Fitch Affirms Dun & Bradstreet's IDR at 'BBB'; Outlook Stable

NEW YORK--()--Fitch Ratings has affirmed the Issuer Default Rating (IDR) of Dun & Bradstreet Corporation (DNB) at 'BBB'. The Rating Outlook is Stable.

A full list of ratings follows at the end of this release.

The Stable Outlook reflects Fitch's belief that the company can successfully execute its investment strategy and improve operating performance over the next one to two years. DNB's December 2014 FCF generation ($197.6 million after dividends), strong EBITDA margins (above 30%) and solid coverage metrics (interest coverage of approximately 12x) provide flexibility in the ratings to endure elevated leverage in the near term. However, there is limited room in the ratings for the company to fall short of Fitch's expectations.

KEY RATING DRIVERS

--Solid Credit Protection Measures: The ratings are supported by DNB's ability to consistently generate strong FCF, high barriers to entry relating to its database, and the company's ability to leverage its database into multiple revenue-generating products. The ratings also reflect the visibility of the company's revenue base, as well as Fitch's belief that management will be financially prudent with acquisitions.

--Deleveraging Expected: While leverage of 3.2x exceeds Fitch's 3x target for the current rating, the ratings and Outlook reflect Fitch's expectation that DNB will reduce leverage to 3x, through EBITDA growth and absolute debt reduction.

--Investment Initiatives: Fitch believes that management is focused on returning DNB to low- to mid-single-digit revenue growth, supported by $70 million to $80 million in operational investments. This investment in products and services (mostly personnel) will predominately be a recurring addition to operating expenses. The company has initiated cost reduction actions designed to offset about half of these investments. This investment initiative is reflected in Fitch's revenue, EBITDA and FCF expectations.

--Limited Revenue Diversification: More than 60% of total revenue is from DNB's Risk Management Solutions (RMS) division. The ratings incorporate the pressures in North America's RMS, specifically the DNBi Subscription product (approximately 58% of North America RMS or 1/3 of total revenues), which reported a 4% decline in 2014 due to a carry-over from lower sales in prior quarters and competition from low cost alternatives.

--Debt-Funded Share Repurchases: Fitch does not anticipate material debt-funded buybacks in 2015 outside purchases to counter the dilutive effect of shares issued under the company's stock incentive plans and employee stock purchase. There is currently a $100 million share repurchase program in place that can be used for this purpose.

--China Investigation: Ratings reflect the ongoing investigation associated with Shanghai Roadway DNB Marketing Services' (Roadway; which has been shut down) potential violation of the U.S. Foreign Corrupt Practices Act (FCPA). Currently, the timing and potential fines related to these investigations are unknown. Given the relatively nominal size of the operations, Fitch believes any fines would be manageable within the company's consolidated credit profile.

LIQUIDITY PROFILE

DNB has adequate liquidity, supported by approximately $396 million of availability under its $1 billion credit facility due 2019 (reduced by $604.5 million in borrowings) and $319.4 million in cash ($312.6 million held outside of the U.S.), as of Dec. 31, 2014. The company's maturity schedule is manageable and consists of $300 million in senior notes due November 2015, $450 million in senior notes due 2017, a $604.5 million revolver balance due 2019, and $300 million in senior notes due 2022. Fitch expects DNB to have sufficient liquidity and access to the capital markets to meet all debt maturities.

The company's 2014 FCF (after dividends) was $197.6 million, with a solid FCF to debt ratio of 12%. Fitch expects annual FCF (after dividends) to be approximately $200 million to $250 million in 2015 and 2016.

DNB's total pension plans were underfunded by $576.5 million on a pre-tax basis at year-end 2014, under U.S. GAAP calculations. Roughly 70% of the pension obligation is related to the U.S. qualified plan, which is $262.1 million underfunded on a pre-tax basis at year-end 2014, and which was frozen in 2007. Fitch believes the company will have sufficient liquidity to handle its funding obligations in accordance with the Pension Protection Act, and is reflected in Fitch's FCF expectations.

KEY ASSUMPTIONS

Fitch's key assumptions within the rating case include:

--Low single-digit growth with margin pressure in near term due to investment initiatives.

--Fitch expects pressure on DNBi to persist offset by growth in Other Enterprise Risk Management (subgroup of RMS) and the Sales and Marketing Solutions segment.

--Modeled subdued share buyback activities to address dilution in the short-term with prioritization for de-levering back to 3x leverage.

--Maturing $300 million in senior notes due 2015 are expected to be refinanced.

RATING SENSITIVITIES

A publicly stated financial policy, which may include a commitment to maintain leverage at or below 2.5x, and traction with the company's turnaround in its RMS business (evidenced by improved revenue and EBITDA margin performance), could lead to positive rating momentum.

The ratings may be downgraded if the company is unable to demonstrate traction with its revenue turnaround and/or indications that leverage would be expected to remain above 3x beyond 2015. Also, a change in financial policy indicating more aggressive shareholder returns that would drive leverage beyond 3x would pressure the ratings.

Fitch has affirmed the following ratings:

--IDR at 'BBB';

--Short-term IDR at 'F2';

--Bank credit facility at 'BBB';

--Senior unsecured notes at 'BBB'.

--Commercial paper at 'F2'.

The Rating Outlook is Stable.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (May 28, 2014).

Applicable Criteria and Related Research:

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=982706

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Contacts

Fitch Ratings
Primary Analyst
Brian Yoo, CFA
Associate Director
+1 212-908-0175
Fitch Ratings, Inc.
33 Whitehall St
New York, NY 10004
or
Secondary Analyst
David Peterson
Senior Director
+1 312-368-3177
or
Committee Chairperson
Mark Sadeghian
Senior Director
+1 312-368-2090
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
Brian Yoo, CFA
Associate Director
+1 212-908-0175
Fitch Ratings, Inc.
33 Whitehall St
New York, NY 10004
or
Secondary Analyst
David Peterson
Senior Director
+1 312-368-3177
or
Committee Chairperson
Mark Sadeghian
Senior Director
+1 312-368-2090
or
Media Relations:
Alyssa Castelli, +1 212-908-0540
alyssa.castelli@fitchratings.com
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com