out of our Canary Wharf location in London to which we relocated in the fourth quarter. We expect to continue to strategically invest in facilities to support business needs.

And with that I'll turn the call back over to Ray.

Ray McDaniel

Thanks Linda. I'll start now with a brief update on legislative and regulatory developments. We continue to communicate with oversight authorities that national, regional and global levels and expect increase levels of regulatory activity over the near term. In the U.S. as discussed previously in June 2009 the administration presented a blueprint for financial system reform. In December the U.S. House of Representatives passed its version of the reform bill which contained a section on enhancing the oversight recognized statistical rating organization or NRSROs.

The proposals include measures to increase accountability and transparency, strengthen the management and disclosure of conflict of interest and further empower the SEC's oversight of NRSROs. The senate has begun work on its version of reform bill, which also includes a discussion draft on enhancing the oversight of credit rating agency.

The discussion draft is probably consistent with the administration blueprint. However, whereas the administration intentionally did not address the liability position of credit rating agency is presently constructed; a discussion draft could increase the industry's exposure. We are currently discussing with congressional staff the provision potential negative impact not only for the rating agency but also for the broader U.S. bond market.

As the reform bill progresses through the banking committee, which committee of jurisdiction and ultimately for the full senate, it will be subject to debate and change, if passed by the full senate the reform bill may be further debated and house and senate – as the house and senate work to address in consistency. On the regulatory front, the SEC is considering feedback on several initiatives to publish for comment in the third quarter of 2009. These include a proposed rule that would require all issuers making registered offerings to disclose ratings that they use in connection with the offering and a concept release on identifying credit rating agency whose ratings are disclosed in registered offerings as experts under the law.

If it concept release ultimately, it would to be enacted into an SEC rule, the credit rating agency, they can send to have their ratings used in U.S. registered offering would have additional liability associated with that consent. As this idea still in the concept release form and the SEC generally take a delivery approach to issue presenting in concept releases, it's too early to assess the likely outcome.

The SEC is also considering comments on its proposals to strengthen the NRSRO compliant function and to require further disclosures about potential conflict of interest. In addition the SEC adopted a rule which comes into effect in June 2010, which would require structure finance issuers to make available to all interested NRSROs the data provided to the NRSRO that they have hired to assign a rating. In Europe, as noted on previous calls, they U.S. passed a new regulatory regime for the credit rating agency industry and we expect to be fully – which we expect would be fully in fact by the second half of 2010.

We're currently in the process of implementing the regulation and in doing so we continue to interact with national and regional authorities, as well as issuers and investors. Our best estimate of the implementation cost is incorporated into our 2010 guidance. We remain focused on playing a constructive part in discussions with these issues with Congress the SEC and other regulatory and legislative authorities and market participants. We will continue to advocate for global consistent approaches that recognize the global nature of our rates and are align with G-20 direction and framework.

I'll conclude this morning prepared remarks by discussing our full-year guidance. Moody's outlook for 2010 is based on assumptions about many macroeconomic and capital market factors including interest rates, corporate profitability and business investments spending, merger and acquisition activity, consumer borrowing and securitization and eventual withdrawal of government sponsored economic stabilization initiatives.

There is an important degree of uncertainty surrounding this assumption and if actual conditions differ, Moody's results for the year may differ materially from our current outlook. Our projections assume foreign currency translation at the end of year 2009 rates. We anticipate continuing recovery for 2010 but also expect market conditions to remain challenging until economic improvement across key markets is sustained. With this outlook, we're projecting a stronger revenue increase and a return to earnings growth for 2010 with ongoing expense management to support business initiatives and regulatory and compliance efforts.

