Moody's (MCO) Raymond W. McDaniel, Jr. on Q2 2016 Results - Earnings Call Transcript

| About: Moody's Corporation (MCO)

Moody's Corp. (NYSE:MCO)

Q2 2016 Earnings Call

July 22, 2016 11:30 am ET

Executives

Sallilyn Schwartz - Global Head of Investor Relations and Communications

Raymond W. McDaniel, Jr. - President, Chief Executive Officer & Director

Linda S. Huber - Chief Financial Officer & Executive Vice President

Robert Fauber - President - Moody's Investors Service

Mark E. Almeida - President, Moody's Analytics, Inc.

Analysts

Alex Kramm - UBS Securities LLC

Timothy J. McHugh - William Blair & Co. LLC

Manav Patnaik - Barclays Capital, Inc.

Andre Benjamin - Goldman Sachs & Co.

Peter P. Appert - Piper Jaffray & Co. (Broker)

Toni M. Kaplan - Morgan Stanley & Co. LLC

Craig Anthony Huber - Huber Research Partners LLC

Joseph Foresi - Cantor Fitzgerald Securities

William A. Warmington - Wells Fargo Securities LLC

Douglas Middleton Arthur - Huber Research Partners LLC

Jeffrey Marc Silber - BMO Capital Markets (United States)

Ashley Neil Serrao - Credit Suisse Securities (NYSE:USA) LLC (Broker)

Operator

Good day ladies and gentlemen. Welcome to the Moody's Corporation Second Quarter 2016 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 Salli Schwartz, Global Head of Investor Relations and Communications. Please go ahead, ma'am.

Sallilyn Schwartz - Global Head of Investor Relations and Communications

Thank you. Good morning, everyone, and thanks for joining us on this teleconference to discuss Moody's second quarter 2016 results as well as our current 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 second quarter of 2016 as well as our current 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.

Ray McDaniel, Moody's President and Chief Executive Officer, will lead this morning's conference call. Also making prepared remarks on the call this morning is Linda Huber, Moody's Executive Vice President and Chief Financial Officer.

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, 2015, and in other SEC filings made by the company, which are available on our website and on the Securities and Exchange Commission's website.

These, together with the Safe Harbor statements, set forth important factors that could cause actual results to differ materially from those contained in any such forward-looking statements. I would also like to 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.

Raymond W. McDaniel, Jr. - President, Chief Executive Officer & Director

Thanks, Salli. Good morning and thank you to everyone for joining today's call. I'll begin by summarizing Moody's second quarter and year-to-date 2016 results. Linda will follow with additional financial detail and operating highlights. I will then conclude with comments on our current outlook for 2016. After our prepared remarks, we'll be happy to respond to your questions.

In the second quarter, Moody's revenue of $929 million increased 1% from the second quarter of 2015, despite a challenging year-on-year comparable. Moody's Analytics delivered its 34th consecutive quarter of revenue growth, while Moody's Investors Service attained its second highest quarterly revenue ever, only surpassed by its performance in the same period last year.

Operating expense for the second quarter was $519 million, up 4% in the second quarter of 2015. Operating income was $410 million, a 2% decline from the prior-year period. Foreign currency translation favorably impacted operating income by 1%. Adjusted operating income, defined as operating income before depreciation and amortization, was $441 million, down 1% from the same period last year. Operating margin for the second quarter of 2016 was 44.2%. The adjusted operating margin was 47.5%. Diluted earnings per share of $1.30 was up 2% from the prior year period.

Turning to year-to-date performance, Moody's revenue for the first half of 2016 was $1.7 billion, a decline of 2% from the prior-year period. Excluding the impact of foreign currency translation, revenue declined 1%. Revenue of Moody's Investors Service was $1.2 billion, a decline of 7% from 2015. Revenue of Moody's Analytics was $594 million, 10% higher than the prior-year period.

Operating expense in the first half of 2016 was $1 billion, up 4% from the prior period. Excluding the impact of foreign currency translation, operating expense was up 6%. Operating income of $714 million was down 10% from the first half of 2015. The impact of foreign currency translation was negligible. Adjusted operating income of $775 million was down 8% from the prior-year period.

Moody's reported operating margin was 40.9% and its adjusted operating margin was 44.4%. The effective tax rate for the first half of 2016 was 32.1%, up from 31.5% from the prior-year period. Despite a good second quarter, we have modestly reduced certain elements of our revenue guidance due to our more cautious outlook for issuance outside the U.S. following the British referendum to leave the European Union and the expected negative impact of foreign currency translation. As a result, we expect to be at the lower end of our $4.55 to $4.65 EPS guidance range.

I'll now turn the call over to Linda to provide further commentary on our financial results and other updates.

Linda S. Huber - Chief Financial Officer & Executive Vice President

Thanks, Ray. I'll begin with revenue at the company level. As Ray mentioned, Moody's total revenue for the second quarter was $929 million, up 1% from the prior-year period. U.S. revenue of $546 million was flat to the second quarter of 2015. Non-U.S. revenue of $383 million was up 3% and represented 41% of Moody's total revenue. The impact of foreign currency translation on MCO revenue was negligible. Recurring revenue of $467 million was up 6% and represented 50% of total revenue.

Looking now at each of our businesses, starting with Moody's Investors Service, total MIS revenue for the quarter was $626 million, down 2% from the prior-year period, but up 19% from the first quarter. U.S. revenue declined 3% to $399 million while non-U.S. revenue of $227 million was flat to the prior period and represented 36% of total Ratings revenue. The impact of foreign currency translation on MIS revenue was negligible.

Moving to the lines of business for MIS, first, global corporate finance revenue of $305 million in the second quarter was down 5% from the prior-year period. This result primarily reflected lower levels of U.S. speculative grade and Asian investment grade issuance despite increased activity from the first quarter. U.S. and non-U.S. corporate finance revenues were down 4% and 6% respectively.

Second, global structured finance revenue for the second quarter was $112 million, down 8% from the prior-year period, as reduced U.S. CLO and CMBS activity was only partially offset by increased European structured finance activity. U.S. structured finance revenue was down 16%, while non-U.S. revenue was up 14%.

Third, global financial institutions revenue of $90 million was down 1% from the prior-year period. U.S. financial institutions revenue was up 7%, while non-U.S. revenue was down 7%.

