Good morning, everyone. Welcome to Moody's 2016 Investor Day, both to everyone here in the room, as well as to everyone joining us on the webcast and on our teleconference line. My name is Salli Schwartz, and I'm Moody's Global Head of Investor Relations and Communications. As we begin, I'd like to walk through a few of our logistics with you first. For those of you here in the room, we're going to have all of today's sessions basically where you're sitting in rooms C and D. For our break in a little while, as well as lunch, we'll head back over next door to rooms A and B, where you had breakfast this morning.
During the presentations, we're going to ask that you hold all of your questions until the end when we do Q&A, we'll make sure and have a microphone runner so that everyone can hear the questions. If you need any assistance during the day, we have a bunch of event staff that have a red tag on their name badge, so just look for one of them. There's also an information desk just outside of this room. For your convenience, we've set up Wi-Fi accounts. If you look on the back of your name badge, you should have login details there. If you, again, have any questions, just ask one of the event staff or information desk outside. Finally, we're going to ask that you just take a few minutes at the end of today to help us with some feedback.
For those of you that are joining us via webcast, you'll get a link at the end of today's event for a survey. For everyone here in the room, we'll be sending you an email with a short survey. It's very short. It's just a few questions. Please take a few minutes to fill it out so that we can improve our future events. With regard to today's agenda, Ray McDaniel, Moody's President and Chief Executive Officer, will provide opening remarks. We're going to ask that you hold your questions for Ray until the end of the event so that we can let all the other presenters speak before. Directly following Ray, Rob Fauber, President of Moody's Investors Service, Michael West, Managing Director, Global Ratings and Research, and Jim Ahern, Managing Director and Head of Structured Finance, will speak with you about our ratings business.
Our next session will be with Mark Almeida, President of Moody's Analytics, and Steve Tulenko, Executive Director of our Enterprise Risk Solutions business. Mark and Steve will be updating you on Moody's Analytics, following their presentation we'll take a short break. When we come back from the break, John Goggins, Executive Vice President and General Counsel of Moody's, is going to provide a legal and regulatory update. Our last session of the day covers various aspects of our financial strategy. That will be presented by Linda Huber, Executive Vice President and Chief Financial Officer of Moody's, as well as David Platt, Managing Director and Head of our Corporate Development team. After the financial strategy session concludes, Ray will make his closing remarks. With that, I'd like to turn the event over to Ray McDaniel. I hope that you enjoy the morning.
I hope you find it interesting. I very much thank you for taking time to be with us here today.
Okay. Thank you very much, Salli, thank you all for joining us this morning. Good to see so many of you again. As Salli said, I think we have a good program for you this morning. Hopefully, it's going to be constructive in terms of thinking about our business. After my fairly brief opening remarks, we'll turn this over to my colleagues for really the body of the presentations and discussions this morning. As Salli said, we will be available for questions at the end. Just to start I want to emphasize two things. One, we are going to try and focus our discussions this morning really on the long-term opportunities for the company. Secondly, we want to spend relatively more time on things that are under our control and that we are able to guide in terms of the long-term health of the business.
To go to the punchline, we feel that our long-term opportunities are very much intact. However, we recognize that the macroeconomic environment has both short and long-term challenges. We have very limited ability to influence some of those macro conditions or events. What we're focused on is what we can control, as I said. Maintaining our strong market position at MIS, geographic expansion, our strategic build of Moody's Analytics, managing our expense base carefully, and allocating capital to create attractive returns for all of you. We'll be addressing this in greater detail throughout the morning, but let me first turn to our updated guidance. Oops, sorry. There we go. Since July, we have not changed the majority of our guidance items. That includes revenue, expense, operating margin, share repurchase. However, our effective tax rate we now expect to be about 1% lower than it was.
Our GAAP earnings per share is now expected to be between $4.70 and $4.80. That's as a result of a non-cash foreign exchange gain of $0.18, partially offset by a restructuring charge of $0.04. The result of these two items has also caused us to introduce a non-GAAP earnings per share guide, which is $4.55-$4.65. This is just the reconciliation of GAAP and non-GAAP, which I think is pretty straightforward. Okay, let's go to the macroeconomic environment. What you observe here is that the macroeconomic environment, in our view, is becoming more complex, not less. We do believe that going into 2017, looking at some of the core credit themes, we see the environment as stabilizing, albeit at low growth levels for GDP, especially in the advanced economies.
Supportive monetary conditions are going to continue with gradual normalization in the U.S. and continued quantitative easing and monetary stimulus outside the U.S. We also see that there are certain secular trends that are continuing to gain traction. Certainly technology, the disruption and innovation that comes with enabling technologies and how that's affecting financial technology and the finance sector. That provides risks and opportunities for most businesses, including ours, and we're going to address that. Also environmental issues. Those are becoming more important in terms of how companies are managing their businesses, in terms of regulation and policy. It also provides opportunities such as the green bond market. Finally, political risks are elevated going into 2017.
Protectionism is on the rise, and we see that, for example, with the difficulty that the TPP pact, Trans-Pacific Partnership pact is having, as well as in TTIP its equivalent on the European side. There are election risks. We have the election certainly in the U.S. That creates some uncertainty. Importantly, we also have elections over the next 12 months across key jurisdictions, including France, Germany, and the Netherlands. We manage through these cyclical conditions. At the same time, we're focusing on the deeper pull of where markets structurally are evolving. I think it's important for us to separate out what we have the ability to control and what we don't. As I said, the macro and geopolitical environment is really largely out of our hands. To some extent, so is the regulatory environment.