Moody's overall the company expects full year 2010 revenue to increase in the high single digit percent range. Recurring revenue from both of our business segments will continue to provide a stable base. Expenses for full year 2010 are also expected to grow in the high single digit percent range with modest upward progression through the year. Of the anticipated 2010 expense increase, about half is related to headcount addition to support strategic initiatives. Approximately another $15 million of the increase is for incremental compliance including personnel and compliance related technology costs. The remainder is due to an unfavorable foreign exchange impact versus 2009 average rates and the restoration of budget bonus expense to targets. We expect that our operating margin will remain in the high 30% range and our effective tax rate will be in the range of 37% to 38%. We expect diluted earnings per share for full year 2010 to be in the range of $1.75 to $1.85.

Our outlook also assumes $70 to $90 million capital expenditures to continue import investments in our technology infrastructure and address compliance requirements and just support facilities needed globally as Linda mentioned. For the global Moody's investor sector business we expect revenue for the full year 2010 to increase in the high single-to-low double dig percent range. We anticipate growth in the mid teens percent range in the U.S. and mid-single digit percent rage out the U.S. Corporate finance revenue project to grow in the high teens percent range, as we expect strength from speculative grade issuance to offset moderation of grade issuance from the high volume of 2009.

Structured finance revenue is forecast to grow in the mid-single digit percent range, reflecting modest growth in most asset classes. We anticipate low single digit percent range growth in financial institution revenue and low double digit percent growth in public project and infrastructure finance revenue.

For Moody's Analytics we project full year 2010 revenue growth in the mid single digit percent range driven by organic growth. We expect revenue growth in the low single digit percent rage for research, data and analytics and increase in the mid teens percent range for risk management software and grow in the high single digit to low double digit percent range for professional services. We expect Moody's Analytics revenue to increase at a low single digit percent rate in the U.S. and at the mid single digit percent rate outside the U.S.

That concludes our prepared remarks. And joining us for the question-and-answer session, are Michelle Madelain our Chief Operating Officer for Moody's Investor Service and Mark Almeida, President of Moody's Analytics. We're pleased to take any questions you may have.

Question-and-Answer Session

Operator

Thank you. (Operator instructions) We'll go first to Michael Meltz of JP Morgan.

Michael Meltz – JP Morgan

Thank you. I think I have three questions. On the expenses – I guess the question on expenses in the quarter they were up I guess $30 million year-over-year. What was the forex impact in there, what was incentive compensation up year-over-year? And then Ray, just if you can speak further about your guidance for 2010. I kind of find it hard to believe that the revenues and expenses would trend up the same rate and you wouldn't be able to drive margin, if you grow revenues 9%. If I back into what you're saying on headcount, where you – for what roles are you hiring people? It seems like you're saying there could be a couple of hundred people added.

Linda Huber

Michael its Linda. To take a short at Q4 expenses first and we're digging a bit here to find the FX impact for the fourth quarter. You are right, operating expenses were up about 28 – $20.7 million for the fourth quarter. To keep in mind that was coming out in extremely weak fourth quarter of 2008, the weakest quarter we've had in quite a while. The change is due to $4.2 million increase in salaries, 15.6 million in bonus and incentive compensation and $6.9 million in benefit and tax. That comes to 26.7 million of that increase. We've had some offsets as well and we also had some increases in the technology spending. So that would be the majority of the what happened in the fourth quarter, but again it's more of a return to normalcy as compare to pretty health mix fourth quarter of last year.

Ray McDaniel

With respect to the guidance, Michael. We are seeing the bulk of our incremental expense associated with hiring and compensation, in addition to a little bit of catch up on the restoration of bonuses back to target for 2010. The hiring is going to be fairly broad based. Moody's Analytics will be hiring in particular as part of the continued build out of our management software business. We also – as we are increasingly selling to more mid-sized institutions in the Moody's Analytics business we are going to be adding to our sales force in order to do that. And Moody's Investor Service we have additional surveillance personnel that we are bringing on board, additional credit policy personnel because some of the compliance costs that we will have are associated with Moody's Investor Service and analytical staff that will be to available to meet regulatory expectation. So it's fairly broadly spread as opposed to being in any one particular area.

