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Fitch Affirms Verisk's Ratings at 'BBB+'; Outlook Stable
[May 23, 2016]

Fitch Affirms Verisk's Ratings at 'BBB+'; Outlook Stable


Fitch Ratings has affirmed the Long-Term Issuer Default Rating (IDR) and senior unsecured ratings on Verisk Analytics, Inc. (Nasdaq: VRSK; Verisk) at 'BBB+'. The Rating Outlook is Stable. The ratings affect $4.1 billion of total debt ($3.0 billion funded). A complete list of rating actions follows at the end of this release.

The ratings are supported by Verisk's strong incumbent position within its Property and Casualty (P&C) insurance-related businesses, proprietary data sets which create high barriers to entry and enable high incremental margins, and revenue and FCF stability. Fitch's ratings continue to reflect the view that Verisk will return leverage below 2.5x before the end of 2016 (a near certainty barring any change in financial policy following the divestiture of Verisk Health), and manage to that level on a sustainable basis. Verisk's improved revenue diversification and potential structural increase in margins are emerging credit positive trends.

KEY RATING DRIVERS

Market Leader: The ratings reflect Verisk's strong incumbent position within its 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. Verisk is very much ingrained as part of the insurance industry and Fitch believes there are very steep barriers to entry associated with Verisk's core insurance service businesses.

Stable Business Model: Fitch expects Verisk to generate over 80% of its revenue from recurring sources following the expected mid-2016 sale of Verisk Health to Veritas Capital. Recurring revenue from annual and multi-year contracts increases visibility into Verisk's forecasts, and provides a base for consistent annual organic revenue growth. The stability of Verisk's business is evident in its resiliency to cyclical downturns in the economy and its customer's end markets, illustrated by the company's consistent 5%+ annual organic revenue growth during the 2007 - 2009 recession.

Deleveraging on Track: Following the announced acquisition of Wood Mackenzie in March 2015, Fitch downgraded Verisk's IDR to 'BBB+' from 'A-' due primarily to the company increasing its leverage target to 2.5x from 2.0x (pro forma leverage was about 3.5x at transaction close). Since that time, Fitch's rating has incorporated the expectation that the company would delever to its target (and Fitch's downgrade sensitivity) of 2.5x by the end of 2016. Pro forma for the sale of Verisk Health, Fitch estimates pro forma leverage of 2.4x to 2.9x depending on how much proceeds are used for debt repayment. Fitch's rating case assumes Verisk does not need the sale proceeds to reach 2.5x by the end of 2016.

Strong Profitability and FCF: Pro forma for the sale of Verisk Health, Fitch estimates an EBITDA margin of about 50% for LTM March 31, 2016. EBITDA margins have been highly consistent, exceeding 40% every year for the past decade, and expanding with scale as the company reaps the benefits of high incremental margins from new derivative use cases for its data. Fitch expects EBITDA margin to sustain in the low 50's, with capex margins in the mid to high single digits, driving annual FCF of over $500 million over the rating horizon.

Capital Allocation: After reaching its leverage target, Fitch expects Verisk to allocate the vast majority of FCF going forward between acquisitions and buybacks, with the distribution depending on the availability of attractive M&A targets. Fitch's rating case incorporates the potential for additional M&A within the confines of 2.5x leverage, allowing for temporary increases above that level.

Data Concerns: While not highly likely, potential disruptions to Verisk's future access to its core insurance-related data and te potential for increased data cost is a concern for Fitch. This risk is largely mitigated by the company's track record and long relationship with insurance companies and regulators. This relationship dates back to 1971 and extends even further back when including the history with the insurance bureaus.



KEY ASSUMPTIONS

Fitch's key assumptions within the rating case for Verisk include:


--Mid to high single digit organic revenue growth;

--Leverage returns to below 2.5x by the end of 2016, with potential for temporary increases above that level going forward from debt-funded M&A;

--EBITDA margin in the low 50's as the sale of lower margin Verisk Health results in a 300 - 400 bps increase;

--Mid to high single digit capex margin and FCF of over $500 million per year;

--Tax rate in the low 30% area.

RATING SENSITIVITIES

Positive Action: Fitch could upgrade the ratings if the company were to return to its previous leverage target of 2x (with a rationale for such target) and FCF to adjusted debt sustaining in the 20% to 25% range. Fitch expects the company to achieve the latter in the near-term.

Negative Action: Fitch's expectations for leverage sustaining above 2.5x on an other than temporary basis, possibly resulting from material share buyback activity, additional debt-funded acquisitions, or a structural decline in organic growth or margins.

LIQUIDITY

Liquidity as of March 31, 2016 was solid, supported by $135 million of cash and cash equivalents, $1.1 billion of availability under an unsecured $1.75 billion revolving credit facility (pro forma for April 2016 repayments) and Fitch's expectation for annual FCF of more than $500 million. Fitch does not expect Verisk to accumulate substantial cash balances, as the company will likely invest its FCF in M&A and share buybacks. Verisk's next debt maturity is in January 2019, when the $250 million 4.875% unsecured notes are due.

Total funded debt as of March 31, 2016 pro forma for April 2016 revolver repayments is $3.0 billion and consists of:

--$6.3 million of capital leases;

--$1,750 million senior unsecured revolving credit facility ($680 million drawn);

--$250 million 4.875% senior unsecured notes due 2019;

--$450 million 5.8% senior unsecured notes due 2021;

--$350 million 4.125% senior unsecured notes due 2022;

--$900 million 4.0% senior unsecured notes due 2025;

--$350 million 5.50% senior unsecured notes due 2045.

FULL LIST OF RATING ACTIONS

Fitch has affirmed the ratings for Verisk Analytics, Inc. as follows:

--Long-Term Issuer Default Rating (IDR) at 'BBB+';

--Revolving Credit Facility BBB+;

--Senior Unsecured Notes BBB+.

The Rating Outlook is Stable.

Additionally, Fitch has withdrawn Verisk's Short-Term 'F2' IDR as Fitch does not expect the company to initiate a commercial paper (CP) program in the near term.

Date of Relevant Rating Committee: 20 May 2016.

Additional information is available on www.fitchratings.com.

Applicable Criteria

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage (pub. 17 Aug 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869362

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1004948

Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1004948

Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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