穆迪 (MCO) 2010 Q4 法說會逐字稿

Good day and welcome, ladies and gentlemen, to the Moody's Corporation fourth-quarter and fiscal year-end 2010 earnings conference call.

At this time, I would like to inform you that this conference is being recorded and that all participants are in a listen-only mode.

At the request of the Company, we will open the conference up for questions and answers following the presentation.

I will now turn the conference over to Liz Zale, Vice President Investor Relations.

Please go ahead ma'am.

Thank you.

Good morning everyone, and thanks for joining us on this teleconference to discuss Moody's results for 2010.

I'm Liz Zale, Vice President of Investor Relations.

Moody's released its results for the fourth quarter and full year of 2010 this morning.

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

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

Also making prepared remarks on the call is Linda Huber, Chief Financial Officer of Moody's Corporation.

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, 2009 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 statement.

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.

Thanks Liz.

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

I'll begin our remarks by summarizing Moody's fourth-quarter and full-year 2010 results.

Linda will follow with additional financial detail and operating highlights.

I'll then speak to recent regulatory developments and finish with comments on our outlook for 2011.

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

Fourth-quarter revenue of $564 million increased 16% over the prior year, reflecting strong performance in credit ratings and growth in all areas of Moody's Analytics.

We saw a continuation of positive third-quarter issuance trends for corporate investment grade and high yield obligations, as well as accelerated completion of projects for customers of our Risk Management Software and Professional Services units.

Operating income for the fourth quarter was $197 million, an increase of 10% year-over-year.

Diluted earnings per share for the quarter of $0.58 included a tax benefit of $0.08 due to utilization of foreign tax credits and lower state taxes.

For full year 2010, revenue totaled $2.03 billion, a 13% increase from full year 2009.

Operating income of $773 million increased 12% from a year ago.

Revenue at Moody's Investors Service was $1.4 billion, an increase of 15% from the prior year period.

Moody's Analytics revenue of $627 million increased 8% year-over-year.

Diluted earnings per share of $2.15 for 2010 increased 27% and included a legacy tax benefit of $0.02 in the second quarter and other tax benefits of $0.15 in the second half of the year associated with the indefinite reinvestment of certain foreign earnings discussed on the third0quarter call, and fourth-quarter benefits from foreign tax credit and lower state taxes.

Excluding these tax items, full-year 2010 diluted earnings per share would have been $1.98, or 16% above the $1.70 for 2009, which includes legacy tax and restructuring related items.

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

Thanks Ray.

I'll begin with revenue for the fourth quarter.

As Ray mentioned, Moody's total revenue for the quarter was up 16% year-over-year.

US fourth-quarter revenue increased 20% to $295 million, while revenue outside the US grew 12% to $269 million and represented 48% of Moody's total revenue.

Recurring revenue of $294 million represented 52% of the total, compared to 60% in the prior-year period.

Looking at each of our businesses, Moody's Investors Service revenue for the quarter was $383 million, a 15% increase year-over-year.

US revenue was up 25% over the prior-year period.

Outside the US, revenue grew 4% and represented 41% of total ratings revenue.

Global Corporate Finance revenue in the fourth quarter increased 43% from a year ago to $165 million.

Revenue grew 59% in the US, driven by growth from all assets classes, particularly high-yield bank loan and bond origination for refinancing, pre-financing, and merger and acquisition activity.

Outside the US, revenue increased 20% from the prior-year period with strong bond issuance in Europe and Asia.

Global Structure Finance revenue for the fourth quarter was $76 million, 3% below the prior-year period.

In the US, revenue declined 2% year-over-year with lower consumer asset-backed activity partially offset by improved issuance in commercial real estate finance.

Non-US structured finance revenue was down 4% with reduced European derivatives issuance.

The decline was partially offset by higher European securitization activity.

Global Financial Institutions revenue of $66 million decreased 9% from the fourth quarter of 2009, primarily due to lower levels of banking sector issuance in the US and abroad.

US Financial Institutions revenue declined 10% while, outside the US, revenue was down 8%.

Global revenue for the Public Project and Infrastructure Finance business grew by 15% year-over-year to $76 million.

Revenue increased 20% in the US, reflecting gains in most sectors.

Non-US revenue increased 6%, mostly driven by growth in Asia.

