Moody’s Corporation (MCO)
Goldman Sachs U.S. Financial Services Conference
December 7, 2011, 2:00 p.m. ET
Linda Huber – Executive Vice President and CFO.
Alright, in the interest of time, we got to get going. My name is Sloan Bohlen. I work with Mr. Richard Ranson on the financial scene here, at GIR or here GS in GIR. As part of my coverage, I cover REIT stocks and also a couple of specialty finance names of which Moody’s is a part of that. We are happy to have Executive Vice President and CFO, Linda Huber with us. Who is going go to through a fairly expensive slide deck, a lot of new details so, I’d definitely tell you guys to grab a copy of the book, in the back of the room. And with that, will turn it over to Linda.
Thank you very much Sloan, and good afternoon everyone. This afternoon I am going to give a quick corporate overview of Moody’s, and then touch on the very popular topic of the macroeconomic and capital markets outlook. Talk a little bit about the rating agency business, Moody’s investor service, and then about Moody’s Analytics and end up with the financial review and outlook for the Corporation.
So, most of you may be somewhat familiar with Moody’s, particularly, the rating agency which comprises, 70% of our revenues for the trailing 12 months period. But Moody’s Analytics now, comprises about 30% of our business and involves the sale of research and software, and few other things we’ll talk about in a minute. To say to sort of financial services clients, and I hope that as a high point for the Financial Services Conference, you focus on our business targets here, at the bottom.
Moody’s long term revenue growth remains in the double digit percent range, and our long term operating margin for the next few years, is above 40%. So we started to be the world’s most respected authority, serving credit sensitive markets. And in order to do that, we are really trying to do two things, to defend and enhance our core business, and then to invest in growth.
So, we find that our growth opportunities are quite good, right now, given what’s going in the global bond markets and then also we’ve been able to acquire some businesses, particularly for Moody’s Analytics. And we feel that we have done that pretty successfully. So, given the combination of our ability to work on our pricing, and to increase our penetration in the emerging markets, and to buy new businesses, particularly for Moody’s Analytics, we do feel that it is possible to achieve that double digit topline growth.
Here’s an interesting chart, that shows how our business, the revenues were distributed for the third quarter. You can see on the left hand side, the orange part of the graph there, is Moody’s Analytics, which is just about as large in revenue as the corporate finance business, which sits on top of it. The three other parts of the rating agency, financial institutions public project and infrastructure and structured finance, are each about equally sized at this point for the third quarter. And by geography on the right hand side, you can see that our business is about 50:50 US and International, which is very helpful, when each of the parts of the global economy are moving at different paces.
So, to quickly focus on macroeconomics, this chart comes from Mark Zandi at economy.com. And he’s comparing the 2011, GDP growth forecast to 2012. So you can see the US, he was calling for 1.8% growth for this year, looking for that to go to 2.6 next year. The UK, he sees moving down a bit from 0.9 to 0.6. The Eurozone from 1.6 this year to 0.1 next year and obviously other forecasters have some other views on the Eurosone. And China moving down from 9.2 to 8.7 and Japan moving up from -0.3 to 2.1% next year.
In some of the other Asian markets, I would note that Korea’s growth is expected to be 4% next year, so again Asia looks considerably better than other parts of the world. Now, we are well aware of the two charts that you see here, on the left hand side, 10-year government bond yield, have hit some pretty interesting levels, in some of the various parts of Europe. And similarly European bank CDS spreads have also moved up, quite a bit in recent months. However, the Federal Reserve has said recently, that it will help the European central banks on swap rates, and we remain to see what happens tomorrow, and the next day with the various EU summits. But what is interesting is that this trend of the financial difficulties in Europe, it’s actually helpful to Moody’s. This chart shows over the past 10 or so years, about a trillion dollars of bond issuance coming out of the European markets, and the pink or red line, shows what’s happened with bank loans. So if you do a compound annual growth rate on this chart, you’ll see that bonds have grown at 18%, while loans have just grown at 6, and in fact loans have flattened out. So what you’re seeing is more financing moving through, the bond market in Europe as compared to the loan market.
