Fitch Affirms Verisk's IDR at 'A-'; Outlook Stable
NEW YORK -- March 14, 2013
Fitch Ratings has affirmed the Issuer Default Rating (IDR) of Verisk
Analytics, Inc. (Verisk) and Insurance Services Office, Inc. (ISO), a wholly
owned subsidiary of Verisk, at 'A-'. The Rating Outlook remains Stable. A
complete list of the ratings is provided at the end of this release.
KEY RATING DRIVERS
The ratings reflect Verisk's dominant market position within its Property and
Casualty (P&C) insurance related businesses. Any competition for its industry
standard programs and specific property information primarily comes from
internal P&C insurance company departments.
The company has delivered consistent organic revenue growth, despite economic
conditions. Verisk's core products are largely non-discretionary purchases for
most, if not all, of its clients. Fitch believes that the company has the
ability to organically grow revenues in the low single digits during an
While not highly likely, potential disruptions to Verisk's future access to
its core insurance related data and the potential for increased data cost is a
concern for Fitch. This risk is mitigated by the rationale points discussed
above and by the company's track record and long relationship with insurance
companies and regulators. This relationship dates back to 1971 and is extended
further back when including the history with the insurance bureaus.
The company has diversified its customer group, reducing its exposure to P&C
primary insurers to around 48% in 2012 (in 2003 it was 82%). The
diversification was primarily driven by growth in new business lines through
acquisition and leveraging the company's database and analytical know how.
The company continues to grow its non-P&C businesses organically and through
acquisitions. Fitch recognizes that by growing its other businesses, EBITDA
margins may decline over time. However, Verisk's margin is high relative to
its peers and Fitch expects margins to remain in the mid-40% range. Fitch
calculates Verisk's EBITDA margin at 47% as of Dec. 31, 2012.
Verisk generates solid free cash flow (FCF). In 2012, Verisk generated roughly
$400 million of FCF, or 27% of total debt. Fitch's expects FCF/debt to remain
Fitch expects the company to maintain gross unadjusted leverage at or below
2.0 times (x). There is tolerance in the ratings for leverage to go above this
level for an acquisition, with the expectation that debt balance would be
reduced in order to bring leverage back to 2.0x within a 12 to 18 month time
frame. Verisk demonstrated this commitment after it acquired Argus in the
third quarter of 2012 (3Q 2012). After the acquisition, gross unadjusted
leverage increased to 2.4x, and was reduced to 2.0x by Dec. 31, 2012.
Fitch expects the company to continue to be an active acquirer. Fitch expects
cash deployment to go towards acquisitions, reinvestment into the business and
share repurchases. Fitch does not expect any reductions in absolute debt and
expects the company to continue to borrow to fund acquisitions and share
buybacks in a prudent manner, relative to its 2.0x leverage target.
Verisk's credit profile and ratings are consistent relative to Fitch's ratings
on other Professional Publishers (Thomson Reuters; Dun& Bradstreet;
McGraw-Hill; and Reed Elsevier).
The ratings could be upgraded if the company were to target a more
conservative unadjusted leverage metrics with a rationale for such a target.
The ratings may be downgraded if the company were to pursue a more aggressive
financial policy that included engaging in a series of debt funded share buy
backs that pushed unadjusted gross leverage beyond 2.0x for an extended period
of time. As previously mentioned, there is tolerance in the rating for Verisk
to temporarily exceed leverage of 2.0x for an acquisition.
LIQUDITY AND LEVERAGE PROFILE:
As of Dec. 31, 2012, the company had adequate liquidity, consisting of $90
million in cash and $840 million of availability under its revolving credit
facility due 2017.
Verisk generated $394 million in FCF in 2012. Fitch's conservative base case
expects the company to generate roughly $350 million to $400 million of FCF in
2013. Fitch's base model assumes revenue growth in the 10% to 12% range
(driven by acquisitions and organic growth) and EBITDA margins near current
levels. Verisk contributed approximately $79 million to its pension plan in
2012, increasing its funded status to over 90%; and announced a freeze of its
pension plan in 2012. Fitch does not expect pension contributions to be a
material drain on cash flows going forward.
Fitch expects the company to have sufficient liquidity to handle all of its
maturities. Verisk and ISO's maturity schedule consists of:
--$180 million due in 2013;
--$170 million due in 2015;
--$50 million in 2016;
--$10 million in 2017;
--$250 million in 2019;
--$450 million in 2021; and
--$350 million in 2022.
As of Dec. 31, 2012, Fitch calculates gross unadjusted leverage at 2.0x and
interest coverage of 9.9x.
Fitch believes that the company could delever through EBITDA growth, however,
Fitch believes the company will manage leverage closer to its 2.0x leverage
target over the long term.
Fitch has affirmed the ratings as follows:
--Long-term IDR at 'A-';
--Short-term IDR at 'F2';
--Senior unsecured notes at 'A-'.
--Long-term IDR at 'A-';
--Short-term IDR at 'F2';
--Revolving credit facility at 'A-';
--Unsecured private placement notes at 'A-'.
Additional information is available at 'www.fitchratings.com'. The ratings
above were solicited by, or on behalf of, the issuer, and therefore, Fitch has
been compensated for the provision of the ratings.
Applicable Criteria & Related Research:
--'Corporate Rating Methodology' (Aug. 8, 2012).
Applicable Criteria and Related Research
Corporate Rating Methodology
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Rolando Larrondo, +1-212-908-9189
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
Shawn Gannon, +1-212-908-0223
Mike Simonton, CFA, +1-212-368-3138
Brian Bertsch, New York, +1 212-908-0549
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