穆迪 (MCO) 2017 Q3 法說會逐字稿

Good day, and welcome, ladies and gentlemen, to the Moody's Corporation Third Quarter 2017 Earnings Conference.

At this time, I would like to inform you that this conference is being recorded.

(Operator Instructions)

I will now turn the conference over to Steve Maire, Global Head of Investor Relations and Communications.

Please go ahead, sir.

Thank you.

Good morning, everyone, and thank you for joining us on this teleconference to discuss Moody's third quarter 2017 results as well as our current outlook for full year 2017.

I am Steve Maire, Global Head of Investor Relations and Communications.

This morning, Moody's released its results for the third quarter of 2017 as well as our current outlook for full year 2017.

The earnings press release and a presentation to accompany this teleconference are both available on our website at ir.moodys.com.

Ray McDaniel, Moody's President and Chief Executive Officer, will lead this morning's conference call.

Also making prepared remarks on the call this morning is Linda Huber, Moody's Executive Vice President and Chief Financial Officer.

Before we begin, I call your attention to the safe harbor language, which can be found toward the end of our earnings release.

Today's remarks may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

In accordance with the act, I also direct your attention to the Management's Discussion and Analysis section and the risk factors discussed in our annual report on Form 10-K for the year ended December 31, 2016, and in other SEC filings made by the company, which are available on our website and on the Securities and Exchange Commission's website.

These, together with the safe harbor statement, set forth important factors that could cause actual results to differ materially from those contained in any such forward-looking statements.

I would also like to point out that members of the media may be on the call this morning in a listen-only mode.

I'll now turn the call over to Ray McDaniel.

Thank you, Steve.

Good morning, and thank you to everyone for joining today's call.

I'll begin by summarizing Moody's third quarter and year-to-date 2017 financial results.

Linda will follow with additional third quarter financial details and operating highlights.

I will then conclude with comments on our current outlook for 2017.

After our prepared remarks, we'll be happy to respond to your questions.

Before addressing our financial results, I want to begin by saying that we are pleased to have closed the Bureau van Dijk acquisition and are excited to welcome our new Bureau van Dijk colleagues to Moody's.

While we have owned the company for only 12 weeks, our experience thus far is very positive, and the operations of Bureau van Dijk are proving to be in line with our expectations.

Our integration efforts are on track, and we remain confident about achieving the synergy targets that we communicated when we announced the acquisition.

Starting from this earnings release, results and guidance will include Bureau van Dijk from the August 10 acquisition close date.

Also, as we previously communicated, we are now excluding the amortization of all acquisition-related intangibles from our adjusted diluted EPS metric.

This includes amortization of intangibles from Bureau van Dijk as well as earlier acquisitions.

In the third quarter, Moody's achieved a record $1.1 billion in quarterly revenue, up 16% from the third quarter of 2016.

Operating expenses for the third quarter totaled $618 million, up 19%, of which Bureau van Dijk operating expenses and acquisition-related expenses constituted 8 percentage points.

Operating income was $445 million, up 12%, and adjusted operating income of $499 million was up 14%.

We are defining adjusted operating income as operating income before depreciation and amortization as well as Bureau van Dijk acquisition-related expenses.

The operating margin was 41.9%, down from 43.3% in the third quarter of 2016.

The adjusted operating margin was 46.9%, down from 47.8%.

Moody's diluted EPS for the quarter was $1.63 per share, up 24% from the third quarter of 2016.

Adjusted diluted EPS for the quarter was $1.52, up 10%.

Third quarter 2017 adjusted diluted EPS excludes a $44 million or $0.23 per share gain from a foreign currency hedge associated with the Bureau van Dijk acquisition, $14 million or $0.08 per share related to the amortization of all acquisition-related intangibles and $9 million or $0.04 per share of acquisition-related expenses.

Third quarter 2016 adjusted diluted EPS excludes $6 million or $0.04 per share related to amortization of all acquisition-related intangibles and $6 million or $0.03 per share from a restructuring charge.

Turning to year-to-date performance.

Moody's revenue for the first 9 months of 2017 was $3 billion, up 14% from the prior year period.

U.S. revenue was $1.7 billion, up 10%, while non-U.

S. revenue was $1.3 billion, up 20%.

The impact of foreign currency translation was negligible.

Revenue at Moody's Investors Service of almost $2.1 billion was up 16% from the prior year period.

U.S. revenue was $1.3 billion, up 12%, while non-U.

S. revenue was $787 million, up 24%.

Revenue at Moody's Analytics was $990 million, a 10% increase over the prior year period.

U.S. revenue of $471 million was up 6%, while non-U.

S. revenue of $518 million was up 14%.

Excluding Bureau van Dijk, organic MA revenue was $959 million, up 7% from the prior year period.

Operating expenses for the first 9 months of 2017 totaled almost $1.7 billion, up 9% from the prior year period, of which Bureau van Dijk operating expenses and acquisition-related expenses constituted 3 percentage points.

Foreign currency translation favorably impacted expense by 1%.

Operating income was $1.3 billion, up 21%.

Foreign currency translation favorably impacted operating income by 1%.

Adjusted operating income of $1.5 billion was also up 21%.

Moody's operating margin was 44.3%, and adjusted operating margin was 48.4%.

The effective tax rate for the first 9 months of 2017 was 29%, down from the 31.5% in the prior year period.

The decline was primarily due to a noncash, nontaxable gain related to a strategic realignment and expansion involving Moody's Chinese affiliate, CCXI, as well as the benefit from the adoption of the new accounting standard for equity compensation.

Primarily due to the strength of the underlying business performance for the first 9 months of the year, we are raising our full year 2017 diluted EPS guidance to a range of $6.18 to $6.33.

This range includes the $0.36 per share purchase price hedge gain, the $0.31 per share CCXI gain, the $0.23 per share related to amortization of all acquisition-related intangibles and $0.11 per share of Bureau van Dijk acquisition-related expenses.

Excluding these items, we anticipate full year adjusted diluted EPS to be in the range of $5.85 to $6.

Both ranges are up approximately $0.50 from prior guidance.

I'll now turn the call over to Linda to provide further commentary on our financial results and other updates.

Thanks, Ray.

I'll begin with revenue at the company level.

As Ray mentioned, Moody's total revenue for the third quarter was a record $1.1 billion, up 16%.

U.S. revenue of $588 million was up 8%.

Non-U.

S. revenue of $475 million was up 28% and represented 45% of Moody's total revenue.

Foreign currency translation favorably impacted Moody's result -- Moody's revenue by 1%.

Recurring revenue of $535 million was up 16% and represented 50% of total revenue.

Looking now at each of our businesses, starting with Moody's Investors Service.

Total MIS revenue for the quarter was $694 million, up 13%.