Fourth, global public, project and infrastructure finance revenue of $112 million was up 12% versus the prior-year period, primarily as a result of increased global infrastructure-related issuance. U.S. and non-U.S. public, project and infrastructure finance revenues were up 11% and 16% respectively.

MIS Other, which consists of non-rating revenues from ICRA in India and Korea Investors Service contributed $7 million to MIS revenue for the second quarter, down 10% from the prior-year period.

And turning now to Moody's Analytics, global revenue for MA of $303 million was up 9% from the second quarter of 2015. U.S. revenue of $147 million was up 10% year-over-year. Non-U.S. revenue of $156 million was up 8% and represented 52% of total MA revenue. Foreign currency translation unfavorably impacted MA revenue by 1%. Excluding revenue from our March 2016 acquisition of GGY, MA revenue grew 6%.

Moving now to the lines of business for MA, first, global research, data and analytics, or RD&A, revenue of $168 million was up 7% from the prior-year period and represented 55% of total MA revenue. Growth was mainly due to the strength in the sales of credit research and ratings data feeds. U.S. and non-U.S. RD&A revenue was each up 7%.

Second, global enterprise risk solutions or ERS revenue of $98 million was up 17% from last year. The growth was driven primarily by the acquisition of GGY as well as growth across all product lines, with particular strength from regulatory and risk measurement product revenues. U.S. and non-U.S. ERS revenues were up 21% and 15% respectively. Trailing 12-month revenue and sales for ERS increased 11% and 6% respectively. As we've noted in the past, due to the variable nature of project timing and completion, ERS revenue and sales remain subject to quarterly volatility.

Third, global professional services revenue of $38 million was down 2% from the prior-year period. This result was primarily due to the impact of customer attrition identified last year as well as the unfavorable impact of foreign exchange on the credentials and licensing business. U.S. professional services revenue was flat to the prior-year period, while non-U.S. revenue was down 3%.

Turning now to expense, Moody's second quarter expense was $519 million, up 4% from 2015. The increase was primarily due to higher compensation costs in MA, reflecting additional head count to support business growth and the acquisition of GGY. MIS expense was down slightly compared to the prior-year period. Foreign currency translation favorably impacted expense by 2%.

As Ray noted, Moody's reported operating margin and adjusted operating margin were 44.2% and 47.5% respectively for the second quarter. Moody's effective tax rate for the quarter was 31.9%, up from 30.4% in the second quarter of 2015.

Now, I'll provide an update on capital allocation. During the second quarter of 2016, Moody's repurchased 2.3 million shares at a total cost of $224 million or an average cost of $96.60 per share and issued 249,000 shares as part of its employee stock-based compensation plans.

Moody's also paid $72 million in dividends during the quarter and, on July 12, announced quarterly dividend of $0.37 per share of Moody's common stock payable September 12 to stockholders of record at the close of business on August 22.

Over the first half of 2016, Moody's repurchased 5.2 million shares at a total cost of $486 million or an average cost of $92.83 per share. The company also returned $144 million to its shareholders by dividend payments during the same period. Outstanding shares as of June 30, 2016, totaled 192 million, down 4% from June 30, 2015. As of June 30, 2016, Moody's had $1 billion of share repurchase authority remaining.

At quarter end, Moody's had $3.4 billion of outstanding debt and $1 billion of additional debt capacity available under its revolving credit facility. Total cash, cash equivalents and short-term investments at quarter end were $2 billion with approximately 78% held outside the U.S. Free cash flow in the first six months of 2016 was $475 million, down 14% from the first six months of 2015, primarily due to lower net income.

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

Raymond W. McDaniel, Jr. - President, Chief Executive Officer & Director

Thanks, Linda. I'll conclude this morning's prepared comments by discussing changes to our full-year guidance for 2016. A full list of Moody's guidance is included in our second quarter 2016 earnings press release, which can be found on the Moody's Investor Relations website at ir.moodys.com.

Moody's current outlook for 2016 is based on assumptions about many geopolitical conditions and macroeconomic and capital market factors, including interest rates, foreign currency exchange rates, corporate profitability, business investment spending, mergers and acquisitions, consumer borrowing and securitization, and the amount of debt issued. These assumptions are subject to uncertainty, and results for the full year could differ materially from our current outlook.

Our guidance assumes foreign currency translation at end of quarter exchange rates. Specifically, our forecast reflects exchange rates for the British pound of $1.34 to £1 and for the euro of $1.11 to €1. Based on our current business mix, the annualized impact of a $0.01 decline in the euro against the U.S. dollar equals approximately a $0.01 decline in our annualized EPS. On the other hand, a $0.01 decline in the British pound against the U.S. dollar has a minimal impact to EPS.

As I noted earlier, Moody's is reaffirming our full-year 2016 EPS guidance of $4.55 to $4.65 and expects to be toward the lower end of the range. Moody's full-year 2016 revenue is still expected to increase in the low-single-digit percent range. Moody's operating expense is still expected to increase in the mid-single-digit percent range.

For MIS, Moody's now expects 2016 revenue to decrease in the low-single-digit percent range, reflecting reduced guidance for our non-U.S. MIS revenue, which we now also expect to decrease in the low-single-digit percent range. U.S. revenue is still expected to decrease in the low-single-digit percent range. Structured finance revenue is now expected to decrease in the high-single-digit percent range.

For MA, 2016 revenue is now expected to increase in the mid-single-digit percent range. U.S. revenue is still expected to increase in the low-double-digit percent range, while non-U.S. revenue is now expected to increase in the low-single-digit percent range.

Before we move to the Q&A, I would like to highlight three items, including investment we made earlier this week in Korea, an award won by MIS and the launch of a new MA product. On Monday, Moody's announced that it acquired full ownership of Korea Investors Service, or KIS, a leading provider of domestic credit ratings in Korea.

Moody's and KIS have had a longstanding and productive relationship since 2001. We believe that an even closer partnership and continued investment in the business will enable us to capitalize on the opportunities for growth and better serve the market in Korea. The acquisition is not expected to have a significant impact on Moody's earnings per share for 2016 and has been funded from international cash on hand.

Additionally, MIS was voted Best Credit Rating Agency in a 2016 poll of the U.S. fixed income investors, conducted by the publisher, Institutional Investor. This is the fifth year in a row that MIS has won this award. I appreciate the market's recognition of our efforts, and I applaud the accomplishments of our MIS colleagues.