We have some ability to control regulatory developments to offer our opinions and thoughts. At the end of the day, that is not something that we have a great deal of control over. What we do have control over is the execution of our strategic growth initiatives. The enabling technologies that we're engaged in trying to identify, understand customers' needs around technology evolution, and provide products and services that are going to meet those needs. Finally, again, efficiency, productivity, all of the best practices that we can bring to bear so that we can reinvest back into the business. That's absolutely critical for us. We see a number of opportunities, and we need to manage our cost base prudently, so that we can make those investments.
In a world of heightened complexity, if we're correct about that direction of travel, we believe that standards become even more valued. This is very important for both sides of our business. I think it's most intuitive on the rating agency side of the business, where credit ratings and the accompanying research really are a vocabulary for the marketplace, a language for the marketplace. It is a standard. The ratings are valued because they are stable, predictive, and predictable. They are going to continue to grow in importance as international markets mature and develop their capital markets and are looking for trusted sources of insight about credit risk.
On the Moody's Analytics side, it's important though also because what we are doing is addressing changes in regulatory requirements, policy standards, and our customers' imperative to meet those requirements and to behave in ways that are compliant and manage, understand, and ultimately control their risk profiles as best they can. That's where our solutions are so useful. A quick teaser on each of the MIS and MA businesses. MIS is focused on operational excellence ensuring our position in the forefront of risk-sensitive markets. Really that means we have to maintain high-quality ratings, research, and the products and services that accompany those. Our competitive success comes through execution around this high-quality product. We must be timely as well.
Delivering this service in a globally consistent manner is absolutely critical to being a standard and to being a common language or a common vocabulary as the world uses our rating products and services. Again, improving operating effectiveness to allow ourselves to invest back into the business is absolutely essential. You can see on the right-hand side, we have been named the number 1 U.S. credit rating agency in the Institutional Investor poll for five years running now. We're very proud of that. We serve 130 countries and have over 44,000 global research pieces made available. Turning to Moody's Analytics. We have built a very strong foundation for growth in recent years. We have a unique intellectual property. We have scale and global reach that is really quite impressive. Almost 5,000 institutional clients, and client relationships with 86 of the top 100 global banks.
We have customers in 140 countries, which is even broader than what we do on the Moody's Investors Service side, operating out of 25 offices. We have a very large base of highly skilled employees, both technology professionals and sales professionals. This is what allows that global reach and allows us to have products and services that are comprehensive to the needs of investors trying to manage risk, particularly credit risk. Let me just finish up my opening remarks here with a quick reprise of our four box slide, which most of you are quite familiar with at this point. We think our long-term growth opportunities are intact, despite some of the macroeconomic challenges that I've talked about.
The drivers of debt are growing along with GDP growth globally, disintermediation of the credit markets, the growth of Moody's Analytics, which is a non-capital markets business, I want to emphasize. It's a good counterbalance to the Moody's Investors Service business. Pricing opportunities aligned with the value that we're creating at MIS and Moody's Analytics. All of these contribute to long-term growth opportunities for the company. What I would point you to is the first box, though, where I think we're going to be at the low end of that range for the medium term. Growth in the U.S. in 2017 is expected to be a little bit north of 2%. Growth in Europe, GDP growth is expected to be below 2%, probably in the 1.3 to 1.5 range.
That's going to have an impact on the overall growth opportunity because there is a contribution of GDP growth over into the other boxes, they're not all completely discrete. Linda is going to talk about the bottom half of this slide during her remarks, so I'll leave that to her. I want to emphasize, we think these drivers are very much a part of our future. We think they're intact, and we think the future, despite difficult cyclical conditions, is going to be quite good and we are going to be quite resilient. With that, I'm going to turn the session over to Rob Fauber, and I want to thank you all very much.
Thanks, Ray. My name is Rob Fauber. I'm the president of MIS, a position that I assumed several months ago. For those of you who have been to Investor Day before, you've seen me at a number of investor days, but wearing some different hats. For the first 7 years here at Moody's, I managed the corporate development function, working for Ray and Linda. Over the last 3 and a half years, managed the global commercial group within MIS. I'm joined today by two of my colleagues and members of the MIS senior management team. First is Mike West. He's an 18-year veteran of Moody's. He's had a variety of roles for us, including the head of corporate finance ratings, the head of structured finance ratings, and he has worked around the world for us in Frankfurt, London, and now New York.
He's also held several roles in other institutions focused on credit at B of A and HSBC. Also with me is Jim Ahern, who is the global head of structured finance ratings. Jim joined us about 2 years ago, where he was the global head of securitization at Soc Gen. Jim brings a real wealth of knowledge about securitization and the markets to Moody's, both about different regions, sectors, and institutions. Today, Mike, Jim, and I will talk about three key areas. First, Mike will discuss the issuance environment. Second, Jim will do a spotlight on structured finance, like I believe he did last year. Then I'll talk about the operating environment, our strategy, and the investments that we're making in the business. I think during the course of our remarks, you're going to hear several key messages.
The first is, despite low global growth that Ray just touched on, we continue to believe the outlook for issuance remains positive. Second, the securitization market is showing signs of resilience and opportunity while adjusting to new regulatory constructs, particularly here in the United States. MIS remains highly relevant in the markets both to issuers and to investors while operating in, again, as Ray alluded to, a complex geopolitical, regulatory, and competitive environment. We're continuing to invest in our business, in our footprint, in our people, and in our systems. We strive to be the agency of choice for issuers and investors, and I'll touch on that in a few minutes. With that, I'm going to turn it over to Mike to talk about the issuance environment.