U.S. revenue increased 9% to $428 million.

Non-U.

S. revenue of $267 million was up 21% and represented 38% of total MIS revenue.

Foreign currency translation favorably impacted MIS revenue by 1%.

And moving now to the lines of business for MIS.

First, corporate finance revenue for the third quarter was $350 million, up 17%.

This result reflected strong U.S. investment grade and Asian speculative grade bond issuance as well as the strong contribution for the U.S.-rated bank loan.

U.S. and non-U.

S. corporate finance revenues were each up 17%.

Second, structured finance revenue totaled $128 million, up 23%, primarily driven by strong CLO issuance and an increase in U.S. CMBS-rated transactions.

U.S. and non-U.

S. structured finance revenues were up 25% and 19%, respectively.

Third, financial institutions revenue of $102 million was up 7%.

This result was largely driven by an increase in banking issuance from infrequent issuers in EMEA.

U.S. financial institutions revenue was down 2%, while non-U.

S. revenue was up 13%.

Fourth, public, project and infrastructure finance revenue of $109 million was up 4%.

This result was primarily driven by an increased infrastructure finance activity in EMEA and Asia, offset by a decrease in U.S. public finance issuance.

U.S. public, project and infrastructure finance revenue was down 16%, while non-U.

S. revenue was up 53%.

Finally, MIS Other, which consists of non-ratings revenue from ICRA in India and Korea Investors Service, contributed $4 million to MIS revenue for the third quarter, down 41%.

The decline is attributable to the divestiture of a noncore subsidiary of ICRA in late 2016.

Turning now to Moody's Analytics.

Total revenue for MA of $369 million was up 21%.

U.S. revenue of $161 million was up 4%.

Non-U.

S. revenue of $208 million was up 38% and represented 56% of total MA revenue.

Foreign currency translation favorably impacted MA revenue by 1%.

Excluding Bureau van Dijk, total organic MA revenue for the third quarter of 2017 was $339 million, up 11% from the third quarter of 2016.

And moving now to the lines of business for MA.

First, research, data and analytics or RD&A revenue of $218 million was up 30% and represented 59% of total MA revenue.

Growth was mainly driven by the addition of Bureau van Dijk as well as strength in the credit research and data feeds businesses.

U.S. and non-U.

S. RD&A revenues were up 7% and 65%, respectively.

Excluding Bureau van Dijk, global organic RD&A revenue was $188 million, up 12% from the third quarter of 2016.

Bureau van Dijk's revenue contribution for the third quarter was reduced $14 million as a result of its deferred revenue adjustment required as part of acquisition accounting.

Second, enterprise risk solutions or ERS revenue of $113 million was up 11% from the prior year period.

U.S. ERS revenue was down 4%, while non-U.

S. revenue was up 21%.

Trailing 12-month revenue and sales for ERS increased 6% and 7%, respectively.

We continue to make progress on shifting the mix of the ERS business to emphasize higher-margin products, with trailing 12-month product sales up 17% and services sales down 18%.

Third, professional services revenue of $38 million was up 6%.

U.S. and non-U.

S. professional services revenue were up 5% and 6%, respectively.

And turning now to operating expenses.

Moody's third quarter operating expenses totaled $618 million, up 19%, of which Bureau van Dijk operating expenses and acquisition-related expenses constituted 8 percentage points.

The overall increase was primarily attributable to higher accruals for incentive compensation, Bureau van Dijk operating expenses, amortization of intangibles from the acquisition of Bureau van Dijk and acquisition-related expenses.

The impact of foreign currency translation was negligible.

As Ray mentioned, Moody's operating margin was 41.9%, down 140 basis points from 43.3% in the third quarter of 2016.

Adjusted operating margin was 46.9%, down 90 basis points from 47.8%.

Moody's effective tax rate for the quarter was 31.4%, up from 30.5% in the prior year period.

This increase is primarily due to an increase in the rate of non-U.

S. taxes and the tax on the purchase price hedge gain, partially offset by a tax benefit from the adoption of the new accounting standard for equity compensation.

And now I'll provide an update on capital allocation.

During the third quarter of 2017, Moody's repurchased approximately 200,000 shares at a total cost of $29 million or an average cost of $130.75 per share.

Moody's also issued approximately 300,000 shares as part of its employee stock-based compensation plans.

Moody's returned $73 million to its shareholders via dividend payments in the third quarter of 2017.

And on October 23, the Board of Directors declared a regularly -- regular quarterly dividend of $0.38 per share of Moody's common stock.

This dividend will be payable on December 12, 2017 to stockholders of record at the close of business on November 21, 2017.

Over the first 9 months of 2017, Moody's repurchased 1.4 million shares at a total cost of $164 million or an average cost of $116.70 per share and issued approximately 2.2 million shares as part of its employee stock-based compensation plans.

Moody's also returned $218 million to its shareholders via dividend payments during the first 9 months of 2017.

Outstanding shares as of September 30, 2017 totaled 191.1 million, approximately flat to a year ago.

As of September 30, 2017, Moody's had approximately $600 million of share repurchase authority remaining.

I'll now walk you through the financing of the Bureau van Dijk acquisition, which closed on August 10, 2017 at a purchase price of approximately EUR 3 billion or USD 3.5 billion.

Moody's issued approximately $1.8 billion of debt, including $1 billion of notes, a $500 million term loan and $300 million of commercial paper at a combined blended interest rate of approximately 2.6% pretax.

The incremental financing expense associated with these items amounted to $0.03 per share in the third quarter.

The balance of the purchase price was funded by $1.4 billion of offshore cash, approximately $300 million of U.S. cash on hand and an approximate $100 million purchase price hedge gain due to the appreciation of the euro from the acquisition announcement date to the close date.

At quarter end, Moody's had $5.7 billion of outstanding debt and approximately $700 million of additional borrowing capacity available under our revolving credit facility.

Total cash, cash equivalents and short-term investments at quarter end were $1.1 billion, with approximately 74% held outside the U.S. Cash flow from operations for the first 9 months of 2017 were $343 million, a decline of (sic) [from] $889 million in the first 9 months -- from the first 9 months of 2016.

Free cash flow for the first 9 months of 2017 was $273 million, a decline of (sic) from $804 million from the prior year period.

These declines in cash flow were due to payments the company made in the first quarter of 2017 pursuant to its 2016 settlement with the Department of Justice and various states attorneys general.

And with that, I'll turn the call back over to Ray.

Okay.

Thanks, Linda.

I'll conclude this morning's prepared comments by discussing the changes to our full year guidance for 2017.

The complete list of Moody's guidance is included in Table 12 of our third quarter 2017 earnings press release, which can be found on the Moody's Investor Relations website at ir.moodys.com.