Now, turning to Moody's Analytics, global revenue for Moody's Analytics of $182 million was up 18% from the fourth quarter of 2009.

US revenue grew by 7% year-over-year to $71 million, and non-US revenue increased by 26% to $111 million and represented 61% of total Analytics revenue.

Growth was primarily led by the delivery of Risk Management Software projects and Professional Services engagements.

Globally, revenue from research, data and analytics of $109 million increased by 3% from the prior-year period and represented about 60% of total MA revenue.

We are seeing good demand for products across our portfolio, together with lower rates of customer attrition, as conditions continue to improve in the financial industry.

Revenue for Risk Management Software of $58 million grew 37% with the delivery of several large projects ahead of schedule.

Due to the variable nature of project timing and concentration of revenue in a relatively small number of engagements, risk management software revenue remains subject to significant short-term volatility.

Professional Services revenue of $14.5 million more than doubled from the prior-year period, including revenue from the acquisition of CSI Global Education late in the fourth quarter.

Turning now to expenses, Moody's fourth-quarter expenses were $368 million, an increase of 20% compared to the fourth quarter of 2009.

This increase was primarily due to greater headcount and higher accruals for incentive compensation, plus an allocation to our global profit-sharing program.

Moody's reported operating margin for the fourth quarter of 2010, which was 34.8%, compared to 36.8% in the fourth quarter of 2009.

Our effective tax rate for the quarter was 19.5%, compared to 38.3% from the prior-year period.

The difference was primarily due to utilization of foreign tax credits, lower state taxes, and a larger portion of taxable income generated outside the US which is taxed at a lower rate than the US statutory rate.

For the full year 2010, the effective tax rate was 28.1%, compared to 37.0% a year ago, primarily due to the items discussed previously.

Now, I'll provide an update on capital allocation and stock buybacks.

Moody's increased its quarterly dividend on December 14 by 9.5% to $0.115 per share of common stock.

During the fourth quarter of 2010, Moody's repurchased 3.9 million shares at a total cost of $104 million for an average price of approximately $27 per share.

Moody's also issued 0.4 million shares under employee stock-based compensation plans.

Outstanding shares as of December 31, 2010 totaled 230.8 million, representing a 3% decline from a year earlier.

As of December 10, 2010, Moody's had $1.2 billion of share repurchase authority remaining under its current program.

Moody's had $1.2 billion of outstanding debt at year-end with $1 billion of additional debt capacity available under its revolving credit facility.

Cash and cash equivalents were $660 million and increased $186 million from the prior-year period.

Approximately two-thirds our cash holdings are maintained outside the US to enable us to fund operations and to support investments across our lines of business.

For example, the acquisition of CSI Global Education announced on November 22 was a recent use of overseas cash.

Capital expenditures for the year 2010 were $79 million and reflected the final phase of building out our London headquarters at Canary wharf, as well as the ongoing investments in technology and infrastructure for business and compliance requirements.

For 2011, we expect CapEx to be in the range of $70 million to $80 million, which includes continued investment in technology to support business needs.

We remain committed to using our strong cash flow to create value for shareholders while maintaining sufficient liquidity.

We expect to continue to repurchase shares at modest levels, subject to available cash flow, market conditions and other ongoing capital allocation decisions.

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

Thanks Linda.

I'll continue with an update on legislative and regulatory developments.

In the US, the principal regulatory activities for 2011 affecting Moody's Investors Service will be SEC rulemaking under the Dodd-Frank Act.

The majority rules are still expected to be proposed and finalized in the first and second quarters of 2011 on matters that include reporting of internal controls, transparency of ratings performance, and references to credit ratings and statutes, regulations and rules.

Adoption of the proposed set of rules is planned for April through July 2011.

Turning to Europe, the transfer of oversight of credit rating agencies from national regulators to the newly established European Securities and Markets Authority, or ESMA, is scheduled to be effective in July.

We have submitted an application for the registration of our EU-based entities and for authorization to endorse the majority of our non-European credit ratings so that they qualify for use under European regulation.

We believe that this positioning will support the efficient flow of capital across national borders and best meet the current needs of all users of credit ratings.

As regulatory reviews and activity occur in other jurisdictions, we will continue to advocate for globally consistent approaches that align with the G20 statements and directives.