Linda Huber

Mike, as compare – to answer your question on the FX impact on expenses, it's about a 2% unfavorable impact in the fourth quarter. Generally, the cause of that was the weakening of the Euro to the pound on expense line.

Michael Meltz – JP Morgan

Okay. And then implicit in your expense guidance for 2010 that should be ramping throughout the year? Is that what you are saying? Because I – you haven't hired all these people?

Ray McDaniel

Yes. That's correct. And that's why we expect to see, I think it's fair to characterize as modest progression of expense throughout the year.

Michael Meltz – JP Morgan

Second question. On – generally speaking Ray what are you seeing in January, I mean in the first quarter in terms of top line trends or rating trends?

Ray McDaniel

What we're seeing in the market in January, I think is characterized as a continuing return to normalcy, which I think is good news. I think both the markets and our business had a decent January.

Michael Meltz – JP Morgan

Any change from how you end from December?

Ray McDaniel

To tell you the truth Michael, I didn't go back and compare our early information on December versus January.

Michael Meltz – JP Morgan

Okay. And last question you usually come up with pricing or price upticks in January. What's the expectation of pricing benefit in 2010?

Linda Huber

Michael its Linda. If you look at pricing for across the company, I think we say low single digit, maybe a little bit higher on average with the rating agency and it depends on the asset class. Some of them where more work is required, needs – we've moved a bit more but generally we would say mid single digit, a little lower in MAS, a little bit towards the higher end of that in MIS.

Michael Meltz – JP Morgan

Okay. Thanks for your time.

Ray McDaniel

Thanks Michael.

Operator

We'll go next to Peter Appert of Piper Jaffray.

Peter Appert – Piper Jaffray

Thanks. Ray, can you share with us any perspective on how you're thinking about timeframe in terms of resolution to some of these regulatory issues?

Ray McDaniel

Sure. I guess starting on the legislative side, at this point we're watching the senate and waiting for the senate to move forward on the overall financial reform package, which I certainly think if they do that, they will move forward on the credit rating agency component of that. Just as a matter of the Washington calendar, I would expect that if anything is going to happen it's going to happen in the second quarter. After that, with an election year, I think it becomes decreasingly likely that there would be action taken in 2010. So I think, we are really looking at second quarter event. As far as regulatory action from the SEC, that has been ongoing and in particular I would say that the concept release that they put out has probably the longest timeframe associated with it because that is a concept that was introduced to the market, which is at a more preliminary stage than a proposed rule and so they would go through a proposed rule and then final rule making process if they decide to move forward from the concept release.

Peter Appert – Piper Jaffray

Okay. And then Ray, on the litigation front you guys had a big win last week. Can you comment one on sort of the significance of that development from your perspective? And two, do you have any insight on when we might anticipate further action on the litigation front in terms of some of these other cases?

Ray McDaniel

I can say that certainly with respect to other cases that were brought under the 1933 act, I think this case might have some, provides some guidance in those other cases. However, not all of the litigation that we have is related to the 33 act and so for those cases that are not related to the 33 act, I don't think the successful resolution of the case 2010 days ago is going to provide the same kind of guidance. And unfortunately, with respect to those non-33 act cases I don't have any better view on the timing of when the court may issue any judgment than we did when we spoke in the fourth quarter last year.

Peter Appert – Piper Jaffray

Okay. But my sense is that maybe half the cases were related to the one that was decided last week. Is that fair?

Ray McDaniel

About a third of the cases.

Peter Appert – Piper Jaffray

A third. Okay. And then last thing, Ray in the past I believe you've expressed some comfort with the potential to get the operating margins for the business have rolled back to the low 40s or mid 40s. Is that still a realistic expectation do you think?