Moody's outlook for 2017 is based on assumptions about many geopolitical conditions and macroeconomic and capital market factors, including interest rates, foreign currency exchange rates, corporate profitability and business investment spending, mergers and acquisitions, consumer borrowing and securitization and the amount of debt issued.

These assumptions are subject to uncertainty, and results for the year could differ materially from our current outlook.

Our outlook assumes foreign currency translation at end of quarter exchange rates.

Specifically, our forecast reflects exchange rates for the British pound of $1.34 to GBP 1 and for the euro of $1.18 to EUR 1. Moody's full year 2017 guidance incorporates Bureau van Dijk's results starting from the acquisition close date of August 10, 2017.

Bureau van Dijk's revenue contribution for full year 2017 will be reduced by an estimated $39 million, $14 million in the third quarter and an estimated $25 million in the fourth quarter as a result of a deferred revenue adjustment required as part of the acquisition accounting.

Moody's now expects full year 2017 diluted EPS to be $6.18 to $6.33, including the purchase price hedge gain, CCXI gain, amortization of all acquisition-related intangibles and acquisition-related expenses.

Excluding these items, full year 2017 adjusted diluted EPS is now expected to be $5.85 to $6.

Both ranges include an estimated $0.20 per share tax benefit related to the adoption of the new accounting standard for equity compensation.

Moody's now expects revenue to increase in the low teens percent range.

Operating expenses are now expected to decrease in the 20% to 25% range.

Excluding the 2016 settlement and restructuring charges and acquisition-related expenses, adjusted operating expenses are now expected to increase in the low double digit percent range.

Depreciation and amortization expense is now expected to be approximately $160 million.

Free cash flow is now expected to be approximately $600 million.

For MIS, Moody's now expects 2017 revenue to increase in the low teens percent range.

U.S. revenue is now expected to increase in the low double digit percent range.

And non-U.

S. revenue is now expected to increase in the high teens percent range.

Corporate finance revenue is now expected to increase in the low 20s percent range.

Structured finance revenue is now expected to increase approximately 10%.

Financial institutions revenue is now expected to increase in the low double digit percent range.

Public, project and infrastructure finance revenue is now expected to be approximately flat.

For MA, Moody's now expects 2017 revenue to increase in the low teens percent range.

Non-U.

S. revenue is now expected to increase in the low 20s percent range.

Excluding Bureau van Dijk, MA revenue is still expected to increase in the high single digit percent range.

RD&A revenue is now expected to increase in the low 20s percent range.

Excluding Bureau van Dijk, RD&A revenue is still expected to increase in the low double digit percent range.

This concludes our prepared remarks.

And joining Linda and me for the question-and-answer session are Mark Almeida, President of Moody's Analytics; and Rob Fauber, President of Moody's Investors Service.

We'll be pleased to take any questions you may have.

(Operator Instructions) And we'll go first to Toni Kaplan at Morgan Stanley.

With regard to the latest tax reform proposal, how are you thinking about the change in issuance if interest deductibility is capped at 30% of EBITDA?

I'll offer some initial comments and then my colleagues may wish to add their thoughts as well.

I don't anticipate this is going to make a big difference in issuance levels.

Certainly, with the 30% interest deductibility cap, there will be some impact on more speculative-grade companies that may reach that cap, but I don't believe it's going to fundamentally change the capital structure or thinking about debt issuance and leverage at these firms.

I would also point out that the benefit we would get from moving to a 20% tax rate would be much more substantial than what I would anticipate being any decrease in revenue from reduced debt issuance.

So I think it's a positive and we'll see whether the current form of this bill goes through.

And obviously, pay close attention to any changes that happen along the way.

I'd also note that I look favorably at the 5-year carryforward that's been proposed as part of this in terms of mitigating any changes in the attractiveness of debt issuance.

Toni, it's Linda.

And others may comment after me.

I think we do want to make sure that everyone continues to understand.

The 20% proposed corporate tax rate would be dramatically beneficial for Moody's if, in fact, that rate did come to pass.

To think about the math, everyone should look at a 1% decrease in our estimated tax rate would be $0.07 to $0.08 in EPS.

So please use whatever rate you would like to, but in any case, that would be quite a wind at our back because we are a pretty full taxpayer.

Great.

Okay.

And just wanted to ask, you had a great quarter in ratings, but it looked like the incremental margins on MIS were a little bit lower than prior quarters.

And I think in the release you mentioned an increase in incentive comp accruals as one of the drivers.

Are there other drivers to call out?

And could you give us the incentive comp expense for the quarter?

Yes.

Toni, it's Linda.

As you see, we have increased guidance pretty significantly at this point in the year.

That requires that we have a catch-up in terms of our percentage of completion of our performance on that new target.

For the corporation as a whole, we've adjusted incentive compensation.

We had to add $35.6 million to that amount.

That includes incentive compensation.

And then in salaries and benefits, we've also had to add approximately $22 million.

This will include about $5 million we're thinking of global profit sharing for the firm.

And I'll let Rob talk to the question on the MIS margin.

Yes.

That's right, Linda.

The growth in MIS expenses, as Linda said, primarily due to the higher incentive comp accruals.

If you look at our year-to-date adjusted operating margin versus prior year, you'll see about 300 basis points of margin expansion.

And taking account of the catch-up accrual for incentive comp that Linda talked about and last year's restructuring charge that you can see, our adjusted operating margin is largely consistent -- for the third quarter is largely consistent with that year-to-date figure.

We'll go next to Alex Kramm at UBS.

Just maybe just to come back on the tax side again.

We know that it's obviously early days and we'll see what changes.

But like when you mentioned, Ray, on the spec-grade side there could be some impact, do you have some more like numbers you can share with us?

Like when you look at your rated debt today, how many of those companies will be hitting those thresholds?

And then secondarily on the tax, is there -- are there other things that you didn't mention to the earlier question that you should be thinking about?

For example, yesterday, private equity companies got hit pretty hard in the market because there are some worries there.

I mean, obviously, those are big users of debt as they take companies private, et cetera.

Is that something we should be thinking about as well?

Well, just to -- in terms of the overall outlook, as we're looking at the end of this year and going into next year, we obviously have some movements or anticipated movements in official rates, but the spreads remain tight.

And in fact, the default rate forecast is for the default rate to be declining over the next 12 months, which should further encourage tight spreads.

So there's -- there are some good news items around the debt issuance profile even as we look at a potentially rising rate environment and as we look at coming off very fulsome years for debt issuance, both in the bond and loan sectors.

So I'm not anticipating that either the tax reform or other conditions in the market are going to be generating a strong directional change in 2018 issuance.

So I don't have anything else I can add on the tax reform proposal itself, but that would be a more general outlook.