And finally, yesterday, we announced the launch of Moody's Analytics Risk Quality score, or MARQ, a tool to help private companies understand their credit profile and support bank lending to small businesses. The MARQ score and the related web portal are a result of our collaboration with Finagraph, a financial technology company, in which we made a minority investment earlier this year.

This concludes our prepared remarks. And joining Linda and me for the question-and-answer session are Mark Almeida, President of Moody's Analytics; and Rob Fauber, President of Moody's Investors Service. We'd be pleased to take any questions that you might have.

Question-and-Answer Session

Operator

Thank you. We'll go first to Alex Kramm with UBS.

Alex Kramm - UBS Securities LLC

Hey. Hello, everyone. So just coming back to your guidance for a minute here, going through the earnings cycle for the banks, they sounded (16:57) fairly constructive on DCM, rates have trended slower or are low, credit spreads are still pretty reasonable. And I guess we're getting pretty close to the refi pipeline here. So, just wondering like with everything seemingly looking a little bit better at least from our seat, where are you seeing that incremental-like weakness to make you more conservative? So, is there anything else you can add would be great?

Raymond W. McDaniel, Jr. - President, Chief Executive Officer & Director

Sure. As we said in the prepared remarks, it's really uncertainty about international issuance activity that's driving a somewhat more cautious outlook. And I would have to add that since the Brexit vote on June 23, we haven't seen much activity in international issuance. Average daily issuance volumes are down in really all key markets except for U.S. investment grade. That being said, the timing of the vote does coincide with a seasonal decline in issuance that we typically see in July and August, especially again in the euro market.

So trying to assess, at this point, the decrease in issuance as a result of uncertainty about the Leave vote versus normal seasonal factors actually is a bit difficult. So, hopefully, we are being more cautious than we need to be, but that's what's influencing our thinking, and we also think it's going to have an impact outside the corporate sector in structured finance. So, that's really what's informing our views at this point.

Linda S. Huber - Chief Financial Officer & Executive Vice President

Alex, I'll go through the normal views on each of the segments that we talk about and then I will ask Rob Fauber to comment a little bit further on your question. So we'll put up now the slide that talks about our usual views from investment bank and capital markets economists. And the points here cover both financial and non-financial U.S. dollar issuance, and their ways of counting things may not align with our revenue categorization.

But looking at U.S. investment grade, the market has been quite resilient post-Brexit. All-in yields are below previous record lows, the 10 year is at 1.59% (19:27) this morning and spreads are quite attractive. M&A-related financing continues to be a strong driver. Favorable market conditions are expected to encourage opportunistic issuance post-earnings blackout. So as Ray said, this is typically a slow period. And full-year estimated issuance forecasts range from flat to up 10%. High-yield new issuance in Q2 was the strongest it's been in a year, but we expect it to see that given that the Brexit situation had backed up that market a bit. We expect as we move forward in the year, the issuance windows may be shorter, so again the risk-on, risk-off phenomenon. Full-year issuance forecasts range from down 10% to down 20%.

Leverage loans, we are pleased to see CLO issuance has started to reemerge, $30 billion of issuance in CLOs year-to-date. The pipeline is categorized as modest, and full-year 2016 estimated issuance forecasts range from down 10% to down 20%.

Looking at Europe, record low coupons as the ECB's corporate buying program continues to help the market and keep the yield flow. U.S. corporate are seeing value in moving to Europe and we expect that to continue throughout the rest of the year. And supply slowed as we've entered the traditional summer period and many issuers came to market before the Brexit vote on June 23.

European high-yield, the markets reopened after a period of muted (20:55) issuance following the Brexit vote, but again issuance windows are going to be shorter due to the macroeconomic view and the summer slowdown. And investors are moving down to speculative grade securities to search for yield given the low prevailing yield climate right at the moment.

So with that backdrop, I'll ask Rob if he wants to speak a little bit further about how we came to this view on MIS' components and guidance. Rob?

Robert Fauber - President - Moody's Investors Service

Yeah. Thanks, Ray and Linda. I think that covers it well. The only thing I would add to that, as Linda said, we've seen a rebound post Brexit vote. We went a couple of weeks where we had very little issuance. The first activity we saw was from the U.S. investment grade market. We saw Teva (21:45) deal very well received recently. We've seen a pickup then in the U.S. high-yield, European investment grade markets. And this week, as Linda mentioned, we've seen some activity in the European high-yield market. So we have resumed issuance activity. I would say we just balanced out with, as Linda said, the potential for some headline risk in these risk-on, risk-off windows as we go through the year. I think the greatest sensitivity to those windows will be in European leveraged finance.

Alex Kramm - UBS Securities LLC

All right, great. Thanks for the lengthy answer. I just have one more quick, since you mentioned Brexit several times here. Just wondering how you're thinking about the Brexit impact when you think about your business right now. So, is this say while the eurozone is going to be in a little bit of a maybe slower growth environment or are there particular technicalities that you need to think about like is the market structurally different post Brexit or will it be when we actually finally get there? And then what do you think in terms of your business, in terms of moving people around, anything that you might have to change on your end?

Raymond W. McDaniel, Jr. - President, Chief Executive Officer & Director

Yeah. I think we are anticipating what you might characterize as a soft landing, but there is still going to be some structural change even with a soft landing. So we're not anticipating significant contagion effect throughout the rest of the EU or the eurozone. But we do recognize that assuming Brexit moves forward, and we are assuming it will, that we are going to – there're going to have to be negotiations as far as the depth of participation of the UK in the European market and that's going to affect really a number of firms, particularly in the financial services, financial institutions sector. And we will make appropriate decisions for ourselves and for Moody's, as decisions are being made in terms of the nature of the UK's participation in the European economy on a going forward basis. We really can't do anything until we see some more clarity around those decisions. And so we are obviously attentive and we are preparing for a variety of outcomes, but nothing that I would tell you is on the near-term horizon in terms of changes in our business or how we are approaching the business in Europe.

Alex Kramm - UBS Securities LLC

Fantastic. Thank you very much.

Operator

Thank you. Our next question comes from Tim McHugh with William Blair.

