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TEXT-S&P rates Corporate Executive Board
2012年10月18日 / 下午5点00分 / 5 年前

TEXT-S&P rates Corporate Executive Board

     -- U.S. research studies and analytical tool provider The Corporate 
Executive Board Co. (CEB) has acquired SHL Group Ltd.
     -- We are assigning CEB our 'BB-' corporate credit rating. 
     -- At the same time, we are assigning the company's $625 million senior 
secured credit facility a 'BB-' issue-level rating with a recovery rating of 
     -- The stable rating outlook reflects our view that CEB can generate good 
discretionary cash, reduce debt leverage through EBITDA growth and debt 
repayment, and maintain an adequate margin of compliance with financial 
Rating Action
On Oct. 18, 2012, Standard & Poor's Ratings Services assigned Arlington, 
Va.-based The Corporate Executive Board Co. (CEB) its 'BB-' corporate credit 
rating. The rating outlook is stable.

At the same time, we assigned the company's $625 million senior secured credit 
facility our 'BB-' issue-level rating (the same as the corporate credit rating 
on the company) with a recovery rating of '3', indicating our expectation for 
meaningful (50% to 70%) recovery for lenders in the event of a payment 
default. The credit facility consists of a $275 million term loan A due 2017, 
a $250 million term loan B due 2019, and a $100 million revolving credit 
facility due 2017. CEB used the proceeds and some cash on the balance sheet to 
fund its acquisition of SHL Group Ltd.

The 'BB-' rating reflects our expectation that CEB's operating performance 
will be solid, that it will generate good discretionary cash flow, and that it 
will gradually reduce debt leverage through a combination of EBITDA growth and 
debt repayment. We view CEB's business risk profile as "fair" (according to 
our criteria) based on the stable and diverse subscription revenues it derives 
from its research and benchmarking studies on operational improvement topics, 
high client renewals, and good EBITDA margin. Clients use these research 
studies and other CEB tools to diagnose issues and improve business 
operations. This can be more cost-effective than seeking assistance from 
business consultants. We view CEB's financial risk as "aggressive" (according 
to our criteria) based on its high pro forma debt leverage, a focus on 
returning cash to shareholders, and the potential, in our view, for ongoing 
acquisition activity. Pro forma for the acquisition of SHL, debt leverage was 
relatively high, at 4x as of June 30, 2012. We expect CEB to continue 
increasing its dividend distributions to shareholders and to maintain an 
active share repurchase program. 

CEB provides research studies and analytical tools to corporate executives. It 
derives about 90% of its revenue from annual subscriptions for research 
products in the areas of human resources, sales and marketing, finance, 
technology, and legal. SHL provides online talent assessments to help 
employers make personnel decisions. The acquisition of SHL broadens CEB's 
offering in the human resources area and provides opportunities for 
cross-selling. Given the level of product specialization, we believe 
cross-selling could take longer to achieve. Both companies benefit from very 
high renewal rates. CEB's customer retention rate is very high and client loss 
at SHL is infrequent. Additionally, the customer base for the combined company 
is well-diversified, with the top 10 customers accounting for less than 3% of 
revenue in 2011.

Under our base-case scenario for 2012, we expect pro forma revenue growth at a 
high-single-digit percentage rate and pro forma EBITDA growth of over 10%. In 
2013, we expect revenue and EBITDA to grow 7% to 8% and 8% to 9%, 
respectively. Our forecast assumes modest price increases based on a continued 
tepid economic recovery, continued growth in middle-market customers, and 
low-single-digit percentage increases in the average number of subscription 
products used per customer. We believe CEB's consolidated EBITDA margin 
(including restructuring expenses) will be around 23% to 24% for full-year 
2012 and 2013. We expect the EBITDA margin to gradually expand over time as 
revenue grows, if CEB does not raise its research investment.

During the second quarter of 2012, CEB's revenues and EBITDA increased 15.5% 
and 46%, respectively, year over year, which was above our initial 
expectation. The company has not disclosed SHL's financial performance for the 
second quarter of 2012. 