Although Moody's Investors Service has already made significant progress, we must adapt our business in response to these changing requirements around the world.

While new rules will spur various changes in our rating agency processes and operations, they will not alter our fundamental business objective to provide the highest quality credit opinions, research, and analysis.

Before concluding today's remarks by reviewing our 2011 outlook, I'll briefly comment on our acquisition of CSI Global Education during the fourth quarter.

CSI is Canada's leading provider of financial learning, credentials and certification, and is making important progress in extending its presence to other markets worldwide.

This acquisition is consistent with our ongoing commitment to advance the understanding of risk management practices and represents another means for Moody's to further financial literacy and promote efficiency in financial markets.

We are pleased to welcome our new colleagues in Canada to Moody's.

Moody's outlook for 2011 is based on assumptions about many macroeconomic and capital market factors, including interest rates, corporate profitability and business investment spending, merger and acquisition activity, consumer borrowing and securitization, and the eventual withdrawal of government-sponsored economic stabilization initiatives.

There is an important degree of uncertainty surrounding these assumptions, and if actual conditions differ, Moody's results for the year may differ materially from our current forecast.

Our full-year outlook assumes foreign currency translation at exchange rates as of the end-of-quarter rates.

We anticipate market conditions to remain generally favorable in 2011 and so project stronger revenue and some margin expansion compared to 2010.

For Moody's Corporation, we expect full-year 2011 revenue to grow in the high single-digit percent range and expenses to increase in the mid to high single-digit percent range.

We expect expenses to gradually increase throughout the year.

For the first half of 2011, expenses will reflect the annualized impact of 2010 hiring.

Expenses in the second-half forecast will also reflect incremental hiring but won't feature the higher accruals for incentive compensation that we saw in 2010 unless we exceed our operating income or earnings expectations.

Given these assumptions, we project the full-year 2011 operating margin to be between 38% and 40%.

The effective tax rate is projected to be approximately 36%.

We expect diluted earnings per share for the full year 2011 to be in the range of $2.12 to $2.22.

As mentioned earlier, after excluding the legacy tax benefit of $0.02 from the second quarter and $0.15 from the indefinite reinvestment of certain foreign earnings and other tax benefits from the second half of the year, full-year 2010 diluted EPS would have been $1.98.

At Moody's Investors Service, we now expect global revenue growth in the mid to high single-digit percent range.

In the US, we expect MIS revenue to increase in the mid single-digit percent range, while non-US revenue is expected to grow in the low double-digit percent range.

Corporate Finance revenue is projected to increase in the high single to low double-digit percent range with ongoing activity driven by refinancing and other capital needs.

Structured Finance revenue is expected to remain about flat, while revenue from Financial Institutions is expected to grow in the mid single-digit percent range.

Public Project and Infrastructure Finance revenue is projected increase in the low double-digit percent range.

In Moody's Analytics, we expect full-year 2011 growth in the high single to low double-digit percent range, we expect revenue growth in the mid single-digit percent range for research data and analytics, and in the low to mid single-digit percent range for Risk Management Software, following the accelerated pace of deliveries in the fourth quarter of 2010.

Professional Services revenue is projected to more than double, primarily reflecting revenue from the acquisition of CSI Global Education.

We expect Moody's Analytics revenue to increase in the high single-digit percent range in the US and in the low double-digit percent range outside the US.

That concludes our prepared remarks.

Joining us for the question-and-answer session are Michel Madelain, the President and Chief Operating Officer of Moody's Investors Service, and Mark Almeida, President of Moody's Analytics.

We would be pleased to take any questions that you may have.

(Operator Instructions).

Peter Appert, Piper Jaffray.

So Linda, the expense guidance growth mid to high single digits.

Can you help me understand what would drive variability in the number?

What gets you to the high end of the range?

Let me just try to do some general level-setting here.

As we said, we are looking at mid to high single-digit expense growth.

The real change here is that we hired pretty dramatically in 2010 at about 9% headcount growth.

We are expecting to take that down to half that rate in 2011, so 4% to 5% headcount growth.

So that's one area to look at.

The difference in expenses in '11 over '10, which should be about $90 billion, let me break down the change for you.

About $30 million of that is increased expenses that we are looking at for the CSI acquisition, so that would be a third of it, $30 million.