Timothy J. McHugh - William Blair & Co. LLC

Thanks. I guess just wanted to know if you could talk a little bit more, maybe Linda or Ray, I guess, on the expense management. You had talked about $50 million of kind of adjustments you made last quarter. Can you talk about there? And then also just with Moody's Analytics, can you elaborate what the higher compensation or kind of additional staff exactly, I guess what type of staff. Is it R&D, salespeople, I guess what they're investing in?

Raymond W. McDaniel, Jr. - President, Chief Executive Officer & Director

Yeah. I'll let Linda tackle the expense question and then maybe we can turn it over to Mark on the MA side.

Linda S. Huber - Chief Financial Officer & Executive Vice President

Sure. Tim, this is a little tricky to follow. So let me try to lay this out and I'm going to need a paragraph or two here to explain this appropriately. So, last quarter, we told you we've lowered our projected base business spending for the year by about $50 million, and we commented on that that had come from expense management actions and reduced incentive compensation. So, that was $50 million in reduction, which was great. But those savings were entirely offset by the addition of the GGY acquisition, operating expenses and the negative impact of foreign currency translation. So we were down $50 million, but $50 million came back from GGY and FX.

Now since last quarter, we've done better with our cost savings than we thought we would. And additionally, we expect less negative impact from FX. So while we still have the partial offset from adding GGY's expenses, we now think we're going to be about $20 million in lower expenses versus the zero net income impact before. So we continue to work on this. We're very committed to ensuring that our expenses are in the right place, but again the nature of the company is that we can't reduce things immediately given a more challenging revenue quarter like we had in the first quarter, but we do think we've made good progress on bending the curve and moving the run rate, which we'll continue to show you, but probably more heavily in the fourth quarter than the third quarter. So I hope that's thorough enough for you, and sorry, it's not a particularly simple explanation. Does that work for you, Tim?

Timothy J. McHugh - William Blair & Co. LLC

Yeah. That's great.

Linda S. Huber - Chief Financial Officer & Executive Vice President

Thanks.

Timothy J. McHugh - William Blair & Co. LLC

And then Mark...

Mark E. Almeida - President, Moody's Analytics, Inc.

Yeah. A couple of things, Tim. First, we added a number of people as a result of the GGY acquisition. So, that's the lion share of the head count adds that we've had thus far this year, but we continue to add to support the growth in the business. We've added some additional sales capacity. We're continuing to do that. We've also added some software engineers and product development people because we've got a number of new product development initiatives underway that will be coming to market as we move into next year. So it's, I would characterize other than the GGY adds, a kind of business as usual, as we continue to build out the business.

Timothy J. McHugh - William Blair & Co. LLC

Okay. Then just a follow-up, Mark, as long as I have you. The new sales-type activity for the ERS business, I know you guys give the trailing 12-month number of 6%, but I think similar to last quarter, you've got a pretty tough comp somewhere in the trailing 12-month. So kind of the new pace of activity, can you give us any sort of color in terms of how the trend line is (28:15)?

Mark E. Almeida - President, Moody's Analytics, Inc.

Yeah. I'd say the trend is good. It's consistent with our expectations. I think the difference we're seeing this year compared with where we were in the first half of last year is that last year, early in the year, we had an unusually large number of very large transactions, multi-million dollar transactions, we had a number of those. And we haven't seen a similar number of similarly large transactions this year. So the pace of closing contracts continues to be quite good, but the average size of the contracts is smaller just because of the absence of some of those very outsized deals that we did last year. But the pipeline is very healthy and again consistent with our expectations. So we feel good about where we are.

Timothy J. McHugh - William Blair & Co. LLC

Is there any change in the market that explains the lack of the larger deals or is it just the timing, I mean...?

Mark E. Almeida - President, Moody's Analytics, Inc.

I think it's idiosyncratic to customers in specific situations. I don't think there is anything fundamentally different about the market or demand for what we're doing. It was – I think the unusual thing frankly is what we saw in the early part of last year and those – just having a number of very large transactions. It's typical for us to get a very big multi-million dollar – sort of north of $5 million deal from time to time. We just had a big concentration of those last year.

Timothy J. McHugh - William Blair & Co. LLC

Okay. Thank you.

Raymond W. McDaniel, Jr. - President, Chief Executive Officer & Director

Sure.

Operator

Thank you. Our next question comes from Manav Patnaik with Barclays.

Manav Patnaik - Barclays Capital, Inc.

Yeah. Thank you. Good afternoon. Linda, just to close the loop on the expense update. So should we think about that incremental $20 million as, I guess what I'm trying to get to is last quarter you gave us that ramp from the first quarter to fourth quarter. Should that just be $20 million less then?

Linda S. Huber - Chief Financial Officer & Executive Vice President

Manav, let me talk to a little bit about the ramp, because we do have an update on that. We had said $35 million to $45 million ramp for 2016 and that was from Q1 to Q4, as I said. We now expect the ramp to be lower from $25 million to $35 million. That's the result of reduced cost savings, lower bonus funding and favorable FX.

Manav Patnaik - Barclays Capital, Inc.

Okay. All right. Fair enough. Just on the – you explained the international situation and the potential uncertainty there. I guess I just wanted to revisit the structured side of the market a bit. I think last quarter, we had – well I guess, you guys posed a question on whether maybe this was structural or cyclical. I was just wondering if you guys had any updated thoughts on where the structured market sits there today.

Raymond W. McDaniel, Jr. - President, Chief Executive Officer & Director

Yeah. I'll let Rob comment on this in more detail. But as we observed earlier in the year, we think a lot of what's happening in structured market is cyclical, but there are some elements that could be structural depending on how market participants sort out the economics of some asset classes, as the risk retention rules change. Also we had a strong second quarter in structured in Europe and we will have to see how that plays out in the second half of the year, because some of that strength was concentrated in the UK mortgage sector and we'll have to see how that sector responds to what's been happening on the political side. But I don't know, if Rob has anything else he wants to add on that.

Robert Fauber - President - Moody's Investors Service

Yeah, Ray, I agree with that and I think we did see a significant uptick in activity in the second quarter relative to the first quarter in CMBS in addition to sorting out some of the risk retention issues and I think there was a slowdown in conduit lending earlier in the year that dampened the pipeline a bit. That will be supported on an ongoing basis by the refi wall and I think a regulatory focus by the banks – on bank commercial real estate exposures.