And Alex, just to give you some view -- our view on the high yield default rates, the 1-year forecast as of the end of September.

Globally, high yield default rate of 1.9%; U.S., 2.3%; and the Euro view, 1.3%.

So again, pretty benign outlook there on high yield default rates.

Okay.

Good.

And then just secondly on BvD.

You put out that 8-K last week.

Lots of confusion with some of these numbers.

And I think some people wondered if there's some seasonality in that business.

So maybe can you just talk about how that business is tracking now that you own it?

How we should be thinking about maybe not just the fourth quarter, but also how the year next year progresses?

Is there steady increasing business or is there seasonality?

And then a very quick one.

On the amortization add back, what's the amortization add back in EPS points for the fourth quarter because I can't really make sense of the $0.23 for the full year.

Okay.

So the way we're going to deal with this, Alex, is Mark is going to speak first about the view of the growth -- the view on the growth outlook for the business and how we're doing.

And I'm going to take care of some housekeeping on the exciting topic of deferred revenue haircut and conversion from Dutch IFRS to U.S. GAAP.

But before that, Mark has the good part.

So Mark, go ahead.

Alex, the BvD business is performing very, very well, very much in line with our expectations, as Ray said.

If you -- I think probably the most informative thing you might do is look at the amount of revenue we recognized for that business in the third quarter, bearing in mind we only had 7 weeks of the business and add back in the deferred revenue adjustment.

And then if you annualize that number, you get a very nice number that, I think, will compare very favorably to what we showed in that 8-K filing.

So I think you'll -- if you do that math, you'll see some very nice acceleration in revenue growth.

And that's what we're seeing.

And we're already very engaged with the business and working on a number of new sales opportunities, new product development opportunities.

So everything's going very, very well from an operational standpoint, and we remain very enthusiastic about the business.

One specific I would just add is that I don't think we see a lot of seasonality in the business.

There's some, but not a lot of seasonality there to answer the specific question you were asking.

Sorry, Linda.

Okay.

So accounting class begins now.

Deferred revenue haircut, so the first part of this is, this was fully expected and the adjustment is required by acquisition accounting.

It gets amortized as a revenue reduction over the remaining period of the customer contracts that were inherited as of the acquisition date.

This is going to affect us in '17 and to some extent into '18.

So what we need to do is fair value all the assets and the liabilities acquired.

And the fair value of the deferred revenue is the cost to fulfill those contracts plus a reasonable profit margin.

So the total estimated impact, the total deferred revenue haircut is expected to be about $52 million.

And as a result, BvD's revenue contribution will be reduced by about $39 million for this year and an estimated $13 million which will continue through August of next year for fiscal year 2018.

The quarterly impact is $14 million in Q3 and $25 million in Q4.

The cent impact for PP&A, Alex, is $0.04.

Excellent.

Thanks for the accounting.

Sorry, sorry, go on.

Okay.

So part 2, transitioning from Dutch IFRS to U.S. GAAP, we had to do a couple of things.

These have no impact on the economic value of the business nor how it's doing.

We had to capitalize software and income taxes.

And that requires a higher hurdle under U.S. GAAP.

And income taxes, we had to put up a small reserve for uncertain tax positions, and that is not required under IFRS.

So those 2 things, small accounting changes, but that's it.

Anything else we can do for you?

No, I think I got plenty.

We'll go next to Manav Patnaik at Barclays.

Linda, maybe just to continue that.

The margin profile on BvD, I mean, in the past you -- in the presentation, you talked about that being north of 50% on the IFRS standards.

So can you maybe just give us a little accounting on how that gets impacted for year 1. And I'm guessing there's just a -- I guess what I'm assuming is there's a natural step down from the 51% because of that expense change.

And then there's probably another step down for year 1 because of the deferred revenue change.

So maybe just some color there.

Sure.

So what's happening is the EBITDA margin under U.S. GAAP is 44%.

Previously, we had spoken about approximately 51%.

Those are accounting adjustments.

They don't reflect any change in the underlying operating performance of the business.

And Mark may want to speak some more about that.

I'd only say that what Linda said is correct.

The -- there are some accounting phenomena that we're reporting here, but the economics of the business are very much in line with what we expected and what we talked about when we announced the acquisition.

Got it.

And then, Ray, you talked about obviously 2018 not having much of an impact from the current proposed tax reform.

I was just curious if you had a longer-term view.

I guess a lot of the stuff that we are reading from our credit analysts in-house and the papers and so forth is that reduction in the tax rate, some of the deductibility, et cetera, et cetera, will lower leverage.

And so probably over a decade cause debt reduction.

Just do you agree with that or is there something else to that from your point of view?

Well, I mean, the interest deductibility cap, first of all, should have essentially no impact on the investment-grade sector and should not have a significant impact for the higher-rated portion of the speculative-grade sector.

So it's really when you get more deeply into speculative grade that those caps may make a difference.

And that's a part of the market that tends to be quite cyclical anyway.

I would also -- I would say that a strong economic environment where firms are investing back in their businesses or identifying opportunities for growth is a positive environment, not only for those firms, but for the ratings side of our business as well.

So if we have an environment in which firms are on their front foot in terms of thinking about growth and investment, mergers and acquisitions, et cetera, I think that's going to be a benign to positive environment for the ratings part of our business.

Manav, it's Linda.

I wanted to just go back to your earlier part of the question on BvD and its performance.

Further wanted to add, we had talked about $45 million in synergies for -- by 2019, $80 million in synergies by 2021.

We view that we are on track with those synergies.

And Mark may want to speak a little bit more about some of the things that we're working on, on that front.

Yes, we're making very good progress on both the expense and revenue synergies.

We're already very engaged from a sales perspective.

We've won business together with customers in multiple parts of the world.

We've displaced a competitor recently with a joint selling effort in the Middle East.

BvD closed its largest-ever sale in the United States last month.

And we've got new product development activities going on jointly.

So we feel good about what's happening from a revenue and a sales perspective.

On the expense side, we're making good progress on realizing expense synergies.

We're consolidating office locations.

We're already co-located in New York, San Francisco and Hong Kong.

And we're moving forward with other offices as well.

So I think both on the revenue and the expense side, we're very much on track to deliver on the synergies that we talked about.

And I would add.

I'm very pleased with Mark and his team, we're coming in a little bit lighter on the acquisition and integration -- on the integration cost than we had expected.

And in order that everyone can model this appropriately, I want to make it very clear.

In terms of the entirety of the Bureau van Dijk acquisition, purchase price amortization associated with the entire deal will be $1.3 billion.

Annual amortization expense is $70 million per year.

And total annual amortization expense is $95 million from all of our legacy acquisitions.

And in a minute, if someone's interested, I'll walk through the guidance change and the different components of that.