And still, we see though that Europe has its funding move 20% or so through the bond market and 82 to 80% through the bank market, where as in the US, it’s about 50:50. So, while we don’t expect Europe to ever get to the US, sort of distribution, what we do see of being possible is that in the next 10 years, perhaps another trillion dollars of bond financing could happen in Europe. And for Moody’s if you look at sort of our current pricing and that sort of change, over 10 years, another trillion dollars of bond financing. That’s about a 600 million dollar revenue opportunity for Moody’s, over that 10-year period.
Now, what we’re also seeing is that in Europe, and around the world, there’s very good interest in new bond ratings. We are able to sell bond ratings, we market them. We have a commercial division that does exactly this. And you see in Europe on the upper right, particularly, if the financial crisis became particularly, acute, as many as 20 companies or so were working on getting bond ratings per month and these are relatively good ticket items for us. And you see the same thing happening in the US and also in the emerging markets.
So, we find that people are interested in getting bond ratings, given the difficulty of finding bank financing and the increased expense of bank financing in Europe. So the story is that, as banks pull in their leverage and increase their capital requirements in Europe, we’re finding more issuers interested in getting prepared to go to the bond markets and accessing the bond markets.
Now for Moody’s, our raw material is really the 10-year treasury. And for the next two years or so, we’ve been told that we should expect that interest rates will remain modest, which is helpful to us. Really pretty interesting to have your main input, be pretty well guaranteed to remain at a low cost rate, that’s good. And there are significant refinancing needs, over the next few years, so these charts look at the wall of refinancing for US bonds in the upper left, emerging markets in Europe, in the upper right and Asia, down below. So trillions of dollars of refinancing coming, and all of this debt is debt we already rate, so we would expect to rate it again, so trillions of dollars of opportunity for ratings there.
We all often ask the question, well, what about the fact that companies have so much cash on their balance sheets, and the green line indicates, cash on non-financial company as balance sheets. It has indeed moved up and the orange line, is total issuance of bonds by those companies. And what you see is, they are actually pretty interestingly positively co-related and what you find if you look closer is that US companies hold about half of their cash overseas, and borrowing a tax holiday, we would expect that that would continue. So people want to finance here, in the US, they will continue to issue bonds to do that and despite the cash on their balance sheets, if much of that is sitting off shore, it might not be immediately accessible. So that is not flowing down the rate of issuance.
Similarly, we’re also seeing new issuance for other uses. On the upper left, you will see M&A volumes moving up, stock buy backs moving up, on the upper right, and capital expenditure moving up in the lower center panel. So there are many reasons why people are interested in issuing debt right now, and healthier companies are taking advantage, of some of the difficulties around the world to move more aggressively, and are issuing debt to finance those opportunities.
So, summing up this section the issuance overview for 2011, first and second quarters, were really superb quarters for the bond market. The third quarter less so, as problems arose in Europe, but you can see the green part of the bar which is investment grade bond issuance was about even, through those three quarters. What came down, were there orange bars, which is high yield issuance and the blue bars, which is leverage loan issuance. October also was a weakish month, but November was the strongest bond issuance months on records, strongest number ever, here in the US. So that is a very good trend and down below, we have put indications from JP Morgan, as to what next year’s outlook will look like, and we are seeing investment grade, will be about flat for 2012. High yield will be slightly lower, and leverage loans will be somewhat lower as well, according to JP Morgan’s forecast.
So 2011, has been quite a reasonable year and if the ’12 is about the same, those are reasonably good conditions. Well, what you can see from the slide is that, when the market window opens for bonds to be issued, many companies issue, we see days when there are 10 deals at one time. And the pipelines are there, it’s just a question of when these companies come to market.
Another interesting thing, to consider is what’s going on in the emerging markets. You see here, Brazil, China and India’s rated debt market, they are quite small now, but they are growing rapidly. And we have businesses in all of these countries. In China we have, the CCXI business, where we own 49% of that. And you may have seen that 4 cities or provinces in China can now issues their own bonds. And in India, you could see that most of that market is a rated market. And our ICRA business there, where we own 28.5% handles domestic ratings for us. So these emerging markets are growing quickly, and that also provides some growth opportunities for us.