CLO, we saw a very strong activity towards the end of the quarter, supported by more availability of newly issued loans in the United States. And we do think we saw some Brexit pull-forward. So I think the pipeline may moderate a little bit going forward. And overall, I think we are saying that the market is trying to work through some of these risk retention requirements and I think we will see that in the back half of the year.

Manav Patnaik - Barclays Capital, Inc.

Okay. Just one more from me. I mean maybe I haven't noticed before, but I guess pointing out the new product introduction, I guess the MARQ score that you referred to. Is there any – like how should we think about, is that a big market opportunity or was that just a policy? I'm not sure, I'm just trying to understand it is something we should think about in terms of that launch?

Raymond W. McDaniel, Jr. - President, Chief Executive Officer & Director

No. I think it's really – it's not that it's an outsize opportunity that we're anticipating, but really it's one of the early results of our investment with Finagraph and our ability to partner in product development. So we wanted to point that out and in particular because it addresses a part of the market that some of our traditional products really aren't (34:05) focused on in terms of smaller businesses.

Manav Patnaik - Barclays Capital, Inc.

Okay, all right. Thanks a lot, guys.

Operator

Thank you. We'll continue on to Andre Benjamin with Goldman Sachs.

Andre Benjamin - Goldman Sachs & Co.

Thanks. I guess I'll follow up first on the ERS business just to clarify. It sounds like the way we should think about the progression of revenue through the rest of the year is that the third quarter should be pretty stable relative to the first two quarters and then you still get the seasonal pickup in the fourth quarter of the year or should we actually see a bit of a dip, given you don't have the big contracts coming through?

Raymond W. McDaniel, Jr. - President, Chief Executive Officer & Director

No. You should expect a dip, Andre, because keep in mind, we're guiding in ERS to top line growth in the high-single-digits and obviously we're running well above that thus far this year. Recall that we had that big, very big pull-forward in the fourth quarter of last year. And so our original guidance this year – when we did our fourth quarter earnings call, our original top line guidance for ERS was low-single-digits. We took that up to high-single-digits at the end of the first quarter after we did the GGY acquisition. So our expectations for this year were fairly modest growth in ERS relative to our historical growth rates because of that big pull-forward we had at the end of last year.

Andre Benjamin - Goldman Sachs & Co.

Got it. And then I guess just to revisit the topic of international partnerships and how things are maturing in some of more emerging opportunities in China and India, and other significant long-term opportunities. Is there any update on conversations around where you see additional opportunities to get more share there or how those markets are maturing for issuance? That would be great.

Raymond W. McDaniel, Jr. - President, Chief Executive Officer & Director

Yeah. Sure. With respect to India, the business that we're doing through ICRA is growing nicely. It's meeting our expectations for when we took majority control of ICRA. I think China is a different story in the sense that really not much has developed on the policy and regulatory side in recent months, but we have seen defaults occurring in the Chinese market. And you may recall, we've talked about this before that how that market evolves in terms of the willingness to allow credit problems to be revealed in the market rather than protected whether through the banking system or the government. It's going to be important for the role of particularly credit ratings that we're offering, but also our research. So I'm not obviously rooting for any companies to default, but in terms of a market structure development, I think it's promising to see that distressed companies are being allowed to fail. So, that's a promising development.

Andre Benjamin - Goldman Sachs & Co.

Thanks.

Operator

Thank you. We'll go to Peter Appert with Piper Jaffray.

Peter P. Appert - Piper Jaffray & Co. (Broker)

Thanks. Good morning. So, Linda, can you give us a little bit of commentary on what you're seeing and what you're expecting in terms of the operating margins for the two segments? I'm noticing that the MIS margin is relatively flat year-to-year, which is pretty impressive given the revenue pressure, the Analytics margin, though (38:17), continue to be relatively soft. I know some of that is GGY, but are there other factors you would call out?

Linda S. Huber - Chief Financial Officer & Executive Vice President

Sure. Peter, you're correct regarding GGY and from – Mark will comment on this in a moment. But as MARQ's contribution to revenue or Moody's Analytics' contribution to revenue is now 33%, up from last year's 31%. MA finds itself in the position of attracting more overhead because of the revenue split. So, that is one factor that makes us a little tougher for the margin to climb in the MA business. Beyond that, I'll let Mark comment a little future on what he is seeing.

Mark E. Almeida - President, Moody's Analytics, Inc.

Yes, that's absolutely right, Linda. We've got two things hitting the margin. We've got the GGY acquisition. And the dynamics there are that in this year, we are getting more expense than revenue not because it's not a profitable business, but just because of the accounting treatment of the acquired revenue. We take a haircut on that in this year and we've got the integration costs associated with the acquisition as well as some deal costs. So we've got – it's certainly dilutive to the margin this year from the GGY acquisition. And then we've also got the point that Linda made about our attracting more corporate overhead, as our share of total MCO revenue goes up.

If you adjust for those two things, you'd actually see some modest margin improvement in MA. So, certainly all of the work that we're doing and the plans that we have to achieve margin expansion in MA are in place. We continue to move forward on those. We like the progress we're making. So from an operational perspective, we feel very good about where we are. It's just the way the numbers move around. It's difficult to see that on the P&L in the short run.

Peter P. Appert - Piper Jaffray & Co. (Broker)

Any change, Mark, in terms of your expectations around being able to get to mid-20%s margins and any update in terms of timeframe?

Mark E. Almeida - President, Moody's Analytics, Inc.

No. No. It's still – that's still our plan. We've got a whole operating plan around that. As that, as you know, is largely an ERS project and it's still very much the plan for the business.

Raymond W. McDaniel, Jr. - President, Chief Executive Officer & Director

Yeah. And, Peter, just to emphasize, this is also being exacerbated by the fact that MIS is in a soft period in terms of revenue growth. So, as MIS resumes its growth trajectory, growth pattern that we've seen historically, there will be a more favorable treatment of overhead for Moody's Analytics.

Peter P. Appert - Piper Jaffray & Co. (Broker)

That's helpful. Thank you. And, Linda, can I ask you one other thing, on the stock buyback front, so you've been repurchasing shares, your cash outlay for share repurchase has exceeded free cash flow in recent years, so the debt level has obviously gone up. I'm wondering how you're thinking about this over the next couple of years in terms of your comfort level with continuing to move the leverage ratio up.