First of all, thank you, Rob, good morning to everyone. As Rob alluded to, over the next few slides, I just wanted to put into perspective the drivers that are influencing debt issuance in the fundamental markets. I will then hand over to Jim to talk more about the structured finance market. First, let's put MIS into context. As has been mentioned, MIS operates a truly global business where we deal with different cyclical conditions and events across these markets. As Ray had mentioned, despite the near-term macro challenges, the long-term growth opportunities remain intact. As we can see from this chart, the U.S., which is our largest contributor to revenues at 64%, is now moving into an expansionary phase. Our second-largest market, developed Europe, is entering recovery. The countries on the right-hand side, currently enduring slower growth or a downturn, contribute less than 10%.
With that backdrop over the last few years, we have seen that policymakers around the world have kept rates low, we expect them to be low for a while longer. Just try and put a little bit of perspective around this. This chart depicts global corporate and infrastructure issuance over a period that is before and after the crisis, this includes both bonds and loans. As you can see, from 2010 to 2013, issuance starts to rise and then plateaus during 2013 to 2015. During that phase of 2013 to 2015, issuance has remained robust despite the low economic growth. What we've also seen during this period is that CapEx at the corporate level has been mainly unsubstantially covered by internal cash flow. That means that debt that's been raised in the market has been used for a number of different reasons.
When we think about those reasons, they include shifts in financial policy, i.e., the raising of leverage, dividends, and recaps. There's been also substantial balance sheet management seeking a lower cost of debt and cash hoards. As been noted, there's been high-profile M&A, which is essentially inorganic growth, importantly, refinancing. From a slow start in 2016, over the last few months, we have again seen a surge in the issuance, again, mainly to reduce overall cost of debt, fund or prepare for M&A, and refinancing. I'd like to spend a little bit of time just talking about the importance of refinancing for MIS.
The surge in new issuance, as I showed on that last chart, during the period shortly after the financial crisis, and the issuance of seven to 10-year paper has resulted in an increased stock of debt that needs to be refinanced, and we regularly put these studies out. When we compare the full-year cumulative refinancing needs today to what we had four years ago, that is up 30% at that $3 trillion mark. What is also interesting is that as issuers hunt for cheaper funding, notably in Europe, they are also issuing shorter-term instruments, two to three years maturity, that will also add to the numbers here. If I try and put the importance of refinancing into the MIS business, that if you look at 2017 and think about the annual issuance of about $1.6 trillion for these markets, this accounts for about 35%.
The difference in each of the years is, as you can imagine, that companies have a maturity profile at growth. When we think about a $3 trillion refinancing, that is an important tailwind for the business. I just talked a little bit about the embedded stock, but let's think about the future developments of the market. Ray McDaniel alluded to disintermediation and the importance of the factor for MIS. Between gradual economic recovery and the impact of regulations, we do expect that capital markets will continue to develop. Although many banks have shored up their balance sheets, the trends of disintermediation are expected to continue as corporate treasurers seek to diversify funding and that banks reduce their balance sheet more selectively. There are many ways to measure disintermediation, but being an active player in both emerging and mature markets, we see the opportunities in front of us.
My last slide is just really to try and summarize that we're currently in a macro environment with moderate growth, and this is on the left-hand side, 2%-3%, as was shown earlier, with low interest rates and negative in certain countries, with a modest M&A pipeline. What we see is that if all other things being equal, that that really translates into a growth outlook that's very similar to what we have today. On the right-hand side is really saying if there is an improved environment and an uptick in GDP, which is likely to come with a moderate increase in interest rates, that we'll see some positive drivers for our non-financial corporates, our U.S. public finance, and in our structured finance. With that, I'm just going to hand over to Jim Ahern just to continue this discussion about the financial markets. Jim Ahern?
Thanks, Michael West, and good morning, and thanks to Salli Schwartz, Ray McDaniel, Linda Huber, and Rob Fauber for having me here again. As I said before you last year, and said why spotlight on structured finance, I guess I'll reiterate the structured finance product, given its transactional nature, brings an ebb and a flow to the deal flow that we see at Moody's in terms of the ratings business. And obviously the related impact that can have in terms of performance. I think structured finance gets its own spotlight because of its uniqueness, but also the ebb and flow. We also, given the transactional nature of the business, are in a heavily competitive market. There's six active rating agencies in the space and more internationally.
In the next few minutes, I'm going to talk to you a bit about the relative importance of structured finance in its role in funding the capital markets or funding the real economy in the capital markets, how the different regions are playing out in that regard, then talk a bit about the regulatory environment and how it's influencing the product. The main takeaway I'd like to leave you with is that structured finance continues to provide a relatively stable amount of funding to the real economy, that the product has its resilience through what was coming out of the financial crisis. With that, the first slide I'm showing you is the annual debt issuance across three regions, the U.S., the middle is Europe, and the green on the right is Asia. You're seeing a tale of really three different markets.