On the Analytics side, we provide a series of services, for the more emerging markets. Professional services and consulting, is the lead product for us and then, the clients tend to move on to buying risk management software. And then finally as they mature, they move on to buy research, debt and analytics products. So the products really changes depending on the maturity of the economy around the world.
Now, turning to the rating agency, again we saw a very strong issuance in the first and second quarter. And that became more subdued in the third quarter. And we saw a drop off, in the third quarter, up high yield and leverage loan activity. $70 million change between the second quarter and the third quarter on that line, and most of that was attributable to high yield and leverage loans.
For the financial institutions area, this is a much more stable line. Many of these companies pay through frequent issue of pricing, so we don’t see a lot of volatility on this line. However, we do see a backlog in bank issuance, and we may be able to see some advantages there, if in fact the situation in Europe would stabilize, and perhaps improve.
On public project and infrastructure, again a stable business, and this one has picked up a bit in pacing. Once municipality has settled their budgets at the mid year, we saw some additional issuance come through the market. And then structured finance, we’re quite surprised, has been the high point for the year. We have seen 20% growth in the structured finance business. All asset classes doing pretty well, expect for RBS which is still a bit stalled, but we do have covered bonds in this group, and covered bonds have been doing quite well. So again, a brighter spot in structured than we had expected.
Now, for Moody’s Analytics, what we’re trying to do is take our core ratings competency, and sell products, similar products to financial professionals, and that has been going quite well. So we’ve been able to expand this business, we purchased a couple of businesses over the past few years. Last year, we bought CSI, up in Canada, which is a business that used to be owned by the Canadian regulator. And what it does is train people, and provide certifications for working in the financial services industry. And then recently, we announced the acquisition of the majority of Copal Partners, which is a knowledge process outsourcer in India, and both of these businesses are fast growing and have Moody’s like margins. So we’ve been able to purchase these also with our off shore cash.
Moody’s Analytics is beginning to take on some pretty significant size. You see at the bottom, the CAGR on the revenue growth with acquisitions, is about 22%, and the business is really achieving about a third of our revenue profile at this point. The risk management software business is the fastest growing part. 27% of the revenue base and, again if you apply the similar multiple to what IBM paid for pitch algorithmic, this business would have a market evaluation of somewhere between 750 and a billion dollars. In that its revenue is moving from a 150 million to sort of 200 million, at this time. So a business which is grown quite well and is quite valuable for us.
Looking at the company as a whole, many of you are familiar with the fact that Moody’s has both recurring and transaction revenue, down at the bottom. For the Corporation, we are sort of 60:40 recurring and transaction, so even if we have a quarter in which issuance is not going gang busters, we do okay. We prefer the quarters when transaction revenue is heavy of course, but we did okay in the third quarter, despite letter issuance. For the rating agency, we run about 50:50, transaction and recurring, but Moody’s Analytics runs about 80% on subscriptions, so it has a very strong recurring revenue base.
And in the third quarter, as I said, while Corporate Finance had a weaker performance, structured finance was up 20% in the U.S. and 14% outside the US. FIG was flattish and PPIS skewed positively for the U.S, and negatively internationally. You can see Moody’s Analytics business divisions moved up quite nicely, including professional services where you see, the first quarter in which we had a full year’s ownership of the CSI business up in Canada. What’s interesting though overall, is that for third quarter our U.S. revenues shrank by 1% or reduced by 1%, where as outside the U.S, we grew by 9%. So the international part of the business is increasingly important to us, and same trend for the third quarter year to date, non-U.S. revenue is up 22%, U.S. revenue is up 12%. And this chart through the third quarter, we’re particularly proud of the revenue progress we’ve made this year, very strong growth across all of our lines of business and is been a good year for Moody’s.
