- Company's shares jump most since 2011 as profit beats estimate
- To rebrand as S&P Global; J.D. Power sale probable within year
McGraw Hill Financial Inc., the owner of Standard & Poor’s, expects global bond issuance to drop 1 percent this year as volatile markets continue to dent financing appetite.
Bond sales by companies worldwide slowed to an 11-year low in January after the U.S. central bank raised rates last year, and a rout in Chinese equities fueled concern that a slowdown there would spread to the global economy. The yield premium over sovereign debt that investors demand to hold global corporate bonds increased to 190 basis points on Feb. 3, the highest since 2012, according to Bank of America Merrill Lynch indexes.
McGraw Hill cited a fourth-quarter decline in issuance on Thursday as it reported a 7 percent drop in revenue from a year earlier for its S&P ratings unit.
"Spreads have recently widened significantly, especially at the lower end of the credit spread," McGraw Hill Chief Executive Officer Doug Peterson said on a conference call Thursday. "Clearly, as we have reported, there was a large amount of decrease in total. In January, we saw a continuation of that trend."
McGraw Hill said it plans to rename itself S&P Global -- Standard and Poor’s is the largest global bond rating company -- pending shareholders’ approval in April.
The company reported a fourth-quarter profit that beat analysts’ estimates as margin improved. Net income was $284 million. That’s compared with $264 million a year earlier, after adjusting for costs associated with $1.5 billion in government fines. Earnings excluding certain items were $1.04 a share, exceeding the average estimate of $1.015 in a Bloomberg survey of 13 analysts.
Revenue increased 7 percent to $1.37 billion. The S&P ratings unit reported revenue of $578 million.
The company expects overall revenue to climb by "mid-to-high single-digit" in 2016.
McGraw Hill’s shares jumped as much as 9 percent after the earnings report, the biggest intraday gain since August 2011, and closed up 7.7 percent at $87 at 4 p.m. in New York.
A sale of the market-research business, J.D. Power, has received "considerable interest" and is probable in the next year, the company said Thursday, after it announced in October it was exploring the sale as to focus on capital and commodities markets.
In September, the company closed on its $2.3 billion acquisition of SNL Financial. It sold $2 billion of bonds to finance the deal. The integration of SNL is progressing well, the company said in the statement, with expected synergies of approximately $100 million, 70 percent being cost related and about one-third can be realized this year.
"It’s necessary to manage our costs tightly through things like delaying hiring, looking at our bonus pool as well as other investment that we might be making things like technology and system," said Peterson. "We have certain flexibility that we can build into our plan, if we need to go through what could be a tough period."