The U.S. ebb and flow, as I talked about, securitization has been recovering. That's the dark blue at the bottom, so securitization's contribution. If you look at the orange, Europe, you're seeing a decline. We talked about disintermediation. The banks are funding more and more of the economies of Europe, and the central banks are providing more of the funding. Securitization has been declining year-over-year, although there has been an inflection point in the last couple of years, and I'll talk about that in a minute. Lastly, you see growing funding needs annually coming out of Asia, and you can barely see at the bottom, a small, small dark green bar, which is the contribution from structured finance. The takeaway from this slide, if you look at the bottom, is the relative percentage is relatively stable across the regions.
About 20% of the annual debt financing needs in the capital markets comes from securitized products. That hasn't changed much in the last six or seven years. This slide is intended to give you a bit more granularity around securitization itself. This is just the securitization-specific funding. You can see, again, ebb and flow in the U.S. You can see Europe declining year-over-year, although the last couple of years flattening out and actually this year growing. Then last, small, but it is coming up, is the Asian market. A tale of three different regions. U.S., what I would describe as mature, and we showed that slide earlier, Mike had that slide. Europe recovering, which is, I think, the concept that I was introducing, and then Asia maybe expanding or growing. What are some of the contributing factors?
Well, for the U.S., we had six straight years of double-digit growth, this year, some of the regulatory change, which I'll talk about in the next slide, is influencing that growth. We've seen a significant decline in the issuance volumes this year. Although I would say that our pipes are recovering from what was a pretty tough first quarter in terms of volume. In Europe, as I mentioned, we're recovering. We're seeing a second year of year-over-year growth after eight straight years of decline coming out of the financial crisis. We're also seeing exciting growth in the cover bond sector for the first time in several years. We have some support from policymakers that I think are looking to securitization as a way to help fund the European economy, in particular SMEs. Lastly, Asia.
Asia has, I think, the most potential for growth, certainly to outstrip GDP, mainly as a driver of disintermediation. A lot of the growth in Europe has been relying on banks, and we're now looking at more disintermediation and the potential for disintermediation. China and India are very big potential markets that we're seeing emerge in structured finance. Let me conclude with the last slide to talk a bit about the regulatory environment because it has had influence on our activity this year. There are several final Dodd-Frank rules coming into effect that are touching on the structured market. The first, risk retention. This is just simply a rule that says if you're going to issue, you have to have skin in the game. 5% is the guidance. What does that mean?
It basically means that certain products like CLOs and CMBS that have historically relied on more of an origination to distribution model now have to find a new way to comply. We're pretty confident that the market, and it is finding paths to comply. There has been some regulatory indigestion around this. We have been seeing some regulatory risk-compliant deals issued in the CMBS and CLO space, and we think that over time, that's going to work its way through the system and not be an impairment to the flow of those markets. The Basel rules affect capital, and the big challenge there is that they've put higher capital charges on the securitization as a product. That's been a bit of a headwind. Trading book rules have said that you have to hold more capital against securitized positions because of the potential illiquidity.
That's taken away some secondary market liquidity and caused some spread widening. The market seems to have been able to absorb that and continues to function. Fund reform is changing the landscape a bit around the investor product and who buys the product. Money markets typically have been buyers, but are changing what they're purchasing to comply. Lastly, just to conclude with, the headwinds are one thing, but what could be tailwinds? I guess the tailwinds that I would look to are anything that would relate to any refinements of Dodd-Frank, and there have been bills being proposed in the market around that could help unlock the flow. Also a change in public policy, because right now a lot of housing and education, which traditionally would've gone into an RMBS or a student loan ABS, are being directly financed through the U.S. government.
In the last six or seven years, we've seen about $3 trillion in direct financing growth coming from the government. That's product that could otherwise have been financed in the securitized market. I'll conclude on that point and let me turn it back over to Rob to bring it home. Thank you.
Thanks, Jim and Mike. Let's move from the issuance environment to the operating environment. I'll start by saying, in general, I think that our relevance as an organization in the markets remains high. Whether you measure that by our comprehensive global coverage of issuers, whether you measure that by the very good feedback we get from our investors. We conduct annual surveys, and we also have received a host of third-party awards. It's times like this in credit sensitive environments where I think the market and investors really value Moody's and our ratings and our research the most. That said, I think we could acknowledge that we're operating in a more complex environment than we were pre-crisis as a rating agency. The competitive landscape is certainly evolving. We have focused global players as well as now a host of regional and local agencies that we compete with.
Our issuers are facing increasing cost pressures and are focusing on vendor management, rating agencies are certainly not immune from that. Our business continues to be shaped by regulation that often requires us to adapt our business or our processes in response to supervisory feedback that we get in the various jurisdictions in which we're operating around the world. Amidst this backdrop, our goal at MIS is quite simple. It's to be what I call the agency of choice for issuers, for investors, and for the market. This is something that I talk about quite a bit, both internally and externally when I'm meeting with folks. To do that, we're focused on a very short handful of simple and straightforward things. First and foremost, get the ratings right. We have an unwavering commitment to rating quality. I think all of you are very well aware of that.
Second, provide timely insights to the market in the form of research to really reinforce MIS's position as a thought leader in the credit markets. Third is to provide consistently superior service delivery to issuers and to investors. Fourth, clearly articulating our value proposition through an expanded sales and marketing activities in our commercial group. I'll touch on each of these in just a little bit more depth. I think many of you understand, again, the bedrock of our business is the fact that our ratings have done very well in rank ordering credit, over a very long period of time. We publish all sorts of default studies that are available on our website. The rating quality is delivered by very experienced analysts who know their sector, their issuers, and have a very deep understanding of credit.