Another $30 million would be increased compensation expense, which includes both the 4% to 5% headcount increase I mentioned for 2011 and the annualization of the people we hired in 2010.

The last piece there, the last $30 million or so, is expense related to IT infrastructure compliance sort of initiative.

So it's sort of $30 million, $30 million, $30 million 2011 over 2010.

Does that help you out?

Yes, that's very helpful.

It would seem to suggest, then, that there is a fair degree of leverage in margins than in 2011 in the context of seeing some reasonably healthy revenue growth.

We were at 38% for this year.

We would hope that that's right, Peter, and we are optimistic.

As you see, we've got revenue growth exceeding expense growth, which should help.

We'll see if we get some continued good tailwinds in issuance.

But we are optimistic on margin expansion for 2011.

Thank you.

Then Ray, on the Dodd-Frank adoption, are there any particular areas of implementation or focus that we should be paying attention to?

I think actually some of the more headline items have already been taken on Regulation FD, and at least the indefinite resolution of 436-G.

I would continue to pay attention, though, to what is described as 17-G5, which is the disclosure of information in the structured finance market and its application to US and potentially to non-US issuers of structured finance.

A final resolution on 17-G5 for global securitization issuers would probably be, I think, the most significant thing that, as an external party, you would want to pay attention to.

Anything that would be impactful from a cost standpoint -- or impactful relative to current expectations from a cost standpoint in terms of implementation?

Yes.

There are going to be ongoing imitation costs, we assume, consistent with rulemaking in both the US and in Europe.

But we believe we have built that into our existing expense budget, so at least according to what we currently expect, that would not cause an upward move in expenses.

Got it.

Then the last thing, could you define for me modest in the context of modest buyback, and then might I read modest buyback to imply more focus on acquisition activity?

This year, our share repurchases totaled $223.6 million.

I think we would be looking at a number somewhere around there for '11.

We continue to look for acquisitions that are appropriate and hit our -- would hit our return hurdles, primarily in the Moody's Analytics area.

You saw what we did this year.

We would note that, as we said previously of our cash, which is about $600 million, one-third of that is held in the US; two-thirds is held overseas.

We used our overseas cash to purchase CSI.

So one of the governors is in fact how much cash we have in the US in terms of repurchase.

Got it, thank you.

Michael Meltz, JPMorgan.

I think Peter asked all of the good ones here.

I just have one question for you.

Ray, I know you do usually comment on the gradual progression of costs -- or maybe this is a Linda question.

Is there -- it looks like you had some funky things in the fourth quarter, and so I still presume where you ended the year, I would think there was a step-down in Q1.

Can you talk about the absolute dollar level of expenses throughout the year, please?

Yes.

Linda may want to comment on this as well.

But similar to the guidance we gave last year, we do expect a sequential increase in costs throughout the year.

We don't expect that is going to be as large in its magnitude throughout the year as we had in 2010, so look for the same sequential pattern.

But unless, again, we have an upside surprise in earnings or operating income, we won't have that catch-up in incentive compensation and contribution to profit-sharing in the second half of the year that we did this year -- that we did in 2010, sorry.

To put some more context around this, let me go through the full year here in terms of what happened with the comp pieces and then if you want the quarter, I'll do that too.

For 2010, obviously we had a strong year -- as a result of that incentive compensation is about $117 million, which is up 15% from last year.

Our profit-sharing number was about $12 million, and we did not have profit-sharing in 2009 because we did not hit our 10% EPS target for that last year.

Stock-based comp remained about flat at 56%, salaries and benefits about $620 million because we had a few more people here, which totals about $800 million, still about 64% of experiences.

Now, we picked up most of the incentive comp pickup in the third quarter and the fourth quarter.

You'll recall, third quarter we had about $35 million put away for incentive comp.

Then in the fourth quarter, because of surprisingly strong performance, we put away $42.8 million for incentive compensation.

So that was the big change there in the fourth quarter.

Now, going into '11, we are looking at 100% bonus targets, but as Ray said in his prepared remarks, if we do better, incentive compensation would, again, be higher.

Thank you Linda.

William Bird, Lazard Capital.

Ray, I was wondering if you could just speak to the strength of the new issue pipeline and what you're seeing.

Also just in guidance, you've talked about low double-digit guidance for the whole Public Finance segment.

