Moody’s 3Q16 Earnings Call Notes

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Moody’s (MCO) CEO Ray McDaniel on Q3 2016 Results

Ray McDaniel

Moody’s received a letter from the DOJ about the financial crisis

Okay. Thanks Linda. As we disclosed in today’s earnings release, on September 29 we received a letter from the Department of Justice indicating that it is preparing a civil complaint against Moody’s alleging violations of the Financial Institutions Reform, Recovery and Enforcement Act in connection with ratings MIS assigned to RMBS and CDOs leading up to the 2008 financial crisis.

Some of the strong issuance in 3Q may have been pull forward from 4Q

“Yes. Peter, it’s Ray. And I will let Rob comment on this in more detail, but I think the punch line is, we do think that some of the strength in the third quarter was pulled forward from the fourth quarter, We had a very strong close in late September and some of that issuance appears to have been opportunistically pulled into a very attractive issuance environment.”

Expecting an attractive issuance environment in 2017

“Looking out into 2017, we think that issuing conditions are probably going to be attractive and that may encourage pull forward from 2018 and beyond. Part of the reason why we are optimistic about the current outlook for issuance conditions is driven by the fact that we think the default rate in the speculative grade arena is probably peaking right about now over the next month or so and it’s going to moderate and come down, which should help spread. So even if official rates are moving up somewhat, we think there is an opportunity for spread tightening and an attractive issuance environment.”

Expecting stable growth, gradual normalization of monetary policy in the US

“Yes. I mean at a macro level, just looking at GDP, the GDP growth is, I think we are anticipating it’s going to stabilize, albeit at fairly low levels in the developed markets. So somewhere around 2% in the U.S. Less than that in Europe. And then for the G20 emerging markets, more in the 5% range. So, it’s good in that there is growth in the key markets that we operate in, but it is not going to be fast-paced growth in our estimation. We would also expect to see a gradual normalization of monetary policy in the U.S., but I think that will be gradual. And we are going to continue to see accommodative monetary policy outside the U.S. So I think that’s going to feature in continuation of low rates in a number of markets.”

Rob Fauber

Continued good market access in the US

That’s right. And I think I would characterize, there is continued good market access here in the U.S. and we expect that will continue through the election and even potentially beyond. Selective access, I would say, in Europe and healthy issuance in Asia. And we have a healthy new mandate pipeline as well. But as Ray said, we have incorporated some potential volatility and fewer, what we call, [indiscernible] days in the fourth quarter into our thinking.

Investment grade space benefiting from foreign investors looking for yield

” in the investment grade space, we have seen continued interest from foreign investors who were looking for yield. And it’s interesting, when you look at the funds flow both in high yield while last week we saw a small outflow, the prior two weeks were almost $4 billion in inflows and over $11 billion in inflows year-to-date. Similarly on the bank loan side, that asset class has seen its 11th straight week of inflows and that’s the longest streak since 2014 and almost $3 billion over the last 11 weeks. “