I have to say, in my travels around and meeting with issuers and investors, I consistently get feedback about how much issuers and investors value the experience and insight of our analysts. It's the combination of this predictive performance of the ratings delivered by experienced analysts that's really valued by investors, and in turn drives what we call the investor demand pull model. In addition to a focus on rating quality, we focus on timely and insightful research, and we've made, I think, very significant strides across the firm in this area over the last few years. Our goal is to produce commentary that's both timely and relevant. To do this, we've made some investments across the company. First of all, we have deployed a content management system that allows us to have more efficient authoring and timely publishing, so the effective reuse of content.
You can now access our content via mobile and tablet applications as well as our website. We've created dedicated teams and resources within the firm to focus on both cross-business thematic research as well as research operations and coordinations. I think we're really reaping the benefits of that. As a result, we've been able to deliver in situations like Brexit and on topics of real interest to investors beyond the day-to-day. On Brexit, for example, we had a very well-prepared team. They'd been preparing for months. We were able to execute very quickly across ratings, across research. We had a dedicated topic page on moodys.com that got over 5,000 hits in the first week that it was up. We've rolled out new research offerings. Like you can see this Peer Snapshot. Think of that as credit comps. We're able to crank those out.
We've gotten really good feedback from investors who find that to be a very useful tool. Lastly, we've been able to write, in addition to the commentary that we write on issuers, we've been able to write thematic research on topics like blockchain, like driverless cars, and green finance, just to name a few. Another goal at MIS is to deliver a best-in-class analytical and commercial experience for both our issuers and our investors. I'm going to talk here for just a minute about the focus on the issuers. This has been and continues to be a real focus for us and supports our positioning in the market. On the analytical side, we've developed extensive training for our analysts in regards to how to manage issuer expectations, interactions, and process. This includes something we call the issuer charter.
You can see just kind of a snapshot of it here. We have a conversation with our issuers around what they can expect in terms of the composition of their team, the rating process, the type and frequency of the research that will be written about their entity, the nature of the ongoing engagement with their analytical teams, and transparency around the rating and rationale for the rating. On the commercial side, we've really focused on what I would call issuer onboarding for the most part. We've worked on contract simplification. We still have a ways to go. We also have, this is a shot of the customer portal that we've rolled out. That's an essential point of documentation and commercial information for our customers.
We've made progress on this, but I would say we have more progress to go, and this is really a, I'd say, a kind of a program of continuous improvement for us. Okay. The final area that I'll touch on is in regards to our expanded sales and marketing activities, which we conduct through our commercial group. In particular, we're really focused on articulating the full value of a Moody's relationship, as well as the ratings and research. Sometimes that's not evident to all of our issuers. This includes a few things. One, new products like the Green Bond Assessment that we rolled out earlier in the year in response to a growing market need. Sector-specific materials that talk about our coverage and expertise in particular areas that we can discuss with current and prospective issuers.
Lastly, a new platform that we've developed which gives a snapshot of research and ratings access and investor engagement. These are the kinds of things often that our issuers don't always see, right? They typically see our rating analysts, they see the research written on their company, but they don't have a sense of the full breadth of activity going on around their sector and their name. It's a very important part of our overall offering. Okay, last year we showed you a case study. This is really just another way to kind of highlight the potential economic value of a rating. I think last year we had a case study that showed a 30 basis point tightening in a bond, unrated bond. We've used 30 basis points here.
I acknowledge that many factors go into the price of a bond, if you were, you can talk to your friendly syndicate desk and get your own estimate of the value of a rating. Here you can see 30 basis points we've used illustratively, and you can see the total interest expense savings over the life of a 10-year bond here versus the lifetime cost of a rating. I think this is well understood by bankers and issuers, but we thought we would display it for you here. Our goal is to be, as I said, the agency of choice, and while doing that, to comply with a host of global laws and regulations. To do that, we are investing in the business.
We're investing in our people by better aligning tasks with skill sets so that we can focus our analysts on ratings, research, and market engagement. That's where the real value creation is for both investors and issuers as well as us. We're focusing on training and development for our junior staff, which helps with retention and talent pipelining. We're supplementing our onshore staff by building an offshore capability in India, which really helps with credit administration and operations. We're investing in IT systems around workflow and data, leveraging new technologies, and addressing a host of new regulatory requirements that we have in the business. We're building enhanced data spreading and data management capabilities across the firm. We're automating a number of credit administration tasks wherever we can for the benefit of both efficiency as well as compliance.
We wrap all of this with an increased emphasis on operations, surveillance, and compliance processes. Okay. No Investor Day deck is complete without a map. Here we go. Over the years, I think you know that we have expanded our business. We have a truly global presence. In fact, we have a global and local presence. I think the numbers on this page really bring this to life and give a sense of the breadth and depth of our franchise. Over $65 trillion in rated debt outstanding, rated by over 1,600 analysts, and we have 30 offices around the world. Across this footprint, we engage with the market in a variety of ways. You can see that last year we published over 45,000 research pieces. Had hundreds of investor and issuer teleconferences, conferences, and round tables.
This kind of scale and reach is really hard to replicate. Okay. I think you've seen something like this slide before. We continue to get double-digit growth from emerging markets, even after a sharp contraction in activity in early 2016. We support this international growth, really with organic and inorganic investments. Over the last three years or so, we've opened offices in Europe, in Poland and Stockholm, and in Asia, in Shanghai and Mumbai. We tendered for majority control of our Indian affiliate, ICRA, in 2014. We acquired 100% of our Peruvian affiliate, Equilibrium, in 2015. About a month ago, we acquired 100% of our Korean domestic agency, KIS. These investments really expand our franchise, but also a great way for us to invest in the core business. Okay. I mentioned we tendered for majority control of ICRA in mid-2014.