Ray McDaniel

Yeah. I still think that having operating margin that is north of 40 is possible and frankly would be consistent with my expectations but we also have some investments that we need to make in this business or while some we feel we are prudent to make and some we are told to make as we need regulatory obligations around the world and as we build out the Moody's Analytics business. So we've got to make these investments. We've got to make them successful and we're going to see I think good long term benefit for our business coming out of this.

Peter Appert – Piper Jaffray

This is actually really the last thing. Linda the incentive comp increases that we should anticipate 2010 versus 2009, how big is that?

Linda Huber

It's not particularly about big Peter. It's less than $10 million. That's the 2010 over 2009.

Peter Appert – Piper Jaffray

Thank you.

Operator

We'll go next to William Bird with Bank of America/Merrill Lynch.

William Bird – Bank of America/Merrill Lynch

Yes. Hi. I was wondering if you can help me through the math a little bit on the expense increase, the high single digit increase would imply about a hundred million of expenses and you mentioned half is headcount, about 15 from technology compliance and now you mentioned less than 10 restoration and bonuses. I was just wondering if you can walk me through the balance.

Linda Huber

I'll try to set this out for you Bill. We're saying that a little bit more than half of that is headcount and then we are adding in I think Ray said 15 million for compliance. The piece that may not jump out at you is if FX rates continue as they are now. That will be sort of $10 to $15 million in unfavorable impact for us next year. That gets through the bulk and it and then as we said the remainder would be less than 10 million in bonus through up, if we return to hitting our targets for next year.

William Bird – Bank of America/Merrill Lynch

Okay. And I was just wondering, as you look at 2010 and you think about the growth outlook, I'm just wondering what's implicit in your outlook for pull forward effect?

Ray McDaniel

I think that that is going to occur. There is a lot to pull forward, though. So even if 2011, 2012 refinancing is being pulled into 2010, it's not, 2010 is not going to absorb the stock of debt that needs to be refinanced over the next three years. It's just a very significant amount of debt that will have to be refinanced. Nonetheless, I do think that we will see a pull forward particularly in high yield activity before any anticipated increase in benchmark rates and potentially spreads going forward.

Linda Huber

So, it's Linda. We put out two pieces this week that you might want to take a look at. On the expect grade side we've written we are expecting 800 billion in refinancing over the next five years with that kicking in 2014 and then on the investment grade side we are saying 550 billion of investment grade refinancing which peaks into 2013.

William Bird – Bank of America/Merrill Lynch

Great. And then just given the lumpiness of issuance in 2009, how do you think about the growth profile of the business for the first half versus second half of 2010?

Ray McDaniel

We don't have any formal quarterly guidance that we give, but in terms of where rates and spreads are now and the attention that companies are paying to opportunistically refinancing, I think we're going to have probably a stronger first half of the year and we will, as we get further into the year, we will have some visibility I'm sure beyond what we have right now in terms of the second half. But I do think we're going to see a pull forward at least from later in the year to earlier in the year of refinancing that is planned for 2010 with the open question being will we then see pull forward from 2011 into the second half of 2010.

William Bird – Bank of America/Merrill Lynch

And just one final question. Do you have any preliminary estimate of incremental compliance cost for 2011?

Ray McDaniel

No. We don't have an estimate yet, but I can tell you that the increment there will be, I think principally associated with what we need to do for analyst rotation to meet European Union regulatory requirements and the nature of what has to be done for analyst rotation is still not settled. So that's why we don't have an estimate on that.

William Bird – Bank of America/Merrill Lynch

Great. Thank you.

Linda Huber

So gratefully, we have some sense of the European regulatory situation which of course further along and we need more details on what's going to happen in the U.S. to be able to provide that.

William Bird – Bank of America/Merrill Lynch

Thanks a lot.

Operator

We'll go next to Craig Huber at Access 342.

Craig Huber – Access 342

Yes. Good morning. A few questions. The first one as I typically ask can you give us a breakdown of transaction versus non-transaction revenue across financial et cetera?