Linda S. Huber - Chief Financial Officer & Executive Vice President

Sure, Peter. We're quite comfortable with the leverage level that we have right now. Obviously, maintaining our rating is very important. That's critical to us. We're being very thoughtful about this because operating cash flow based on net income is down a bit this year. So we've got to be thoughtful about that, but I think we will attempt to stay in the sort of range where we have been. We'll give guidance in February about the actual number for next year, but I think around this neighborhood of $1 billion seems to feel pretty good for us. We'll have to look at it for next year in terms of where all the numbers come out, maybe somewhat lighter, but we're going to have to see what we have going on as we move into next year.

Peter P. Appert - Piper Jaffray & Co. (Broker)

Great. Thank you.

Operator

Thank you. Our next question comes from Toni Kaplan with Morgan Stanley.

Toni M. Kaplan - Morgan Stanley & Co. LLC

Hi, good morning. In the prepared remarks, you mentioned a pretty negligible impact from the move in FX from the British pound, and based on your mix of pound revenue and expenses, we would have thought I think that would be a greater net benefit to EPS. Could you just give some color on maybe why that's not the case?

Linda S. Huber - Chief Financial Officer & Executive Vice President

Toni, it's Linda. Thanks for your question, and I get all the complicated answers today. So let me try this. We did in our 2015 Investor Day talk about that only 2% of our revenues are GBP denominated, and 14% of our expenses are. So we did anticipate this question as to why this hasn't been more helpful to our EPS.

So while those numbers are correct, as you move down the P&L, the benefit is not as strong. So currently our entity structure takes away some of that benefit, and reported revenue and expense activities in British pounds essentially offset each other, given the way we have some of our legal entities and tax structuring set up. The existing structure reflects various operational, financial and legal considerations, and we look at those and make adjustments when appropriate.

Following, the Brexit vote, we're frankly going to have to wait and see what happens to see how we best might react to that. But right now, the situation is very unclear. So you're correct, there is a mismatch, but as you move down through the operating structure, we presently have in place, those numbers become more evenly matched. So I hope Toni if it's that thorough enough explanation for you.

Raymond W. McDaniel, Jr. - President, Chief Executive Officer & Director

And I'll just add as this relates to a question that was asked earlier in terms of our reaction corporately to the Brexit vote. This is one of the areas, where we would be looking at whether we can improve the fact that, improve the benefit from the mismatch between revenues and expenses coming out of the UK. And that will involve looking at our operational and legal structures and seeing what we might be able to change in terms of trying to realize the benefits from that revenue cost misalignment.

Toni M. Kaplan - Morgan Stanley & Co. LLC

Okay. Great. And I think earlier in the call, in one of the answers you mentioned a bit of a pull-forward in issuance, is there any way to quantify that, or just give a little bit more color on that? Thank you.

Raymond W. McDaniel, Jr. - President, Chief Executive Officer & Director

Yeah. I don't know one of my colleagues can quantify that, but we clearly saw a very active second quarter in issuance activity coming out of Europe. The corporate finance was – and structured finance were both up double-digits in Europe in the second quarter. And we are attributing a portion of that to likely pull-forward. And the fact that post Brexit, we were several weeks without really seeing much of any activity in terms of European issuance, just reinforces that belief that we had some pull-forward.

I would also, I guess, take this opportunity to just highlight that if we are correct about that pull-forward and correct about the slump in issuance activity being a result of Brexit as opposed to just seasonal, we would expect to see a more pronounced saw tooth pattern this year than we might have otherwise expected. So less issuance and revenue in the third quarter, and as a timing matter, probably more than we had anticipated in the fourth quarter. So I think it's not going to change the saw tooth, it's just going to emphasize that.

Mark E. Almeida - President, Moody's Analytics, Inc.

The only thing I would add to that, Ray, we saw the highest level of fundamental issuance activity in Europe, since the first quarter of 2015. And in addition, we had the introduction of the CSPP bond-buying program in early June, which further supported issuance there.

Toni M. Kaplan - Morgan Stanley & Co. LLC

Okay. Great.

Linda S. Huber - Chief Financial Officer & Executive Vice President

Yeah. Just one last thing, Toni, as we look at this. The 10-year treasury has been about 1.56%, 1.59% spreads for financing. For investment grade bonds it might be around 1.44%. So if you are a U.S. corporate, you can issue a 10-year somewhere around 3%, which is historically very, very attractive. The numbers in Europe, the spreads would even be tighter maybe around 100 basis points. So issuance there is even more attractive.

High yield spreads have come in quite a bit. We're looking at about 540 basis points. So the overall conditions are really quite favorable and really good. So we're waiting to see what happens as we come out of this blackout period. But corporates are finding that overall rates and spreads are both very attractive. So we're just going to have to wait and see, what happens as we roll the calendar forward. Traditionally, as you know, August is the weakest time, but it is possible that after Labor Day, we may see additional activity, and we'll see, how that goes for the third quarter.

Toni M. Kaplan - Morgan Stanley & Co. LLC

Okay. Very helpful. And just lastly, this is sort of a more broad question, but how are you thinking about the potential impacts that Brexit may have on European disintermediation, either positive or negative?

Raymond W. McDaniel, Jr. - President, Chief Executive Officer & Director

I think my view at this point would be that the disintermediation is going to continue, assuming what I described earlier, as a soft landing. Certainly, if there is a more fundamental disruption of the European Union, or participants in the Euro zone that would have at least cyclical and potentially more structural impacts, but we do not anticipate that being the case. And so, I think the disintermediation will continue to be a fundamental driver of the business coming out of Europe.

Toni M. Kaplan - Morgan Stanley & Co. LLC

Thanks a lot.

Operator

Thank you. And our next question comes from Craig Huber with Huber Research Partners.

Craig Anthony Huber - Huber Research Partners LLC

Great. Thank you. A few questions. First, Linda, just trying to better understand the costs in the quarter. Incentive compensation, I believe, is $32 million in the first quarter. What was in the second quarter, please?

Linda S. Huber - Chief Financial Officer & Executive Vice President

Sure. Incentive comp for the second quarter was $35.6 million, Craig. That was 10% of the total comp expense for the second quarter. And last year that incentive comp expense was $42.8 million. So we are down 17% year-over-year. So as we've said many times before, the incentive comp line takes the first hit, so that we can hold the margin, and frankly, we're pretty pleased about the 44.2% margin in the second quarter.