We're very happy with our franchise there and the management team there. Our history with India goes back to the late 1980s, when we assigned a sovereign rating. Now we have both cross-border and domestic ratings delivered by MIS and ICRA respectively. We've developed a very effective collaboration model. A great example is a recent conference we held between MIS, ICRA, and the NYU Stern Salomon Center around fixed income in India. We've written joint research. We've had a variety of expertise sharing and training, as well as business development referrals. All of this raises the profile of ICRA in India as well as the profile of MIS on India. ICRA enjoys a leading coverage in the market, depending on how you slice and dice the numbers. For those of you who aren't aware, enjoys a market cap of almost $600 million. Okay.
Lastly, I'll close with a quick spotlight on China, another very important market. We first set up our office there in 2003 in Beijing, MIS office. We entered into a joint venture in 2006 to address the domestic market through CCXI. That is now the leading domestic agency by a variety of metrics with almost 1,000 domestic ratings. Our cross-border business there has over 300 ratings across Greater China. We've supplemented that with a Shanghai office as well as a Greater China analysis and research team, which broadens our sector expertise beyond rated names. Similar to ICRA, we've focused on a collaboration model where we collaborate across research, events, and business development. Overall, I think we have a very good approach to the Chinese market, both the cross-border and domestic market, and I think we're fortunate to have made the investments there when we did.
I'll close by saying we believe that our relevance remains high and intact amidst competition and regulation. The issuance outlook, as Mike talked about, remains positive despite some headwinds, we are investing in our business to support our positioning as agency of choice for investors and issuers. If you don't believe me, I'm going to leave you with these third-party awards that we're very proud of, we're happy to take some questions. Thank you.
All right. I will leave the awards slide up so we can continue to appreciate that.
Glory.
A few quick notes as we begin the Q&A session. I'm just going to ask if you have a question, if you'd raise your hand and then wait for our microphone runners to get a microphone to you so that those that are joining us via webcast and on the conference call line can also hear your questions as well as the answers. I will also ask that you only ask one question at a time, and ideally not in multiple parts, so that we have the opportunity to get to everyone who has a question. You're, of course, welcome to raise your hand more than once. Why don't we get started back here with Manav in the back row?
Thanks. Hey, Rob, I just wanted to clarify on your concluding remarks where you said two things, which was around the macroeconomic factors not helping as much. Just wanted to clarify if that was basically that lower end of the two to four that Ray alluded to. Then you had the line in there on increased competition. If you could just elaborate on what you're referring there.
Yeah, I think it is. We were referring to that in terms of the macroeconomics. I think there's also a question about how much stimulus effect is left and how much of a stimulant is that to fixed income issuance. I think that captures it. In terms of competition, look, as I said, we have an evolving competitive market. I mentioned that we have more focused global competitors, and certainly we've seen some investment into some of those competitors. We also see regional competitors and local competitors, and we see that in Europe, we see that in Asia. We even see that in the U.S. in Jim's market. Jim mentioned that there's six active players in U.S. structured finance in various parts of those markets. I would say that our coverage and positioning across regions and across markets remains very strong.
You can see some ebb and flow from quarter to quarter or year to year in a particular market or sector. Overall, our coverage, despite the competition, has remained quite strong.
Okay. Why don't we come up the front to Peter?
Thank you. Rob, in addition to more competition, you mentioned cost pressures among issuers, both of which would seem to imply maybe you're seeing more pricing pressure. Could you comment on that? Should we anticipate maybe the lower end of the pricing range you've talked about historically?
That's a good question, Peter. I think we could all acknowledge that many companies are focusing both top line and bottom line pressures and are focused on managing costs and are sitting in investor days like this talking about margin and opportunities for margin expansion. We have seen more involvement from procurement departments. We've seen, in certain cases, competitive tenders. We fared well in those situations. I made that comment because we don't take the business for granted. Also, Peter, part of what we're doing with the expanded sales and marketing activities and focusing on better articulating the value proposition of a rating is to be able to defend our list pricing.
Great. We'll stay in the front row up here and go over to Tim.
Just to follow up on the pricing comment. There's a line in the presentation about simplifying the pricing, which I know S&P has talked about as well. Can you elaborate on what you're doing in terms of simplifying?
I think the line said contract simplification. We get feedback from our customers that they'd like to see the contracts be easier to work with. We have the same experience when we're dealing with vendors. I think with regulation and the environment that we operate in, contracts have tended to get longer rather than shorter. We're focused on ways to make it easier to onboard to Moody's, whether that's simplifying our fee schedules, the way we display the fee schedules, simplifying the contracts, making it easier to access the documentation back and forth with Moody's, those kinds of things so that it can be as seamless as possible.
Okay, we'll go over here to Toni, just here in the center.
Thank you. In the structured section, I know you mentioned a limited impact from Brexit, I think that that was perhaps different than what we were expecting at the time of the last earnings call. Could you just talk about maybe if there's been a big improvement in that region, in that part in structured?