Linda Huber

Yes, we can Craig. Let do the rating agency first and we'll start with the entire rating agency is for; you're looking for the fourth quarter?

Craig Huber – Access 342

Fourth quarter. Yes. I am sorry for the fourth quarter.

Linda Huber

The rating agency total is 53% transaction and 47% relationship and that's broken down first by structure finance, 43% transaction, 57% revenue. The corporate group is much more transaction based at 65% given what we've seen in activity in that sector and 35% relationship. Fig is 37% transaction and 63% relationship. And PPIS is 60% transaction and 40% relationship. For Moody's Analytics its 13% transaction and 87% relationship. So the total for the fourth quarter of 2009 for the corporation is 40% transaction and 60% relationship which is a bit of a move from the third quarter of 2009 if you want to look at sequentially which the balance for the company was 3763. So with the rating agency moving a bit more toward transaction, so has shifted the whole company.

Craig Huber – Access 342

And then the cut to revenue a little bit different. Can you also if you would please breakdown like with unstructured finance percent breakdown for revenues for the quarter for ABS versus NRBS, et cetera?

Linda Huber

Yes. For the fourth quarter 2009, four structure finance as a percent of the total structure finance revenue which was 78.7 as we said before, 33% of that was asset tax, ABS, 21% of that was RNBS, 15% of that was commercial real estate what we call crabs and then 30% was derivative. And that structure fans at 12% for the fourth quarter of 2009.

Craig Huber – Access 342

Do you have corporate finance and finance institutions and PPIF if you would?

Linda Huber

Sure. Good thing we have all the details for you Craig. Fourth quarter of 2009 for….

Craig Huber – Access 342

I wish your competitor stay still.

Linda Huber

We prepare, we prepare. Investment grade is 19% and the total again is $115.2 million for the fourth quarter of 2009 which is up from 57.8 last year almost doubling. So 19% investment grade, 29% expect grade. 10% bank loans and 42% other which as you know is medium term loans, sell commercial paper and things like that, so heavier balance if you are looking sequentially, the main headline there would be the movement in fact there being a higher percentage which is up from 19% in the last quarter. Looking at fig for the fourth quarter of 2009, $72 million of revenue, 71% of that from banking, 22% from insurance and 7% from managed investment. That looks relatively close to where we were for the third quarter and then PPIF for the fourth quarter $66 million, 49% of that was PFG and sovereign, Moody's were 9% and projects is 42% of, I think the headline would be there over the third quarter of 2009 a bit of an increase in PFG sovereign which has been 45% in the third quarter.

Ray McDaniel

Just to, the 9% that Linda referred to is the structured municipals. The municipal bond market is included in the PFG or public finance and sovereign line.

Craig Huber – Access 342

Okay. My only other question here is about your guidance. If you take your guidance of the three main things that you've given us up called 8% to 9% for revenues and take the you take the mid-point 8.5% and then deploy your cost guidance 2010 8.5%, take the mid-point, your tax rate 37.5% and assuming there's nothing strange going on in your interest expense line and nothing dramatic in the share buybacks this year, I get about $1.91 per share. I am trying to reconcile with this $1.75 $1.85 guidance please.

Linda Huber

Sure. On the tax side…

Ray McDaniel

And I know, you guys are conservative, I'm trying to figure how you get that low.

Linda Huber

The tax side regarding to 37 to 38 we made a lot of progress on the tax line in recent years and as we've said, we're looking at modest share repurchase. We've been doing three things. We increased the dividends. We took down our debt, took up the cash by 228 and then we're looking to go into the share market but the pacing and timing and amount that really depends on market conditions. So we've got the tax rate pretty much where we think it should be directionally and let me have Ray comment a little bit more on his thoughts.

Ray McDaniel

Yeah. I would just add that I think we will probably have a little bit more in tax and foreign exchange is not going to be – we are not expecting that to help us and so on the non-operating expense line, we will be having an increase that is related to that.