I expect we'll get to another question on that.

So with that, Manav, anything further or would like to move on to another question?

No.

I'll wait for someone to ask the question you want them to ask and take it down.

We'll go next to Anj Singh at Crédit Suisse.

Can you give us a sense of which pieces of your guidance are benefiting or taking a hit from FX moves versus last quarter?

Just trying to see how the expectations for the underlying strength may have changed on a constant-currency basis.

Sure.

So we have a special bonus slide here in terms of looking at what is going on with our guidance.

And let me step through this.

So that slide should be up right now if you're looking at the webcast.

So we had started with full year '17 adjusted diluted earnings per share guidance of a range of $5.35 to $5.50.

We have noted that we have now -- we have the addition of the legacy amortization of acquisition-related intangibles.

And that is $0.12 for the change in guidance for this year or it accounts for about 25% of the $0.50 step-up in terms of our guidance.

The legacy MCO business weighted pretty heavily toward the MIS business has given us about $0.28 of the guidance increase.

Again, that's about 55% of this amount.

So you should very much expect that, that part of the business has driven the majority of this increase in guidance.

And then lastly, Bureau van Dijk's performance adds about $0.10 in terms of what we're looking for on the addition to guidance for this year or about 20% of that step-up.

Altogether, if you add those, you get about $0.50.

The new range is $5.85 to $6.

And we've got a couple of footnotes here in terms of things that have been included.

And I think we got about $0.04 of FX impact in here.

And the accounting team is nodding, so that's good.

So it has a minimal effect in terms of the $0.50 increase.

So less certainly than 10% in this increase is attributable to FX.

Okay.

Got it.

That's helpful.

And then for the second question, on RD&A, looking at your guidance seems to imply some continued acceleration on an organic basis for 4Q.

And I know last quarter, you folks had been a bit measured on the characterization of the improvement that was happening in that business last quarter.

So any updated thoughts on the go-forward outlook?

Any color you can share there?

I would just say that you're right, we've had acceleration in RD&A in the third quarter.

And if you look at where our guidance was for RD&A before the Bureau van Dijk acquisition, that would imply that we'd have continued acceleration into the fourth quarter.

So that remains our view and the business is performing well.

We're pleased by what's happening there.

And we expect to carry on and deliver good results there.

We'll go next to Tim McHugh at William Blair.

Just want to ask about the international part of the credit rating business.

It's been very strong, I guess, all year.

But you've been asked this throughout the year, but just revisiting.

How much do you put on secular, just kind of structural growth in that piece versus, I guess, just favorable conditions or as well as, I guess, currency helping you there?

Rob, you want to take that?

Good question.

I'll just talk a little bit also about kind of the components of this very strong non-U.

S. growth story because I think it's a mix of some of the factors that you cited.

Specifically, this quarter, we had much stronger revenue growth outside the U.S. We had real strength in Asian corporate and infrastructure.

Obviously, the Asian corporate story, importantly, part of that is China.

We think that is a long-term trend.

That the surge you're seeing in infrastructure issuance also is something that I think would be a longer term, secular trend.

Europe, we saw real strength across the board, across all of our fundamental franchise.

And we're seeing reduced geopolitical risk there and steady economic recovery.

So again, I think that will contribute to, I think, very constructive market conditions overall.

Tim, if you want, it's Linda.

I'll step through the market view that we get from the investment banks just so everybody can think about this a little bit.

Again, these are from some of the major investment and commercial banks that we talk to and that this might not align with Moody's revenue characterizations.

But for investment-grade bonds so far this year, we've seen $1.1 trillion in issuance.

That's year-to-date.

And the view for the year is flat to up 5%.

You'll recall, when we started last year, the view for this year was supposed to be flat to down 10%.

So I would strongly urge that everybody think about that these early estimates for the coming years are often directionally pretty far off from where we end up.

Commenting on what banks are seeing now, investment grade bond issuance remains on pace.

October issuance of $120 billion was the largest October on record.

November is expected to be greater than $75 billion.

Spreads remain near 3-year tights.

And the current state of the market is robust.

For high-yield bonds, $250 billion of issuance this year, up 10% to 15% for the full year expected.

High yield bond issuance remains substantially above last year's levels.

Similar to investment-grade market, high-yield spreads are near 3-year tights, low volatility in the face of everything going on geopolitically.

That's contributed to an issuer-friendly environment.

And we talked about the relatively reasonable, maybe even benign default outlook for high yield for the coming year.

Leveraged loans, this is the star of the show, $550 billion so far this year, up 40% is expected for the full year '17.

Leveraged loan market conditions are very strong with a benign outlook on the prospect for rising rates.

Heavy refinancing and repricing activity as issuers capitalize on strong investor demand.

And CLO issuance is at $90 billion, which is up 80% year-to-date.

Headed over to Europe, same view again, this is coming from the banks.

Investment grade, we've seen a busy period of investment grade bond issuance.

We expect -- they expect that for the remainder of the year as spreads and rates remain near historic lows.

There are positive investor fund flows.

The European Central Bank has talked about a lengthy period for QE.

And Eurozone GDP growth is running at the fastest pace in 7 years.

And that will also continue to support the market despite the fact that inflation has been quite quiet.

Bank of England raised rates yesterday for the first time in a decade, but indicated that another rate increase isn't imminent due to concerns around the potential impact of Brexit.

And on speculative grade in Europe, general market sentiment remains very positive with a strong pipeline across both high-yield bonds and leveraged loans.

Credit spreads continue to compress, and that's offering issuers record-low rates.

I would also note that U.S. rates are a good deal above European and other rates, which may serve to keep a bit of a ceiling on U.S. rates.

We also note a new nominee as the Fed head.

And we're well aware that the forward curves right now are showing us that the probability of a December '17 rate hike is at about 88%.

So we'll see where that goes.

And again, the view is particularly on the spread front at very attractive levels.

Don't know if Rob wants to say any more about that, but I think that pretty much caps what the banks are seeing in terms of issuance.

Yes.

The only other thing I would add, Linda, is obviously a recent announcement by the ECB with the planned reduction of their asset purchases.

And I think our view is, it's a pretty gradual step towards eventually normalized monetary conditions.

And we expect that the impact on market financing conditions will be moderate at most.

And as Linda said, they've also signaled they intend to kind of hold on rates beyond the monetary stimulus program.

So that will continue to support some attractive issuance conditions, combined with economic growth in many parts of Europe.

Okay.

And just one follow-up on BvD.

Linda, you gave some helpful kind of bridge in terms of the, I guess, the profit margin versus what we might have thought before for that business.

What about -- and versus that 8-K, not to nitpick, but it was like $70 million per quarter or kind of $140 million of revenue.