I could talk to the fact that the first half leading up to Brexit, a lot of what was driving growth in Europe was U.K. issuance. We saw some spread widening around Brexit, and then within 2 to 3 weeks, the spreads were back to where they were pre-Brexit. It was just a blip. We are seeing an uptick in engagement in certain sectors like CLO post-Brexit, which might imply that the banking sector is seeking more liquidity through the structured product. I think that overall, we're handicapping Brexit as having very little impact on issuance volume, and then maybe in the medium term, nominal impact perhaps on the credit product itself, on influencing products like RMBS and maybe CMBS in areas that are concentrated like London that could be influenced by slower growth in the U.K.
Overall, very nominal impact from the Brexit in terms of issuance volume.
Okay. I'm going to come over to this side of the room for a little while. We'll start with Craig Huber.
The U.S. market for investment grade and high yield is curious. Your updated thoughts if you're sensing any sort of bubble out there in terms of debt at the corporate level. I know there's absolute low interest rates here, but what you're sensing there's a bubble forming here.
I'm happy to take that one. What we're looking at the moment is, as you rightly point out, that we have seen leverage go up. In fact, over the period I talked about from 2010 to 2015, the overall leverage as defined by debt to EBITDA has gone up by a turn. However, when you actually look at interest coverage, that has remained largely flat and cash flow has been ample to cover that and CapEx. What we're seeing from the stats is that there's a managed elevation in leverage. Another indicator that we would look to is our default study. What we're seeing there is that there will be a peak around about 5% by November in the default study, but then a drop off over the next 12 months to approximately 3.6. We're seeing that companies are managing their leverage.
We're seeing that our statistics are indicating that from U.S. corporate that we're not indicating a bubble there.
Why don't we come up front to Alex?
Thanks. This might be a little bit too topical, Deutsche Bank is in the news a lot these days, and in terms of the stress that these guys are facing. Just wondering if the dialogue from your end with your clients has increased at all, potentially things like disintermediation to think about, given that they're a big lender or they've got a big balance sheet, maybe some structured opportunities. Just anything that you might be doing in this situation right now.
I think that at any time, and I think to Rob's point, it's very important that we continue this dialogue with all our issuers. Many issuers are going through different periods, some through periods of stress. Our dialogue is pretty much constant. We will continue to look at the overall banking sector as it goes through a reshaping and the capital adequacy. I would say it's the business as usual with regard to talking to all our issuers and Deutsche Bank is just one of those.
Okay. Let me go back.
I would just quickly add on Deutsche Bank that it's not as if we're seeing any uptick in terms of inquiry around structured products being issued by Deutsche Bank.
Okay. We'll head back. The gentleman here in the back row.
Thanks. Jeff Silber with BMO Capital Markets. A question for Rob. You had a great slide in the presentation about the investing for the future. Is it possible to put some framework in terms of what that investment might be as an incremental pickup? Would the segment be willing to let margins remain relatively flat to absorb that investment? Thanks.
As I said, some of this is around workflow, data spreading. We do think we'll get some efficiency and capacity gains out of that. I think my general thinking is that will typically be reinvested into the business in terms of our surveillance obligations, our regulatory obligations, and also positioning us for areas of future growth. Could we get some additional pickup out of that as well in the future? It's possible.
Good. We'll start over here, come over to the front here since we haven't had anything on the far side with Warren.
We've heard a lot about sort of a large CMBS refi pipeline. I was just wondering if you could kind of talk about that as a potential tailwind over the next couple of years.
Sure. Commercial real estate as a stock of debt is about two and a half trillion of outstandings, and it's growing healthy, probably a little bit quicker than GDP. I think the CAGR on that sector is about 6% for the last 20 years. If you looked at during the crisis, CMBS was funding about a third of that market. Fast-forward seven or eight years, CMBS today is funding about 24%, 25% of that market. That's about $600 billion of CMBS stock outstanding. The question you have to ask yourself is, if the market has this fundamental growth need of slightly above GDP, where else is it going to get its financing? It's getting funded today by commercial banks. It gets funded through life companies, et cetera.
When you're looking at annual reissuance volumes of $250 billion, if that's a 10-year turnover cycle for the debt, about a third to a quarter, a quarter to a third is generally going to go through CMBS. What we've been characterizing as the slowdown in CMBS this year, I would still describe as somewhat of an indigestion rather than a shift in or a paradigm shift in where commercial real estate in the U.S. is going to get funded. The indigestion is simply there's a higher cost to that sector for issuing with the risk retention compliance, and no one's in any rush to bear that cost, and they're all kind of handicapping where everybody's going to go in terms of structure to optimize and to maximize the benefit of the funding through the sector. We've seen compliant deals come. We see more in the pipe.
Risk retention rule is going into effect in December. At that point, I think we'll see the flow unlocking and continuing to serve its normal course and function in commercial real estate.
Good. I think we have time for just a couple more questions. We'll stay over here for one more, and then we'll go back over here. There's two of you. All right, we'll take you over here.
You kind of have to. On the maturity wall, we've been hearing about this for a number of different years. Maybe you could try to put some sort of quantification on what it could mean and what would cause it to actually happen or delay it because it seems to be that we've continued to see statistics on it, but we're not sure exactly. If you could just put some more detail on it'd be great.
What would it mean? What are you implying?
Well, in other words, we see the numbers consistently. I guess I'm wondering what would it mean for results? Could it happen effectively all in one year, over a period of time? What would it mean for your business? Would you have to ramp up for it? What would delay it, and what would cause it to happen? Thanks.
