Fitch Expects to Rate Lazard's $400MM Unsecured Notes 'BBB+'

NEW YORK--()--Fitch Ratings expects to rate Lazard Group LLC's (Lazard) proposed $400 million senior unsecured notes issuance (proposed notes) under its shelf registration 'BBB+'. The notes are expected to mature in February 2025.

KEY RATING DRIVERS - IDR and SENIOR UNSECURED DEBT

The notes are expected to rank equally in right of payment with Lazard's existing senior unsecured debt, and therefore the expected rating is equalized with Lazard's outstanding senior unsecured debt and its Issuer Default Rating (IDR).

The expected debt issuance does not affect Lazard's existing IDR of 'BBB+' or its other debt ratings, given that the proceeds from the notes, in addition to cash on hand, are expected to be used to prepay a portion of Lazard's $450 million senior notes maturing June 15, 2017 (2017 notes). Fitch expects the prepayment premium and debt repayment of $50 million on the 2017 notes to be manageable within the context of Lazard's Sept. 30, 2014 cash balance. Cash and cash equivalents measured $917,000 at Dec. 31, 2014.

Pro forma leverage, calculated as gross debt divided by EBITDA, and interest coverage, calculated as EBITDA divided by interest expense, are expected to modestly improve as gross debt will decline by $50 million and the proposed notes are expected to have a lower coupon.

RATING SENSITIVITIES

The expected rating of the notes is equalized with Lazard's IDR, and thus, will change as a result of any change in Lazard's IDR.

Rating upside for Lazard's IDR is viewed as limited for the foreseeable future due to the company's relatively narrow product offerings, the cyclicality of the its businesses and high compensation expenses relative to most other financial institutions. Longer-term positive drivers include further development of the asset management business with a more diversified product offering and investor base.

The firm's rating and/or rating outlook could be pressured by a significant decline in financial performance, materially weaker market conditions or the incurrence of material reputation damage. Ratings could also be impacted by a change in strategy that includes a more balance sheet intensive business, although this is not expected by Fitch.

Current ratings incorporate the cyclical nature of Lazard's businesses and reflect an expectation that EBITDA will vary with broad business and market cycles. Sizeable acquisitions that result in higher leverage or reduced interest coverage ratios could also trigger a downgrade.

Lazard is a well-established global financial advisory and asset management firm. Financial advisory remains the cornerstone of the franchise and includes both M&A and restructuring. Asset management has a solid foothold, and AUM levels have trended higher over the past several years.

Fitch expects to rate Lazard's proposed notes as follows:

--Proposed $400 million senior unsecured notes due 2025 at 'BBB+ (exp)'.

Additional information is available on www.fitchratings.com

Applicable Criteria and Related Research:

--'Global Financial Institutions Rating Criteria' (Jan. 31, 2014);

--'Securities Firms Criteria' (Jan. 31, 2014);

--'Investment Manager and Alternative Funds Criteria' (Dec. 12, 2013).

Applicable Criteria and Related Research:

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732397

Securities Firms Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732556

Investment Manager and Alternative Funds Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=725057

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=979529

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Contacts

Fitch Ratings
Primary Analyst
Mohak Rao, CFA
Director
+1 212-908-0559
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Tyra Junaid
Director
+1 212-908-0291
or
Committee Chairperson
Nathan Flanders
Managing Director
+1 212-908-0827
or
Media Relations:
Alyssa Castelli, +1 212-908-0540
alyssa.castelli@fitchratings.com
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Mohak Rao, CFA
Director
+1 212-908-0559
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Tyra Junaid
Director
+1 212-908-0291
or
Committee Chairperson
Nathan Flanders
Managing Director
+1 212-908-0827
or
Media Relations:
Alyssa Castelli, +1 212-908-0540
alyssa.castelli@fitchratings.com
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com