Craig Anthony Huber - Huber Research Partners LLC

Okay. And also a currency question. When you think out to third and fourth quarters for currency impact on your total revenues and in your costs. I was just curious what you are budgeting there for 3Q and 4Q, please.

Linda S. Huber - Chief Financial Officer & Executive Vice President

Sure. So for the full year 2016, we are expecting that FX will have about a 1% negative impact on revenue, Craig, and about a 2% benefit on operating expense. So you can sort of work with that to see what you want to do with the balance of the year.

Craig Anthony Huber - Huber Research Partners LLC

Okay. That's helpful. And then also I typically like to ask, can you just help us, can you break out the revenues of the four main categories within ratings, the high yield (51:35) investment grade et cetera, the revenues there?

Linda S. Huber - Chief Financial Officer & Executive Vice President

Craig, given that we have so many analysts these days, we have an exciting announcement for you, that is, in the interest of time, we're going to be posting your revenue breakdown that you like to see under Selected Financial Information under that section of the IR homepage, and you can find that at ir.moodys.com. So you no longer have to write this all down just as soon as we are done with this call, you'll see it all up there for you to take a look at. So, after 12 years, we're finally improving how we handle this process, Craig. So we hope you're pleased.

Craig Anthony Huber - Huber Research Partners LLC

That's very helpful. One last quick question here. Ray or Linda, when you look out the next three years to four years, you've talked a lot about the very strong refinancing walls here and stuff. I am curious from a mixed standpoint of revenue, is that not helpful to your margins going forward, it's much more heavily tilted towards refinancing as opposed to a lot more new mandates, where you'd probably have to hire a lot more analyst over time?

Raymond W. McDaniel, Jr. - President, Chief Executive Officer & Director

Yeah. All things being equal, yes, refinancing is margin friendly. I hope that we're seeing a strong drive of new rating mandates and new business and high growth coming out of Moody's Analytics, which would constrain the margin expansion, but we'll have to see. But you are correct, all things being equal, that's going to help margins.

Linda S. Huber - Chief Financial Officer & Executive Vice President

Craig, it's Linda. Another thing to – just another quick thing to consider is, as we move through the back half of the year, it is possible we may start seeing pull-forward from 2017, and you're correct that our refinancing walls particularly in the U.S. are much more helpful to us in 2017 and on through the next few years. And that's something we took a look at as we thought about our strategic plans, but we would hope to have margin expansion as we move through the rest of the decade. And we'll hope to have more to say about as we move through the guidance cycles for next year.

But given the pretty attractive situation we have right now with rates, it may be possible that we start to see that 2017 pull-forward even at the end of this year. One thing we would like to make very clear to everyone is that, looking at the back half of the year, here we would expect that the fourth quarter, our expectation is that the fourth quarter will probably be stronger than the third quarter, given the traditional slowdown during the August period. So just something to think about as you look at our normal saw tooth pattern, we think that that will persist.

Craig Anthony Huber - Huber Research Partners LLC

Okay. Thank you.

Operator

Thank you. We'll continue onto Joseph Foresi with Cantor Fitzgerald.

Joseph Foresi - Cantor Fitzgerald Securities

Hi. So I was just curious as we look at guidance, I'm wondering it looks like you kind of made the decision to take down sort of the issuance outlook, but you didn't take down the full guidance. I'm wondering what – is there a discrepancy in a particular thought process behind the differences in the two?

Raymond W. McDaniel, Jr. - President, Chief Executive Officer & Director

No. It's really that we're anticipating – compared to the first quarter, we're anticipating less revenue, less expense, and as a result guiding toward the lower end of our range while still holding the margin. And all of that happens to be within the ranges that we had previously communicated. So there's movement within the range, but not crossing from mid-single to low-single or high-single to a mid-single, for example.

Joseph Foresi - Cantor Fitzgerald Securities

Okay. And then obviously Brexit is going to take a while and there is an extended timeline associated with it. I just want to get your thoughts on any particular either upcoming Brexit milestone, I guess is what I call it or event. And if you think that there might be any kind of unique behavior, in other words, can we see a situation where issuance is still taking place in the U.S., and it's just continuing to the UK. So I just want to get some further thoughts on how you look at both of those?

Raymond W. McDaniel, Jr. - President, Chief Executive Officer & Director

No, I mean at this point, I would say that this process is characterized by an absence of milestones.

Joseph Foresi - Cantor Fitzgerald Securities

Okay.

Raymond W. McDaniel, Jr. - President, Chief Executive Officer & Director

It's very fluid, even in terms of when the Article 50 letter might be delivered. And I think it's going to create – as Linda described earlier, periods of risk on and risk off. As negotiations move forward, there are elections in France and Germany and the Netherlands next year. There's a constitutional vote in Italy later this year. So there are lots of things that are going to be happening that Brexit may influence or may influence the timing of the lead (56:46) decision in the notice. So I agree, it's going to be protracted process, and it's one that, as I said, looks very fluid at the moment.

Linda S. Huber - Chief Financial Officer & Executive Vice President

Joe, it's Linda, also to add to that, of course we have the U.S. election in November, which potentially could cause borrowers to step away from the market for a bit of time. However, indications from the ECB seems to be that there is the potential for even further easing given what's happened with Brexit.

So as we thought about this, we kept our range and we indicate the lower end of the range, but I think it would be very fair to say there's an unusual amount of uncertainty around this. And it could break either way, we just don't know. If conditions continue to be very attractive and we see pull-forward in the fourth quarter, this could turn out differently. But we think it's prudent given all of these various factors which are causing a lot of choppiness that we think about it in this manner. And I don't know if Rob Fauber had anything further that he wanted to say about this, but this was a tough set of guidance for us to work through.

Joseph Foresi - Cantor Fitzgerald Securities

Okay. Okay. And then just lastly, you talked about maybe some operational changes particularly with the way that you look at the UK. I'm wondering as we look at this on a broader scale, is there any inning (58:23) that you could point out that you're doing sort of internally any different from either a resourcing perspective. Just in preparation for what could be some unusual volatility associated with it again, I guess lack of milestones.