I was just wondering what you're assuming about the US Muni market and conditions.

Thanks.

Sure.

With respect to the issuance pipeline, certainly January was a strong month, particularly in the US, more so than in Europe.

So, we do see strong issuance activity in corporate and financial institutions currently, consistent with low absolute rates and narrowing spreads.

I also think we are going to have, similar to what we had in 2010, periods where issuance is more robust and then shuts down or declines in response to macroeconomic conditions or concerns, for example, in Europe, about whether the sovereign debt issues have been resolved, and if so in a favorable way.

So I would not be surprised, in 2011, to continue to see issuance be somewhat lumpy.

It has started out on a strong foot.

You didn't exactly ask this, but it does give me an opportunity to talk a little bit about some of the longer-term issuance that we might expect to see.

We have been able to release some research just in the last week looking at refinancing needs.

We do this each year over the coming five-year period.

Interestingly, in the investment-grade, US investment-grade corporate sector, the amount of debt to be refunded over the coming five years is slightly higher than it was at this time last year.

In the high-yield sector, it is down but not down by very much compared to the -- or in context of the very robust issuance we saw in 2010.

So, it looks like investment-grade maturities are going to peak probably in 2013, and high-yield peaking in 2014.

As we've talked about before, the high-yield refinancing is more opportunistic and is more likely to follow windows of opportunity in the markets.

I was just wondering if you could touch on Public Finance and (multiple speakers).

Yes, I'm sorry.

The growth that we expect to see in the public project and infrastructure finance area we think is going to be driven more by international infrastructure in project finance in 2011 than it is by US municipal issuance.

We had strong issuance in 2010, in part associated with the expiration of the Build America bond program.

So the driver for that line we think in 2011 is going to be more international and more infrastructure.

Great, thank you.

Craig Huber, Access 342.

Thank you very much.

The first thing, Ray, what is your expectation for price increases, both on the transaction side and the non-transaction, for 2011, on a blended basis for each, please?

I think we would expect to be able to get mid single-digit price increases overall.

As we've said before, there are some areas where that is not feasible, and other areas where we think it's more appropriate, but a mid single-digit number overall for the year I think is fair.

The non-transaction piece of that, [are we to expect] it'd be lower than that?

(multiple speakers)

I don't have that broken out.

But if we can get our hands on it before the end of the call, we will.

Okay.

Then secondly, Linda, I'd like to ask you.

Can you breakdown, if you would, the percentage from each of your four buckets, what comes from transaction versus non-transaction for structured finance, corporate financial, and PPIF please for the (multiple speakers) quarter?

Sure.

Do you want the full-year 2010 or would you prefer the fourth quarter?

No, just the fourth quarter please.

Quarter, Okay.

We'll go through Structured Finance first.

Transaction revenues, transaction driven revenues 46% of the total relationship 54%; for corporate finance 75% transaction which obviously is very helpful to us, 25% relationship; financial institutions 34% transaction and 66% relationship; and PPIF 64% transaction and 36% relationship.

So total for MIS is 60/40.

For Moody's Analytics, that's primarily a subscription business, so 23% transaction, 77% relationship, and for the Company as a whole for the fourth quarter, 48% transaction, 52% relationship.

Then my follow-up question then -- can you also break it down differently for the percentage breakdown for revenue, really like a cross-structure finance ABS or [MBS] craft derivatives in the same -- the other three categories please?

Sure.

Let me find my structured finance page and we'll do that.

Fourth-quarter asset-backeds are 29% of revenue, RMBS 24% of revenue, real estate 20% of revenue, and derivatives 26% of revenue, which totaled, as I think Ray said, $76 million for the fourth quarter.

Could you do the same for Corporate Financial and PPIF?

Sure.

Corporate investment grade, 20%.

High yield, 26%.

Bank loans, 18%.

Other, which as you know is medium-term notes, shelves, commercial paper, so on, is 35% of a total of $165 million of Corporate Finance revenues.

Let me see if I can find Fig.

For the fourth quarter, total FIG, $65.7 million, banking 68% of that, insurance 26%, and managed investments 6%.

PPIF -- let me see what we've got here -- for the fourth quarter totaled $76 million, public finance and sovereign was 51%, munis 7%, and project and infrastructure 42%.