And then I think Mark's kind of approach, he encouraged us to use, would imply more than $80 million on a run rate.

Is there something different versus that statement, I guess, or that 8-K that we looked at versus what you'll now see?

Can you bridge that at all for us?

Sure.

I'll let Mark talk about that.

Yes.

Tim, it's Mark.

I think the difference is we're just -- we're seeing acceleration in the sales performance of the business, which is flowing through to revenue over time.

So I think that's basically what's going on.

The second half of last year was a little light from a sales perspective, and that flowed into first half revenue in '17.

But as I said, we're seeing acceleration, significant acceleration, and that's what I think explains the difference between what you saw in the 8-K and what we're talking about today.

We'll go next to Joseph Foresi at Cantor Fitzgerald.

Another BvD question for you.

You talked about the business performing well and maybe even a couple of takeaways.

Can you just maybe dive in a little bit deeper into those takeaways?

What's causing them?

Why would someone switch away from their other vendor?

And do you expect more of those to come?

Yes, what I was referring to was, we've had a couple of situations already where we've gone to customers with a joint product offering.

So a BvD product together with a Moody's Analytics product just offering a more complete, a more comprehensive solution to customers' information needs.

And I mean, frankly, that was part of the -- one of the important premises of the acquisition was that we thought there were opportunities for us to do that.

And so we're seeing that.

So by joining our product offerings together, we're finding that we're able to meet a broader set of needs for a broader set of customers.

And as a result, we're able to displace some competitors.

So we've had a couple of examples of that already.

And it's still early days.

We think there's a lot more opportunity there, of course.

Got it.

And Joe, let me explain just one other thing.

The 8-K that a couple of people have mentioned.

That 8-K is a bit of an unusual formatting of looking at numbers.

And it is by regulation required to be BvD management's projection from their audited 2016 financial statements, which you'll recall are in a different -- they're in Dutch IFRS, we're in U.S. GAAP.

And our growth expectations, you will recall, we have revenue synergies as well that we are looking at.

So when you add those synergies in, you can get to the bridge between the 2. And as we said before, we still expect those synergies to come along as Mark had said.

So just want to make sure that, that is well understood.

Got it.

My second question is just on 2018.

It sounds like you're fairly comfortable with the impact of what the tax reform would be on issuance.

It sounds like you got an added kicker in the Analytics business with BvD.

So I guess I'm wondering what areas or what do you think are the great unknowns as you head into next year, particularly on the margin side, but a little bit on the demand front as well, what are you concerned about?

So I was going to say, Rob, why don't you tackle what you're seeing on the ratings side and then Linda can jump in.

Yes, and I'll provide a balanced answer here with some of the support as well as some of the risks.

So we plan to provide a view on 2018 on our 4Q earnings call, as we always do.

And that allows us to account for issuance through the end of the year and other factors like Wall Street estimates and updated macro assumptions.

But that said, we certainly see some themes that will shape our outlook.

And Ray has touched on a few of these, but we see support for issuance growth coming from a number of factors.

That includes economic growth, continued M&A volumes, modest geopolitical risks, improving commodity prices and a low and actually declining, as Ray and Linda had pointed to, declining default environment.

And we continue to enjoy some very constructive market conditions.

Linda touched on that.

And we think that should carry over into next year.

The question marks for us as we look into next year, Asia's ability to grow off of a very robust issuance growth in 2017, further growth in the U.S. investment-grade sector off of some very robust recent levels, the potential deceleration of refi activity in -- that we've seen in 2017, particularly in the bank loan space, and whether we will see an improvement in U.S. public finance refunding activity, which has been down pretty sharply throughout this year.

The last thing I would point to is just the potential increase in volatility poses a risk.

If you think about this past year, we really didn't see any kind of shutdowns, market shutdowns where the market was closed for 1 or 2 weeks.

And so if we were to see that, that would obviously provide some downside.

Sure.

And Joe we're not going to be brave enough to forecast an estimated tax rate for next year yet.

We're working with about 30% for this year.

And again, if we do see any reduction in the tax rate, again, $0.07 to $0.08 for each percentage that the tax rate -- corporate tax rate might come down.

That would be a benefit to us if that does, in fact, happen.

We would note that we continue to have the ability to price.

And we do insist on value for our issuers in terms of price, but the 3% to 4% view continues.

And we would also note that growth and interest rate increases are not necessarily a bad condition for Moody's.

We've often shown that in 2008 and '09 and 2012 to '13, when interest rates went up more than 100 basis points during those year-long periods, MIS' revenue, in fact, increased.

And if we do see some growth in the economy, we may see some increase in issuance for capital expenditures, which has really been lacking as a use of proceeds.

In recent years, we've been working mostly on refinancing and also payments to shareholders as well as M&A activity.

So we would love to see a broadening in use of proceeds.

And again, as rates move up, as has been speculated about, that is not necessarily a negative condition for Moody's if it is brought about by strong or good growth in the economy.

And Ray may have some other thoughts on that.

I think that's pretty comprehensive.

So why don't we see what other questions we've got.

We'll go next to Craig Huber at Huber Research Partners.

A couple of questions.

How would you characterize the M&A environment here in the U.S. and Europe today versus a year ago?

It's been pretty good.

We obviously had a period of very heavy M&A volume in really in last couple of years.

I would anticipate the M&A environment to remain positive as companies are enjoying economic growth and thinking about investment and building out their businesses.

So I think we should be looking at a good environment for M&A on a going-forward basis.

The only other thing I'd add to that, Ray, obviously, we've got a robust equity market, which I think will be healthy for M&A.

And M&A has become an increasingly important driver of some of the recent bank loan activity that we've been seeing as we've been seeing the modest deceleration in some of that refi activity.

And some of that may convert over to bond activity.

That's right.

And also wanted to ask, I mean, obviously, every year there's some degree of pull forward for refinancings and stuff.

How would you characterize that for your book of business this year?

I mean, how much do you feel that's been borrowed from future years?

How much more so than usual?

Well, in terms of pull forward from 2018, I think that has been very strong.

So a lot of maturing debt for 2018 has been part of the 2017 story.

What we're looking at though is, again, a substantial build of the refinancing walls each year.

So the fact that 2018 now doesn't have much refinancing in its profile, we look to 2019, 2020 and the walls build every year from '18 out.

So it really becomes, I think, more of a question of, will firms seek opportunistically to pull forward from multiyear refinancing walls.

And that is what we've been seeing to date, I think, but we'll have to keep an eye on whether that's going to continue to characterize the refinancing profile going forward.

Just a quick housekeeping question, if I may.

Linda, the incentive compensation for the first 3 quarters this year, what was it each quarter?

And how's this -- you said $20 million profit sharing.