Craig Huber – Access 342

I'm sorry. You answered it a little differently. If you use again 8.5% for revenue growth for 2010, 8.5% for your total cost growth, use 37.5% for the tax rate and mid-point and guidance you've gave in your press release you talked about a $1.90, $1.91 per share. Again assuming nothing strange going on in the interest expense line, I don’t' quite understand how you talk about $1.75 $1.85 versus the ranges you've given. That's all I ask.

Linda Huber

The interest expense line would stay about the same. If our tax rate is 37% I'm being told that gives us cost us another $0.02 and we're being cautious on our outlook on FX, Craig. So I think your point is well taken there, but we are being cautious at this point in the year.

Craig Huber – Access 342

Okay. Very good. Thank you.

Operator

We'll move next to Edward Atorino at Benchmark.

Edward Atorino – Benchmark

No. My question has been answered a couple of times. Thanks.

Ray McDaniel

Okay. Thank you, Ed.

Operator

And we'll go next to Brian Shipman with Jefferies.

Brian Shipman – Jefferies

A couple of allocation questions. As you reinstitute the share repurchase plan are you planning to be more systematic as you've done historically? In other words, will the repurchases – repurchasing be fairly evenly spread out over the coming year? And then you mentioned acquisition, as part of your cap allocation plan as well, what area of the business do you see as the focus and do you see deals out there that are M&M and is acquisition pipeline fairly full at this stage?

Linda Huber

Brian, I don't really think we want to talk too much about our intentions with share repurchase. We've used both systematic and opportunistic share repurchase previously and we'll have to see what the market brings us. So that will lay out according to what the market looks like and what we think about the conditions of the business. We've penciled in a small amount for acquisitions for this year. We will continue to stay close to our knitting. There are a number of opportunities out there. Some of them are larger sizes and Ray will comment on that in a moment, but we would expect – will continue to look for the international opportunities that we looked for before and the rating agency those tend to be smaller and then both on acquisitions for Moody's Analytics which is the main place where we're looking right now. Ray may have some comments.

Ray McDaniel

Yeah. The only thing I would add on the acquisition side and I think you're well aware of this, but there are probably more acquisition opportunities for us on the Moody's Analytics side. Most of those that we would have in our pipeline are of modest size. As Linda noted, there are a couple of larger firms that have been discussed publicly in terms of being up for sale. We look at everything that we think makes sense for our business. When we are looking, we are looking for things that are going to provide synergies and that can be purchased at the right price. And frankly, there are not that many that come along that we think have strong synergies for the businesses we're currently in and that are priced at a level that we think makes sense. So that reduces the likelihood of doing significant acquisitions.

Brian Shipman – Jefferies

Okay. Thank you.

Operator

Now we'll go neck to Michael Meltz with JP Morgan.

Michael Meltz – JP Morgan

I always have more. Just one follow-up on the headcount question. If my math was right, of your roughly 4,000 employees how many are at Moody's Analytics at year end?

Linda Huber

Just a minute, Michael. We can get that for you. At year end Moody's Analytics had 1,374.

Michael Meltz – JP Morgan

Okay. And of the planned increase and expenses from headcount in 2010, have any been hired at this point or is that a hiring plan throughout the year?

Linda Huber

That hiring plan is throughout the year.

Ray McDaniel

It's ongoing. Yeah, we are continuing to hire. We hired in January, but that is an ongoing process.

Ray McDaniel

Okay. Thank you for your time.

Operator

And at this time, we have no further questions. I'll turn the conference back over to Mr. Ray McDaniel for any closing remarks.

Ray McDaniel

Okay. I just want to thank everyone for joining us and we look forward in speaking with you at the end of the first quarter. Thank you.

Operator

And that does conclude today's fourth quarter and fiscal year-end 2009 earnings call. As a reminder, a replay of this call will be available after 4:00 p.m. Eastern Time on Moody's website. Thank you.

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