Raymond W. McDaniel, Jr. - President, Chief Executive Officer & Director

At this point, we have – well, since the beginning of the year, we have had a Brexit working group, that working group was expanded after the vote and includes multiple functions and disciplines throughout the organization, operational and accounting and legal, et cetera. It's really in an intelligence gathering phase at this point. There is not a lot that we feel we can appropriately do in terms of any changes to our activities at this point in time. But we want to be prepared to make any appropriate changes depending on how this process plays out. But I do want to emphasize that, however, it plays out, it looks like we're going to have a good long lead-time to respond. So I don't think this is going to be a process that surprises us in terms of some negative consequence for the company that we don't have time to adjust to, well before any decisions become effective.

Linda S. Huber - Chief Financial Officer & Executive Vice President

Yeah. And it's probably useful to add that we're conducting business as usual with a very close eye on our expense base. I think you saw that we've guided to 4% expense growth this year and it's pretty simple actually. We're directing head count and other resources towards the Moody's Analytics business in sort of a two-thirds, one-third split with the rating agency getting the one-third, because the rating agency is having a little bit of a softer patch. In fact for the rating agency, Q2 expenses were down 2% year-over-year and most of the expense work that we've been doing comes on the T&E line and other things having to do with both the rating agency and the shared services organization.

So, we are investing in the businesses that are performing well. I think we're being very thoughtful on the rating agency, and we're being really thoughtful on the shared services part of the organization. So we feel good about how we're managing all of this. We continue with the acquisitions, including GGY and the remainder of KIS. But we've had these periods before and we tend to work through them and conditions do change from quarter-to-quarter.

Joseph Foresi - Cantor Fitzgerald Securities

Okay. Thank you.

Operator

Thank you. We'll now go to Bill Warmington with Wells Fargo.

William A. Warmington - Wells Fargo Securities LLC

Good afternoon, everyone.

Linda S. Huber - Chief Financial Officer & Executive Vice President

Hey, Bill.

William A. Warmington - Wells Fargo Securities LLC

So, a question for you on Moody's Analytics. Just wanted to ask, if you're seeing any change in the selling environment for ERS and professional services.

Raymond W. McDaniel, Jr. - President, Chief Executive Officer & Director

No, no. We're not Bill. It's very much business as usual to be honest. I've been in London in the last couple of days and spent a lot of time with the sales team. We've got a lot going on. We're very busy. As I said earlier the pipeline is good. So, no.

William A. Warmington - Wells Fargo Securities LLC

Okay. Thank you. And then for the new MARQ product, does that compete or will it compete with your former parent Dun & Bradstreet or how do you see that evolving?

Mark E. Almeida - President, Moody's Analytics, Inc.

I guess the short answer I think, Bill, is no. But it certainly is a – it's a step that we're taking in that direction. We think there is some – it's clear to us that there is some need and some demand from both small companies and from bankers for more and better credit scores and credit analytics. So we are exploring that and as Ray said, we're doing that in collaboration with the Finagraph, in which we made the investment earlier this year.

William A. Warmington - Wells Fargo Securities LLC

Okay. And then last question for me, is just to see if I can get your thoughts on, what to do with that $1.5 billion of offshore cash, a high-class problem I know, but...?

Linda S. Huber - Chief Financial Officer & Executive Vice President

Sure, Bill. It's Linda. In fact 78% of our cash is offshore now compared to 67% last year. And we do look to use that cash to fund acquisitions in fact as we have done the acquisition of the rest of KIS that's been funded by offshore cash, which was great. GGY is a Canadian company, partially funded by offshore cash which is also helpful.

And so right now, we don't have any particular plans for that cash. But we look at all alternatives all the time. If there is a different tax regime in the U.S., potentially we could make some changes there. But right now, we think that this situation is advantageous for us and we continue to look at everything, but we like global acquisitions and it's a place where we continue to look. So we are where we are for right now.

William A. Warmington - Wells Fargo Securities LLC

Okay. All right, thank you very much.

Operator

Thank you. Our next question comes from Doug Arthur with Huber Research.

Douglas Middleton Arthur - Huber Research Partners LLC

Yeah. Thanks. My question was on pull-forward and I think you guys have covered that pretty comprehensively. So I'll take a pass. Thanks.

Raymond W. McDaniel, Jr. - President, Chief Executive Officer & Director

Okay. Thanks, Doug.

Operator

Jeff Silber with BMO Capital Markets. Please go ahead.

Jeffrey Marc Silber - BMO Capital Markets (United States)

Thanks so much. I know it's late. You had given some color on your exposure revenues and expenses to the British pound. Can you just remind us what it is to the euro as well?

Linda S. Huber - Chief Financial Officer & Executive Vice President

I think the overall expense – the overall impact of FX considering the pound and the euro is what I had said before, this is kind of a blended view. We expect 1% negative impact on revenue and a 2% benefit to operating expense. I believe, we've got it right, we were using rates of $1.34 to the pound and $1.10 to the euro in preparing these – excuse me – my colleagues have corrected me, $1.11 to the euro in preparing these documents.

Jeffrey Marc Silber - BMO Capital Markets (United States)

Thanks. I guess, you said 2% of your revenues last year came from British pound and 14% of expenses again. Can you give us the similar numbers for the euro or I can always follow-up offline?

Raymond W. McDaniel, Jr. - President, Chief Executive Officer & Director

Yeah. I don't have that in front of me, but we're happy to follow-up on that. I think this is obvious, but unlike the situation that we have in the UK, we have a lot of portion of revenue in euros and a smaller portion of expense.

Jeffrey Marc Silber - BMO Capital Markets (United States)

Okay. That makes sense. Thanks so much.

Operator

Thank you. And Ashley Serrao with Credit Suisse.

Ashley Neil Serrao - Credit Suisse Securities (USA) LLC (Broker)

Yeah. Most of my questions have been asked and answered. Thank you.

Raymond W. McDaniel, Jr. - President, Chief Executive Officer & Director

Okay. Thank you.

Operator

Thank you. And at this time, I would like to turn the conference over to Mr. Ray McDaniel.

Raymond W. McDaniel, Jr. - President, Chief Executive Officer & Director

Okay. Thank you very much for joining us today and thank you for the questions. We look forward to speaking to you again next at our Investor Day on Wednesday, September 28. So, thanks all and we'll see you there.

Operator

Thank you, ladies and gentlemen. This concludes Moody's second quarter 2016 earnings call. As a reminder, a replay of this call will be available after 3:30 PM Eastern Time on Moody's IR website. Thank you and you may now disconnect.

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