Our margins, right now, we are guiding to 39% for this year. Margins have come off from the high point of the early years, when structured finance was still a very very strong business. You know between 2007 and 2008, we lost about half a billion dollars of structured finance revenue and I should have said on the previous slide, we’re running about $300 million a year now, in structured finance. We would expect in a few years time that the steady state for structured, would be 400 to $450 million, or about 50% upside above where we are in structured finance but that will depend on the RMBS line coming back, and that may take a bit if time.
In the meantime, you can see our margin has steadied, and is now moving back up, towards 40% which is what we would like to see. And also, our capital management has been very helpful to shareholders. If you look at the bottom left, not often written about that Moody’s has increased its dividend twice in the past year, we’re up to $0.56 per share from $0.42 cent per share. That’s up 33% from last year and if you run a CAGR on this dividend chart, it’s up 17% over the period.
In the third quarter, we repurchased about $200 million worth of stock, 7 million shares at a price of about $30.30. And we do our repurchases in dividends from our U.S. cash, and generally we fund our acquisitions from our non-U.S. cash. So that is really the use of our capital. So in other words, U.S. cash would be earmarked for dividends and repurchases, and outside the use would be primarily for acquisitions. Our own debt is in the bottom right, we have no major debt due until 2015. Our term loan will start to pay down next year, but we’re in a pretty good position until 2015, and we have some pretty attractive pieces of debt on our balance sheet.
Now, this is my favorite chart. It’s a great CFO chart. Our operating income is moving back up nicely, at Moody’s. Our cash flow is also moving up quite well. The yellow line and other thing which is not well appreciated is that our tax rate has moved down rather dramatically, over the last few years. Our tax rate was over 40%. Last year we were under 30%, this year we’re guiding to 31%. So while our margin has come down, our tax rate has also come down, which is very beneficial, obviously to share holders, along with the increased dividend pay off rate.
And you can see at the bottom, over the past few years, our CAGR on cash flow from operating activities is back to growing at 10%. And Moody’s remains not a particularly capital intensive business, you see the blue line, down at the bottom is our rather modest rate of capital expenditures.
Now, turning to regulatory development, in the U.S. the situation is quite well resolved and settled. The SEC is our regulator and will adopt final rules by June 2012, but the shapes of those are well known. And regulatory authorities are looking to remove ratings from regulations, which is fine. We are very supportive of that, we would rather investors make their own decisions about using ratings. And the SEC has looked at our business, quite closely over the past few years and there’ve been no material deficiency findings. So we’re getting used to this cycle of having the SEC come in and review what we’re doing.
In Europe, we have bit more of interesting situation, ESMA, which is the European Security Markets Authority became our regulator in July. We are now registered under ESMA, as of October and there is a third round of rules which we call CRA3, which came to the fore in November and those rules have some rather interesting provisions. The concerns of the European Commission, here at the bottom of this slide are not new, but some of their proposed solutions are a bit new.
And we are fine with many of these proposals, but some of them are going to take a little bit of discussion, with the regulators and so we’re having those discussions now. This is a long term process, with Europe, it will take approximately a year before we see anything come out of this.
The rules which have been proposed by the European Commission need to move through the European Parliament, which for those of you who did not know features 736 members. Its calendar is a matter, of public record and, so it will present its own draft view in February, or so. And we’ll present it to the Monitory Affairs Committee in late May, and at the same time, the council of ministers, which is not a public time table, its private, at least two representatives from each EU member state, will work on similar piece of legislation. And these three will come together and will be resolved, and so we would expect that something will come out of that sometime next year, and it’ll get more involved in discussions on, all of these items.
And, with all of that for 2011, this is the same view that we had as about October 27th, so to reiterate, revenue for 2011 increasing in the low double digit percent range. Operating expenses in the mid single digit percent range. Margin, around 39% tax rate 31%, and earnings per share $2.38 to $2.48, but we said on the third quarter call, that we expect to be at the upper end of that range. And our capital expenditures will come in somewhere between 70 and $80 million for this year.
So with that, I’ll move over and join Sloan and see if anyone has any questions.
