Standard & Poor’s Ratings Services has cut its rating outlook on NYSE Euronext to negative from stable, citing the company’s use of cash to pay dividends and buyback shares at a time when its operating performance is already under pressure.
The rating agency affirmed its ratings on the exchange, while cutting the outlook. S&P reports that the NYSE Euronext expended about $450 million on share buybacks and dividends in the first half of 2012, compared with an estimated $400 million of funds from operations.
“Our decision to revise the outlook to negative from stable is based on NYSE Euronext’s shareholder-friendly financial actions at a time when there are increased calls on the firm’s fiscal resources,” said Standard & Poor’s credit analyst, Charles Rauch, adding that the liquid assets on its balance sheet barely cover three months operating expenses.
S&P suggests that the NYSE will need to refinance all or part of the $750 million of notes due June 2013 because it of its use of operating cash flows to buyback shares and pay dividends. And, it says that while the the exchange’s business risk profile is strong, its financial risk profile “compares unfavorably with similarly rated peers and is a negative ratings factor.”
If the company is unable to strengthen its liquidity profile so that available cash covers at least six months of operating costs, S&P says that it could lower the ratings. It could also lower the ratings if profitability weakens beyond expectations. It does not see any prospect for an upgrade over the next 18 to 24 months, it adds.