Standard & Poor's Ratings Services' (S&P) concern over
the $8.2 billion acquisition of
NYSE Euronext Inc.
) climbed higher as it trimmed the credit and debt ratings of
NYSE. The ratings agency is skeptical about the raised debt amid
Accordingly, the ratings agency cut NYSE's long-term issuer
credit rating (ICR) and senior unsecured debt rating to "A" from
"A+." S&P had kept NYSE on a CreditWatch with negative
implications since Dec 2012, when it assigned an ICR of "A+/A-1"
to the company. A CreditWatch acts as a red flag and allows a
company to monitor its actions before causing a detrimental
effect on ratings.
S&P remains wary of NYSE's inflated debt position, which
the company plans to carry in the merged company as well.With a
long-term debt of $2.1 billion at the end of 2012, NYSE bears the
brunt of higher borrowing costs, which further constricted
margins. At present, higher debt and capital expenditure has led
NYSE's debt-to-EBITDA ratio to deteriorate to 2.5x at 2012-end
from 1.6x at 2011-end, which again underscores ample financial
and operating risks.
The ratings agency has also casted a concerned outlook on the
merger, which is expected to culminate by the second half of
2013, subject to the fulfillment of regulatory compliances in the
U.S. and Europe. The financial risks from the higher debt
obligations do not make this potentially strong merger any less
This is due to the fact that IntercontinentalExchange plans to
squeeze all of its cash of $1.0 billion and raise another $1.8
billion from its revolving credit facility. According to S&P,
this leaves the combined entity with a debt burden of about $4.7
billion and debt-to-EBITDA ratio of 2.2x, which still remains in
at a risky level. Hence, S&P expects to continue with the
CreditWatch until the NYSE-IntercontinentalExchange deal
culminates or falls apart.
While both NYSE and IntercontinentalExchange carry a Zacks
Rank #3 (Hold), other strong performers in the financial sector
Euronet Worlwide Inc.
), both of which carry a Zacks Rank #1 (Strong Buy).
EURONET WORLDWD (EEFT): Free Stock Analysis
INTERCONTINENTL (ICE): Free Stock Analysis
MOODYS CORP (MCO): Free Stock Analysis Report
NYSE EURONEXT (NYX): Free Stock Analysis
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