Then also this small acquisition you guys did in Canada in Professional Services, is it fair to say it was roughly maybe $4 million to $5 million of revenues came from that in the fourth quarter out of this $14.5 million?

Is that reasonable.

If it is, it would imply the underlying business in Professional Services nearly doubled from the $5.7 million a year ago?

Is that there?

Let me ask Mark Almeida if you would comment on that for you.

You are right in that on excluding CSI, the Professional Services business had a very good quarter.

That business almost doubled during the quarter, reflecting the fact that we made a number of investments throughout the year because we saw a lot of opportunity in that business and we saw a good chunk of revenue coming in, in the fourth quarter, so it was quite strong.

You also have to keep in mind we only owned CSI for about five or six weeks in the quarter, so just not that much topline contribution.

What do you expect for the underlying business?

I know this is very small in the scheme of things here, but it almost doubled year-over-year.

I assume you're not expecting the underlying business to double in 2011, right, putting aside the acquisition?

The underlying business is still going to performed very well in 2011, we expect.

So we're -- we would expect that business to continue to grow at a very good clip.

We've got to remember that the business was quite weak in 2009 and, again, we saw good opportunity emerging in that business, and we made investments to set ourselves up to be able to take advantage of that.

We continue to see a good bit of runway in the legacy Professional Services business.

Lastly, maybe I missed this, but the increase in regulatory spend for 2011, what's your latest thought on that?

I think we are still comfortable with the 15% to 25% that we had talked about before.

I'd gone through the expense drivers for Peter, and I'd kind of given sort of a $30 million Other bucket, so that's in there.

We were encouraged because we are starting to see some deceleration in this rate of regulatory increase.

I'm not sure that we'll see an absolute reduction but, again, we are starting to see some deceleration, which is also helpful as we talk about the margin line.

Great, thank you.

Sloan Bohlen, Goldman Sachs.

Good morning.

Most have been asked and answered, just one question on the pricing.

Mid-single digits, Ray, (technical difficulty) I was wondering maybe if you could add some color on what, if any, variability there might be in that, subject to any rulemaking that we get over the course of the spring.

Would you respond with pricing if rulemaking comes in a little bit more onerous than what you'd expect?

I think that we are more comfortable with what the costs associated with regulatory compliance are going to be at this point than we have in the past.

So, I am not too concerned that we are going to have to review pricing midyear in response to regulatory or compliance changes.

If something occurs that is very unexpected, I would certainly consider that, but I do not believe we are going to have to.

Okay.

Then a question just to your broader comments about longer-term issuance trends.

You said 2013 and '14 are sort of the big maturity years.

Are we still seeing issuers pull forward to be opportunistic, or are we getting to the point now that corporate balance sheets are flushed with enough cash that that dynamic really isn't happening anymore?

No, I think we are still seeing pull forward really.

I think you can characterize the pull forward in two ways -- one, just refinancing or pre-financing ahead of maturities, but also when one debt instrument or credit facility is maturing, to use that opportunity to refinance other debt obligations from the Firm.

So it's really looking at, in many cases, at the first debt instrument to mature pulls future maturities forward as well.

Thank you guys.

One further point, though -- we are speaking only to refinancing and pre-financing here.

It's important to note that we are starting to see some positive trends in terms of investment spending for CapEx, particularly amongst industries that have been stronger performers.

So it's important to remember that issuance can be for refinancing and pre-financing but it can also be for M&A driven transactions; it can be for where we see some borrowing for share buybacks, and we also see borrowing for CapEx.

So there are many more reasons to finance than just refinancing and pre-financing.

We are starting to see those uses of financing broaden out, which is one reason why we are optimistic going into this year.

Okay, but is it fair to say that refinancing is still the bigger driver at this point or --?

It has been to this point, but watch this space as we start to see what they call animal spirits come back this year.

Great.

Thank you for the color.

Bill Clark, KBW.

Hi everyone.

Lately, you've certainly had nice strength in the Corporate Finance revenues, but even looking back to the pre-crisis levels, it seems like you've had material growth in this category.

I was just wondering if you had any ideas on what part of that strength was maybe coming from market share gains or new products or pricing increases, or is it just all in the dynamics of the issuance in that category right now?

Michel Madelain may wish to comment on this after I do, particularly from a European perspective.