Sloan Bohlen - Goldman Sachs
Sure. I’ll start up with couple. And Linda, you did a very good job. You have to kind of sneak in between the subjects, but the slides you put up about, where you see structural growth, in the business. Would it be from distant or mediation in Europe, or in emerging debt market in parts of the emerging markets. And how do you think about, what portions of your growth expectations, if you’re talking about double digit growth in revenues, how much of it comes from structural things like that, versus how much of it, is dependent on better economic trends? How do you think about how much is the closest, already baked in the business?
Sure. As we said we start, with the underline premise that pricing, is something we can work on, sort of the mid single digits each year, and then on top of that, we would see a couple points of growth from the emerging markets growth, throughout the world. And then a couple points of growth from the acquisitions we are able to do. So perhaps the emerging markets piece of that would benefit, from, its under economic conditions, but from the slide that I showed from Mark Zandi, it’s economic conditions may move at different paces, around the world, next year. Obviously, it would be quite beneficial, if the situation in Europe were a bit more settled, than it is, today Wednesday.
Sloan Bohlen - Goldman Sachs
Right and to that point on that call, during your guidance, sort of last couple of quarters, you guys have referred to air pockets an activity, and maybe from a high level, how do you guys think about managing the business, to those air pockets. Would it be from an acquisition standpoint, and how do you look at, how that may play out or from a cost standpoint?
Sure. We do hit air pockets. October was an air pocket and then November saw a very strong recovery, so unfortunately we’ve become a bit used to this. But we like to provide guidance for the year, and we don’t provide guidance per quarter, for exactly this reason. Because we can see what pipelines look like, and we have a sense of what refinancing activity will come each year. What we don’t know is which quarter and which it will show up. As, Ray McDaniel said on the third quarter call, we know the pipelines there, we just don’t know just when it’s going to move. So each year, as we go into budget cycle, we look at issuance activity and we look at what we are likely to be rated. We look at price we can get on that business, we have a prediction on Moody’s Analytics business, and then we size our expenses to get to the margin that we hope to deliver.
And in the short term, we have some flexibility on expense. But, and most of that would come through the compensation and bonus line, we can’t dial back a bit on IT projects, if we need to, but we like to run the business in a more steady manner and not subjected to a lot of dramatic swings, up and down. So we try to manage a little but across an annual cycle.
Okay. And maybe to speak to the pipeline a little bit, and not just sticking to guidance or anything like that, but what portions of the credit market, you know November came back fairly strong, was that a lot of pent up activity that was on the sidelines, during the late summer, that you knew was there that they came back and maybe, what that pipeline looks going forward?
Sure, the month of November for the U.S, I believe was $77.1 billion for investment grade issuance, which again was a high point for the month in November. So we saw that investment grade issuers, who can be very opportunistic, come into the market, as soon as they see a day that works. We were pleased to see though, that high yield and leverage lending activity also picked up. So that was very good as well.
Pipelines look relatively strong going into the turn of the year. It’s very difficult some weeks to get any deals done at all. So, we sort of have the risk on, risk off trade that we deal with, some days we’ll see 10 deals come into the market and many days, seen none. So we’ve adjusted to that as we said and for right now, though conditions look relatively healthy outside the European markets, at this moment.
Okay, and is there any section of the investment grade market that looks stronger than others, and you know, people still being fairly opportunistic and taking advantage of low rates, or is there capital being raised for M&A kind of diluted?
Right, there are a lot of just complete liability management trades as people redo entire balance sheet. As companies, we do entire balance sheets. It get particular sectors that have seen interest would be energy and telecoms, have seen a lot of good deal activity of late. But we’ve seen a lot of the Bellwether, very large companies come to market in a very sizable way. That often sets the tone for other smaller issuers, who also find market conditions attractive and then jump in shortly thereafter.
Sloan Bohlen - Goldman Sachs
Okay. Am wondering if you touch on, the idea of what can happen in Europe, you put up the chart about how much of the European market is bank financed versus, finance from the debt markets. Over that 10 year horizon, that you think a trillion dollars is ratable that could come to the market, how do you think about the pacing of that and what have you seen here, even in just in the early days that suggest maybe its straight lined over that period of time or maybe its little bit of (inaudible).
