Russell Investments Cayman Midco Ltd. Assigned #BB# Outlook Is Negative

Stocks and Financial Services Press Releases Thursday March 23, 2017 08:50
NEW YORK--23 Mar--S&P Global Ratings

NEW YORK (S&P Global Ratings) March 22, 2017--, S&P Global Ratings said it assigned its 'BB' issuer credit rating on Russell Investments Cayman Midco Ltd. The outlook is negative. We also affirmed our 'BB' issue rating on the $847 million senior secured first-lien term loan and $50 million senior secured revolving credit facility issued by Russell Investments US Institutional Holdco Inc. and Russell Investments US Retail Holdco Inc., two subsidiaries of Russell which in turn guarantees the debt. The recovery rating remains at '3', indicating our expectation for a meaningful recovery (50%) for debtholders in the event of a payment default.

"Russell is a leading player in the outsourced chief investment officer (OCIO) space, with solutions for both institutional and retail clients." said S&P Global Ratings credit analyst Brian Estiz. The majority of the company's revenues are generated from the investment management division, with capabilities to manage assets in house or through the selection of external managers.

The negative outlook reflects our expectation that the company will operate with debt to adjusted EBITDA at approximately 5x in the next six to 12 months as gains from meaningful cost synergies offset the increase in funded debt. Our forecast also reflects our view that AUM will remain fairly constant over the next year.

We could lower the ratings if leverage increases modestly above our expectations as a result of lower AUM, fee rate pressures, or an inability to recognize synergies. Under this scenario, leverage would be in the low-5.0x area. Additionally, any further debt-funded dividend payments could also result in ratings pressure.

We could revise the outlook to stable if performance is ahead of expectations, with meaningful AUM growth and moderate average fee rate increases, or if the company is able to realize its synergies at an accelerated pace. At that time, we would forecast leverage would to be in the low- to mid-4x area on a sustained basis. Additionally, the revision of the outlook to stable would also be predicated on our view that the company has become somewhat less aggressive in its financial policies.

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