But I would point to the most significant driver as being disintermediation.

The accessing -- having multiple points of access to capital so that it's not exclusively through bank relationships I think has characterized the motivation of corporations, both in the US and in Europe in recent years.

The good news for capital markets and ratings on capital market instruments is that once they are in the bond markets, or in the rated loan markets, firms tend to stay there.

So increasing the stock of debt outstanding in capital markets increases the future pipeline for refinancing, and so it's a step up in business activity that is related to Moody's services through ratings and research.

Again, I invite Michel to add any color onto that comment that he would like.

I think you just -- I would just say that, in the US, it's really more of a volume phenomenon which I've described before.

In Europe and (inaudible) international market, it's really the sentiment of moving from bank to bond effectively we are seeing.

We also see that as we -- the long-term trend that is only starting to show an impact, basically.

It's Linda.

One final thing here on the mix, which is helpful to us -- if you look at full year 2010, investment grade made up 19% of our revenue in Corporate this year.

Last year, it was 29%.

In contrast, spec grade had moved from 20% to 25%, and bank loans have moved from 7% in '09 to 17% in 2010.

That's a mix that's just more favorable for us.

So part of what you see here is volume; part of it is price.

But the mix of the issued securities is also helpful to us.

So a couple of things going on there.

That's very helpful.

Thank you.

Edward Atorino, Benchmark.

Linda, excuse me, could you go over this?

You have $230 million, whatever it is, for share buyback.

is that just allocated for share buyback, or is that sort of allocated for general corporate purposes?

Or am I misunderstanding something?

Let me just say it again so we make sure we've got it right.

Let me start by saying we are expecting our cash flow to remain very strong for 2011, and we are pleased about that, Ed.

That's going to be a number that is above $600 million cash flow from operations.

If you peel out of that, CapEx is going to be about $75 million, so we continue to have very good strong free cash flow.

Now, what we would look to do with that, as we said, was modest share repurchase.

I mentioned that this year we did $223 million of share repurchase.

We expect to do something in that neighborhood in '11 unless market conditions change, and then we may kick it up some.

What I was talking about also is the fact that, of our cash balances, about a third of them are held here in the US.

Two-thirds are held overseas because they are taxed at a much lower rate.

So we could move that stuff around, but then we have a tax hit, so we have to kind of balance what we are doing here.

So I hope that answers what you need.

Yes, I just wanted clarification on that.

Thank you.

Doug Arthur, Evercore.

Ray, you may have covered this already, but in your outlook, you talk about non-US MIS growing in the low double-digit percentage range.

That's a pretty big step up from what the trends have been in the second half of '10.

I guess what gives you confidence there, and what role will Europe play?

Because that market seems kind of locked up right now.

I, again, will invite Michel Madelain to make comments on this.

But you're correct.

We do expect to have stronger growth in MIS outside the US in 2011 than inside the US.

We do -- we are counting on good growth from the European business.

Bond issuance activity in Europe struggled at times throughout 2010 with the contagion risk that came from the sovereign debt crisis.

So to the extent that particular impediment to more normalized issuance activity is handled well, we think it's going to be a strong year for European issuance activity.

If the sovereign situation is not handled as well and there is market anxiety, then there is some downside risk to our outlook.

Michel, do you want to add any color to that?

No, I would just say that you talked earlier about projects and infrastructure outside of the US where we see upside each year, but also (technical difficulty) side both investment grade and spec grade subject to the qualifiers you just gave, basically.

Great, thank you.

Edward Atorino, Benchmark.

To what extent is your new issuance sort of offsetting the share buyback?

New issuance for employee programs?

Right.

It will offset by quite a bit.

Let me see if I can --

Okay, that's fine.

This year, let me see, we bought in a total of 8.6 million shares, and we issued 2.7 million shares -- excuse me, that was for 2010.

So we are kind of at a 4-to-1 ratio of buybacks versus issuance.

We would expect something pretty similar to that again, so you'll continue to see accretion on that front.

Thank you.

There are no other questions in queue.

Okay.

Thank you very much, everyone, for joining the call today.

We look forward to speaking with you in April.

This concludes Moody's fourth-quarter and fiscal-year endings call.

As a reminder, a replay of this call will be available after 4 P.M.

Eastern time on Moody's website.

Thank you.