We estimated pro forma debt to EBITDA was 4x for the 12 months ended June 30, 
2012. Debt leverage is within the indicative debt-to-EBITDA range of between 
4x and 5x we characterize as "aggressive." We expect debt leverage to decline 
to less than 4x in 2013 through EBITDA growth and moderate debt repayment 
under the excess cash flow sweep, if there is no change in strategic direction 
and financial policy. Pro forma for the transaction, EBITDA coverage of 
interest was 4.5x for the 12 months ended June 30, 2012. We expect EBITDA 
coverage of interest to improve to above 4.5x in 2013, under this scenario. 

We expect conversion of EBITDA into discretionary cash to be in the low- to 
mid-40% range in the future, compared with 70% for the 12 months ended June 
30, 2012, mainly reflecting higher interest expense. Capital expenditures are 
projected to be moderate. However, we expect CEB to continue increasing its 
dividend distribution to shareholders and maintain an active share repurchase 
program. We expect CEB to continue seeking small and midsize acquisitions. 

In our view, CEB has "strong" liquidity to cover its needs over the next 12 to 
18 months, including interest payments and ongoing operating needs. Our view 
of its liquidity profile incorporates the following assumptions and 
     -- We expect sources of liquidity to exceed uses by more than 1.5x over 
the next 12 to 18 months. 
     -- We also expect cash sources to continue exceeding cash uses, even if 
EBITDA declines 30%.
     -- CEB is likely to maintain financial covenant compliance, even with a 
30% EBITDA decline. 
     -- We believe it would be able to absorb high-impact, low-probability 
     -- We also believe CEB has a satisfactory standing in the credit markets.
Sources of liquidity include pro forma cash balances of $60 million, full 
availability under its $100 million revolving credit facility, and expected 
discretionary cash flow of $80 million in 2012 and $90 million in 2013. 
Capital spending requirements are moderate at between $20 million and $25 
million in 2012 and 2013. The term loan A amortizes at 4% over the first two 
years and 7.5% over the last three years, while the term loan B amortizes at 
1% a year. This results in $13.3 million of amortization in 2013 and 2014.

The credit facility will have a net leverage covenant that starts at 3.5x and 
steps down a quarter turn each year. We expect the covenant to start with 
headroom at around 30% and increase over time.

Recovery analysis
For the complete recovery analysis, see the recovery report on CEB, to be 
published shortly on RatingsDirect.

The stable rating outlook reflects our expectation that CEB will reduce and 
maintain debt leverage below 4.5x, generate good discretionary cash flow, and 
maintain an adequate margin of compliance with covenants. We view the 
likelihood of an upgrade as somewhat higher than a downgrade over the 
intermediate to long term. We could raise our rating if CEB maintains 
operating momentum and profitability, and reduces debt leverage to less than 
4x on a sustained basis. 

While not currently likely, we could lower the rating if debt leverage rises 
above 5x, which could occur if revenue growth slows to 3% in 2012 and the 
EBITDA margin falls to around 20%. Large, debt-financed acquisitions or debt 
financed dividends could also cause a downgrade.

Related Criteria And Research
     -- Methodology: Business Risk/Financial Risk Matrix Expanded, Sept. 18, 
     -- Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011
     -- Criteria Guidelines For Recovery Ratings, Aug. 10, 2009
     -- Standard & Poor's Revises Its Approach To Rating Speculative-Grade 
Credits, May 13, 2008
     -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008
     -- 2008 Corporate Criteria: Rating Each Issue, April 15, 2008
     -- 2008 Corporate Criteria: Ratios And Adjustments, April 15, 2008
Ratings List

New Rating

Corporate Executive Board Co.
 Corporate Credit Rating                BB-/Stable/--
 Senior Secured
  $275M term loan A due 2017            BB-
   Recovery Rating                      3
  $250M term loan B due 2019            BB-
   Recovery Rating                      3
  $100M revolver due 2017               BB-
   Recovery Rating                      3

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