Is that included in the number you're going to give us?

Or how does it break into the whole year?

Profit sharing goes in the salary line.

So for the year, if you're looking at profit sharing, the numbers that we put up sequentially for first quarter, we went $52 million, second quarter $51 million.

And then the number pops up to $78.4 million for the third quarter.

And we're thinking for the fourth quarter, if we had to eyeball this, Craig, the team is thinking $60-ish million, depending on whether we have another very strong quarter in the fourth quarter that would take us beyond the guidance we've just given you.

Could be higher, but $60-ish million given what we're seeing right now.

So I hope that's helpful to you.

Is the $20 million in those numbers, Linda?

The 20, 20...

The profit sharing was $5 million, $5 million not $20 million.

Yes.

And again, that's in the salary and ben line.

So we do have that in already, yes.

We'll go next to Jeff Silber at BMO Capital Markets.

I've got a couple of numbers questions.

Linda, I know you're dying to talk about the amortization, but I'm not going to go there unless you'd really want to.

Just in terms of the calculation of the adjusted diluted EPS, is it possible to give it what it was historically for 4Q '16 and for 2016 just so we know what the base we're looking at?

I think we don't really want to go into historical pro forma here, Jeff, if that's okay.

Yes.

I think it would -- I don't have the number in front of me, but I think you would just be looking at what the legacy purchase price amortization would be as an add-on to the existing adjusted numbers.

But I don't have that number in front of me.

Let me ask the question another way.

If I'm looking at growth in adjusted diluted EPS for the fourth quarter, how do you think that will compare to the year-over-year growth we just saw in the third quarter?

I'm not sure we'd want to give guidance on the fourth quarter specifically, Jeff.

I think we're viewing that we will probably be up from last year's fourth quarter for the rating agency, but potentially sequentially down from this year.

I think Rob may have some more color he wants to give you on that.

Mark may want to give some color on MA, but I'm not sure we want to get all the way into quarterly guidance for the fourth quarter.

Rob is that about directionally correct?

Yes, that's exactly right, Linda.

Okay.

Great.

I won't ask a fourth quarter question, how about a 2017 question.

What should we be modeling for interest expense for the year?

Sure.

I can get that for you in just a second.

And anticipating the expense ramp question, we would expect that excluding BvD, the first quarter to the fourth quarter expense ramp would be $55 million to $65 million.

We had, had a lower number obviously when we talked with you before.

If you include BvD, the expense ramp is $120 million to $130 million.

Both of those numbers are up from $40 million to $50 million previously.

We have the addition up BvD.

We have the incentive compensation and so on and just want to make sure everybody can model that correctly.

And did you want the full 2017 financing cost or do you want the quarter?

I'll take whatever you want to give us.

Okay.

So year-to-date, the financing cost, the expense on the borrowing, we're running about $140 million.

And for the quarter, we have the schedule in the earnings release if you want to take a look at it, it's about $49 million.

Next we'll hear from Conor Fitzgerald at Goldman Sachs.

Just want to talk about the longer-term trajectory of margins in Moody's Analytics and where you think that could track over the next couple of years now that you've closed BvD?

Sure.

Mark, do you want to get that?

Sure.

I think you really have to decompose that into 2 pieces.

We have to think about the trajectory of margin for the legacy business and then think about what the impact of BvD is.

We've talked about work that we are doing to drive margin expansion in the legacy business principally by expanding the profitability in the ERS segment.

We are continuing to make progress on that.

We delivered good results in the quarter.

The margin expansion you saw in the quarter, about half of that was due to BvD and the other half was organic.

And that's true if you look at the 9-month margin expansion in MA as well.

So we've got a plan.

We're executing on the plan.

And we're continuing to see the kinds of results there that we expected.

And we'll continue to pursue those efforts over the coming quarters and years.

Then separately, you've got the Bureau van Dijk effect.

That's a high-margin business.

It's going to be accretive to the MA margin.

And so we expect that, that's going to be a boost to profitability in Moody's Analytics.

So we've got 2 things going on, both of them, I think, are moving us in a very positive direction.

And we'll continue to pursue our efforts on both sides.

Got it.

And then appreciate your comments around that you don't think the 30% cap on interest deductibility will have much of an impact.

Can you give us a sense around how sensitive you think the market is if that cap declined to, say, 25%?

Well, obviously, you're starting to work your way up into higher speculative-grade issuers if you're a 25% or 20%.

But -- so I can't quantify that for you.

But yes, you're obviously going to be moving up toward the investment-grade market as hypothetical caps come down.

And Conor, we would point that Germany and I believe the U.K. is working on the 30% EBITDA cap.

So that is somewhat of a view that is looked upon in other countries, maybe where that perspective number has come from.

We'll go next to Bill Warmington at Wells Fargo.

First of all, welcome to Steve Maire.

I think that Salli got the better side of that job trade.

So a couple of questions on BvD, if I may.

The first is, you've mentioned the revenue deceleration and the growth deceleration in 2016 and '17 and then the reacceleration in '17.

And I wanted to ask if you had changed anything in the sales force structure or organization that was helping to drive that?

The short answer, Bill, is no.

The -- what we're talking about here, these were things that really predated our involvement in Bureau van Dijk.

They had discontinued a product and began to build a new product to replace it, which we are actually working with them on and helping bring a better product to the market.

The effect of that has been -- was elevated attrition in the legacy product, which, having worked through that, we're now seeing the business begin to accelerate.

So really, if what we're observing here didn't really have anything to do with our acquisition of the company.

It was a historical thing that we were aware of and prepared for as we got involved with the company.

You mentioned some early revenue synergies that you're seeing taking place.

I wanted to ask about Orbis Bank Focus.

I mean, that's one that I've heard talked about as potentially being a viable alternative to S&P Global's SNL.

Yes, that's right.

That's -- again, that's a product that we are working together with Bureau van Dijk on.

We've got a lot of experience in that area working with the rating agency in providing very extensive statistical coverage for rated banks.

And we know from talking to our customers that there's demand for alternative products that would cover a much larger universe of banks.

Bureau van Dijk had started to build out a product for that market.

We're now working together with them to build out what we think will be a better product.

And we'll be coming to market with that product shortly.

So that is an important product development synergy for us.

We'll go next to Vincent Hung at Autonomous.

Maybe I missed this.

Can you talk about the source of the strength in professional services this quarter?

Yes, Mark?

Mark will speak to professional services, Vincent.

Yes.

You're right.

We had -- we were up in professional services this quarter for the first time in a while frankly and it was attributable to strength in both of our professional services business.

Both our financial training and certification business did well and was up in the quarter as was the Moody's Analytics Knowledge Services business, our India outsourced research and analytics unit.