I think we just looked at a trend line, similar to what you have seen over the last 10 years, so we sort of looked at a $100 million a year over 10 years, with our present pricing with some similar rate of increase, to what we have been seeing. We don’t know if that is what will play out, if you look at the chart, you can tell it’s a bit more episodic, and the rate of increase in bond financing in Europe has increased significantly, since the financial crisis. And that’s the same period in which loan activity has flattened out. So, again if the trends in the past 2 years continue and again it’s choppy, that would be very helpful to us.
Sloan Bohlen - Goldman Sachs
And maybe we could use that as a jumping off point for emerging markets. How do you consider it, it’s obviously very difficult, you look at the pie charts that you showed, India’s a very rated debt market, China is not, what are the differences between those two and maybe talk through what the growth opportunity, maybe on a region by region bases is, for you guys?
Sure. Like Asia and Latin America is certainly the best. Those chart show domestic rated activity and they don’t show cross border activity, which also is a big contributor to our business. The cross border activity is handled by parts of Moody’s Corporation and the domestic rating activity is generally handled by our affiliate. So within Brazil, we’re seeing a very good cross border activity and some growth in domestic activity as well. It stalled a bit recently, you may have seen DFT today had a piece on that but obviously Brazil’s is very commodities driven economy, as is much of Latin America.
We’ve seen in Latin America, some of the European banks have pulled back on project financing, so we’re expecting that some of those commodities based financing activities which might involve natural resources, may come to the bond market, so that’s very helpful to us. And in Asia, the economies are just running at much stronger growth rates there. Obviously, interesting to see China, allow some of its provinces and cities to issues their own bonds and we wait to see what the next step will be with that. And obviously, very good growth in the Chinese bond market, we’ve remained to see what the regulators there will allow to transpire with that in the future, but we’re optimistic.
Sloan Bohlen - Goldman Sachs
Okay. May be if you could turn just to me, a last couple of slides on, I think, everything is mostly focused on Europe, certainly from a risk standpoint, but also from a regulation standpoint. Can you maybe talk through what are the major proposals, the major changes would be, to the business model from what’s being proposed by the ECB.
Sure. The proposal covers 4 areas amongst other things. There was a provision regarding our ability, to issue ratings on sovereigns and a time of stress. From the initial proposal put out, were floated in October, there has been some movement already. So at this point, it looks like there has been some change to prohibiting us from issuing ratings on sovereigns, during time of stress. There has been a change to that proposal. It’s been modified. A second piece of this was also that ESMA could determine our methodologies, and would in fact determine the methodologies that all rating agencies would follow, so sort of forcing all rating agencies to one proscribed view of risk. And this is not something that we endorse, we would find that very unpleasant for us to deal with. The point of the company is to provide opinions that are freely arrived at and not to be subject to dictated methodologies. So, again that has been something that has changed a bit from the original proposal, and now we understand we’ll have to publish our methodologies, and make those clear, which we do already.
A third piece would be the rotation of rating agencies. There are many details in the proposal but roughly, and again this is an approximation of what the proposal says. A given rating agency could rate a company for 3 years, and then would have to move off for 4 years, and that would follow up, for each of the rating agencies. What we’re concerned about is when you get to, your 5 or so, and some of the bigger better known rating agencies are replaced by some smaller ones in Europe, and this may make it a little more difficult for companies to issue bonds in Europe, because of the lack of understanding, of what those ratings might mean, those issuing companies might find an increase in their cost of capital.
Being faced with that situation they may choose to issue their bonds in places other than in Europe. And it’s challenging to think, that something which might cause the European capital markets to move less efficiently would, be what the regulators really would want at this time, given that banks are already pulling in on their lending in Europe.
So we will continue to discuss that situation, with the regulators and the last piece is on liability. And in fact, whether there will be a view of increased liability for the rating agencies. This is something that‘s been kept around before though, and again will continue discussions to see where we get to with all of that. But we have had quite a number of meetings and very good discussions and again, this is a very lengthy process, which is taking place right now in an atmosphere which is considerably challenged, and so we’ll see as time goes on how the situation plays out. But we’re very thoughtful about how we will deal with this, even if any portion of these rules comes to pass.
Sloan Bohlen - Goldman Sachs
Okay. So stay tuned over the course of the spring, and I mean not to mention from a fact to the matter, that might not be enough rating agencies to have that plan actually work. But we’ll see what they come up with.
Another point that I should make Sloan, several organizations including the IIS and a treasures group has already come out to say, that perhaps these rules might not be in the best interests of appropriate, efficient, European capital markets.
Sloan Bohlen - Goldman Sachs
Okay, that’s good to hear. Let’s take some questions from the audience.
Sloan Bohlen - Goldman Sachs
What are the market shares in markets other than the U.S, Europe and Asia, and how do you want to divide it among the different rating agencies. Are the similar to the U.S. or whether, you know a large concentration in the top three or they’re much different?
It really differs from market to market. And around the world, the market shares and cross border activity would look pretty similar. Generally, we would find that market shares of S&P in Moody’s are 40ish. If you want to think of it in terms of market share, but again most companies get 2 ratings. The average right now is in fact 2.3 ratings per issuer, and Fitch would have 16 or so percent, and other rating agencies would have the rest, but, there are a number of very viable competitors their just clearly a very viable competitor. Dominion Bond Rating agency out of Canada is a strong competitor. And A.M. Best is the leading competitor in the insurance space. So what we said in some of the smaller companies though, have been acquired and rolled up, yet new ones continue to be started. So market share which, again is different than coverage, would probably run, you know sort of 40:40:16, something like that.
Sloan Bohlen - Goldman Sachs
You’ve mentioned you don’t give out quarterly guidance even though, you have pipeline. My question is, when do you get paid? Let’s say its U.S corporate debt and its going to go to market and then market conditions change and it gets pulled. Does Moody’s still get paid or we get paid if the issue goes forward?
Moody’s gets paid when the issuance occurs, yes. So we have to have the debt move, for the most part. It’s not absolutely 100%, that way but generally the issuance has to come in order for us to get paid.
Sloan Bohlen - Goldman Sachs
There is no minimum charge if it doesn’t go forward that Moody’s would get?
In some categories, there would be fees for initiating a new rating. But generally the debt has to move forward for us to get paid. Yes.
Sloan Bohlen - Goldman Sachs
Okay, in one of the things, you mentioned the corporate tax rate is down at 31%, what’s the reason of that?
50% of the business is overseas now, which allows for reinvestment overseas and generally countries other than the U.S. have a lower tax rate.
Sloan Bohlen - Goldman Sachs
Okay, Thank you.
I think that’s one more, the point that you’d made about IBM buying Fitch Algorithmics, do you believe that people will sign enough value to this loaded question, but do you believe people really understand that the Moody’s Analytics business, and what it’s worth, do you feel like people are signing multiple to that business, how do you think, you would describe the people, where either investors or analysts are missing the evaluation in that business.
Sure, I do believe that they Analytics business is only now coming into its own, in terms of being appreciated by investors. It’s a strong stable business with pricing power and its revenues are very sticky, it’s very global and the risk software business that we built is an excellent business. It provides risk software to banks and insurance companies, and also provides regulatory software that they can use to provide regulatory information, in a way which will be acceptable to their regulators, so it’s a very short thing in terms buying that software.
So Moody’s Analytics business, the biggest part is still the research business, which is the resale of research written by our rating analysts. And again the subscription business, that’s very steady and a good counter balance, a good counter weight to the rating agency, which tends to be more volatile. But again investors and analysts tend to focus, primarily on the rating agency but we’re trying to you all reeducated and flaunt.
Sloan Bohlen - Goldman Sachs
We’re going to do our best. Alright, with that thank you very much Linda. Thank you all.