So both of those businesses had, had a string of difficult quarters, but we have made some very good progress.

We think we've turned things around in both of those areas.

And we are hopeful that the third quarter results are something that we're going to be able to continue over the coming quarters as well.

And you announced a couple of investments in the last couple of weeks in CompStak and SecurityScorecard.

Can you just talk about these and also should we be expecting a lot more of these smaller strategic investments?

I'll let Rob talk about our interest in a couple of these areas, and Mark as well.

But as a broad comment, we are looking at both adjacent kinds of assessment businesses and adjacent asset classes.

So those will be 2 ways I might think of categorizing where we would invest and where we have interest.

And I'll turn this over to my colleagues, more specifically on these couple of investments.

Yes, right.

And in the example of SecurityScorecard, we saw that as an opportunity to gain some exposure to a growing and very relevant space of cybersecurity and cyber ratings where ultimately we think we may be able to partner to add value to both their business and ours.

Yes.

And with CompStak, that's a company that we think is doing some very creative work with advanced technologies to solve a long-standing information transparency problem in the commercial real estate market.

And as we've been quite involved and quite interested in commercial real estate from a couple of different perspectives for some time, we are very enthusiastic about using their data to expand our product offering for that market.

So the CompStak opportunity is an exciting and an interesting one for us.

As far as the likelihood of our doing more of these, I mean, I think these are situations that we generally look at opportunistically.

When there is an opportunity to get involved with a company that's doing interesting work in a market that is attractive to us, we'll pursue that.

But -- and I'm not sure I would characterize this as a fundamental change in strategy, it's just something that we want to be thoughtful and creative about.

We'll go next to Peter Appert at Piper Jaffray.

So on the MIS margin's performance has been pretty impressive here in '17 obviously.

And I'm wondering about your confidence in the sustainability of the margin leverage in the context of what could be slower revenue growth in '18.

Peter, it's Linda.

I'm going to let Rob get warmed up here.

But I probably have to get out some of these bragging points that we have just to make sure that everybody understands what's happening in MIS.

I'm going to ask Rob to touch on the fact that we've had 6% recurring revenue growth in MIS and Rob can talk about that.

So that's something that we're happy with.

Secondly, he's been shy so far to talk about the new mandates we've seen in the third quarter of '17.

He's got 264 new mandates, up 18% from the third quarter of last year.

That's a 40% increase in the year-to-date period.

And he's got expectation for more than 900 new mandates for the full year of '17.

So with that preamble, I'll let Rob pick it up from here.

Yes, that's right.

And maybe one other interesting point around first-time mandates, and this maybe goes back to Tim's question around the outlook for Asia over the longer term.

But first-time mandates out of Asia through the year-to-date period are now within 20% of what we've seen in the United States.

So a very strong story around disintermediation and new issuers coming to the market.

Look, on expenses, I think, generally, the margin profile, I think, is sustainable.

On one hand, we have to continue to make investments in the business.

Obviously, we've had a lot of issuance volume.

It helps when that issuance volume is in the form of refinancing activity, but we're constantly looking at ways that we can continue to drive efficiency across MIS as well so.

And I would just add.

We've talked about this before.

But while the new rating mandates do not generally drive the highest margin component of the ratings business, they are a very high quality source of revenue because it establishes new relationships and translates over time into monitoring fees and additional ratings.

So that's really, I think, the best quality revenue that we get is those new rating relationships.

Got it.

And then, Linda, can you just remind me in terms of the plan around repurchase?

I know you dialed it back obviously because of the incremental debt load, but when does it get dialed back up?

Sure, Peter.

We've said for '17 and we also expect for '18 to have share repurchase be about $200 million.

And we're on pace for that for '17.

We've made commitments that we're going to delever back to a more normalized level reflecting our BBB+ rating.

And we're on path to do that as well.

So we'll hope to get to around -- and this is an approximate number, $200 million this year, Peter.

And we're right now thinking about $200 million for next year to honor our commitments on deleveraging.

We'll move next to Patrick O'Shaughnessy at Raymond James.

So credit spreads and credit market volatility are basically at record lows around the globe.

Does your research team chalk most of this up to those low default rates that you talked about earlier?

Or are there other factors at play like central bank bond buying and some of that bond buying might wind down in the future, maybe we see spreads and volatility tick back up?

I think you're exactly right.

There is no one factor that is driving the narrow credit spreads that we're seeing.

I do think the low default rate environment and low default rate expectation going forward is a central component.

But in terms of looking at supply/demand, what has been happening with central banks and government involvement in the markets, you would have to also consider that as a factor.

All right.

Fair enough.

And then for a follow-up, President Trump's nominee for the next Fed chairperson has been a pretty vocal champion of GSE reform in the past.

To what extent would his confirmation change your view on the likelihood of GSE reform and maybe potential upside in RMBS?

I've been -- this is not a corporate view, it's a personal view.

I've been pessimistic about the likelihood of substantial reform of the GSEs.

I may be surprised with the new Fed chair, but at the moment I'm going to maintain my existing opinion.

I have no additional questions at this time.

Mr. McDaniel, I'll turn the program back over to you sir.

Okay.

Let me turn just a Linda for a second.

Yes.

Sure.

I wanted to for all you accounting fans out there, make sure that everyone knows that they should take a look at our purchase price amortization table in the 10-Q, which will be released shortly.

And also, we have received a question regarding the new rule standard 606 that refers to a housekeeping matter I wanted to touch on.

We note that we may have an accounting -- some balance sheet adjustments in the first quarter of '18.

You will see an estimate as to what we think about that in the 10-Q that we're about to release.

We don't think that, that will have a material impact on '18, but we have to continue to do our work.

We do see that standard 606 may introduce a bit of quarterly volatility, but over the full year should not be material.

And again, you'll see that some companies, including us, will have some estimate ranges in this quarter's Q. You should take a look at that.

And as you have further questions, we'll have more to say about that as we go into the first quarter of next year.

But just wanted to call that out for everyone who is thinking about that revenue recognition standard 606.

And with that, I'll turn it back over to Ray.

Yes.

Thanks, Linda.

Just before we end the call, I want to remind everyone that we'll be hosting our next Investor Day on February 28, 2018, here in New York.

The event will be webcast live, and we'll have presentations from management and be showcasing the important aspects of the company's business.

So thank you very much, everyone, for joining the call today, and we look forward to speaking with you again in the new year.

And ladies and gentlemen, once again, this does conclude today's Moody's Third Quarter 2017 Earnings Call.

As a reminder, immediately following this call, the company will post the MIS revenue breakdown under the Third Quarter 2017 Earnings section of the Moody's IR homepage.

Additionally, a replay of this call will be available after 3:30 p.m.

Eastern Time on the Moody's IR website.

Thank you.