I don't think we have to ramp up for it. I think we're prepared. We're properly resourced for it. The maturity wall that you saw, some of that can get pulled forward. That's just the scheduled maturities. Whether it occurs in exactly that sequencing remains to be seen. In terms of impact to us, I would say that from a revenue perspective, and that slide showed North America and EMEA non-financial corporates. If you think about the transactional revenue that comes from that, we think on average about 30%-40% of the transactional revenue over that period of time could be supported by refi coming from that maturity wall. I don't know if there's anything to add to that.
Okay, Bill, we'll do one more, we'll have to move on.
I want to ask the same question, in a slightly different way. If you look at the chart on 22, $558 billion, assuming six basis points will work out to be about $335 million. Right? Yeah, $335 million, which would be roughly 15% of what we're expecting for 2016 MIS revenue. Is that a fair way to look at, I don't want to call it backlog,
I would caveat that just by saying that not all of our issuers have the same pricing constructs.
Yeah.
We have relationship-based pricing. We have per-issue pricing. I'm not sure you can just take that stated bips and apply it to the full maturity wall. Otherwise, that might be a fair way of thinking about it.
It's just as a ballpark. You have that as part of the concept of the backlog, you also have, I would assume, some level of surveillance that goes on top of that.
That's right. If I think about the revenue pie, we've got a big chunk of it that is recurring revenue from annual fees and surveillance. You've got this maturity wall, which I would also think of as highly likely financing over that period of time. That gives you some sense of, I wouldn't say what's in the bag, but what you can expect.
This surveillance, how do you think about surveillance? How do you put some number? Six basis points is just a number we use around the-
Well, I think we break out transactional versus recurring revenue, you have a sense of, in terms of our total revenues, how much is recurring versus how much is transactional. That transactional is typically annually recurring, the transactional piece is what we're talking about here.
Got it. Thank you.
Yeah.
We'll take one last question over here in the back.
Just a broad question on just the concept of issuing bond debt with negative yields. What do you make of that, and just any comments there?
First of all, thanks. In terms of the negative yield, when we think about it in the corporate space, is that what we're starting to see is there's a little bit of pushback. I don't know if you saw the Lufthansa deal that was pulled in the market earlier this week. We're also seeing shorter maturities where corporates are trying to find that two to three-year space where they can get that pricing window. They're not going with that traditional seven to 10 year or even beyond 10 year. It's rather, we'll take that money now. We'll go back to a more normalized funding. What it's doing is generally shifting the overall pricing down, and I think from a corporate, we've seen a pricing around about one and a half down to 50, 60 basis points. It's driving everything down.
As investors look around the globe for yield, the European investors are now looking over into the U.S., and it's having a similar effect. There's a knock-on effect from what's happening in those markets for corporates.
Well, I thank you again for all your questions, and we'll have more Q&A sessions as we go. A thank you also to Rob, to Mike, and to Jim for their presentations and their time. We're going to go ahead and move on to our section on Moody's Analytics. I'd just like to welcome Mark Almeida, and eventually, we'll also hear from Steve Tulenko.
Morning, everyone. Thank you, Sallie. I know that many of you are rather familiar with Moody's Analytics. I've been grilled by quite a few of you at various times on various aspects of the business. Others of you are probably less familiar with MA. Our comments today will be necessarily kind of high level. We'll be happy to dive into details if you'd like during Q&A. I would just like to start the program by sharing a couple of key messages with you. The core takeaway that I'd like you to get from today's discussion is that we have great conviction about the Moody's Analytics business. We feel as though we're in a very good place. The business continues to perform quite well. We have delivered so far this year, in the first half of this year, we've delivered 9% revenue growth on a constant dollar organic basis.
That's not quite as strong as it was in the first half of 2015, we feel very good about that result. What's more, we have plans to sustain healthy top-line growth and extract more operating income from the business. A lot of that will depend on the work that we're doing in Enterprise Risk Solutions, and Steve will elaborate on that during his section of the discussion. The other thing that is perhaps not apparent or intuitive to everyone is that the business environment that we're operating in is very conducive to continued growth in Moody's Analytics. There are a number of trends that are playing very much to our strengths.
I'm going to talk a little bit about that as well. Now, given the success we've had, the capabilities that we've assembled in Moody's Analytics, the strength of our brand, and the experience that we've developed over the last several years, we feel that we're very well positioned to pursue those opportunities and to continue to build this business. Finally, like everyone else, the important trends and developments in information technology are creating opportunity for us, and we are very focused on being thoughtful and deliberate about pursuing those opportunities. I want to spend a few minutes talking to you about some things that we're doing in that area. With those highlights in mind, let me provide some context and some explanation on where we are. We have made good progress in this business since we set it up at the start of 2008.
11% average annual revenue growth over the last eight years. We feel that that's quite good, particularly when you keep in mind how really awful the business environment has been over that period. The fact that we've been able to deliver this kind of growth and this kind of success during an environment that was actually quite weak for the financial institutions that are our customers helps us feel very strongly, and helps us feel very good about the relevance of our product and our ability to deliver what are truly need to have products to this customer base. We think that the success that we've had and the consistency of our performance in growing this business really underscores the relevance of the work that we're doing in Moody's Analytics. Now, what we've done is we've built three distinct but related businesses. Each now have meaningful scale and very powerful market position. It's off of this foundation that we're very confident about sustaining growth in the business. A couple of numbers that I think are worth noting. We started with a collection of businesses or activities that were taking place around Moody's that in 2007 represented less than $500 million in revenue for the corporation. At the start of 2008, we put all of those activities, all of those products under the Moody's Analytics umbrella, and you now see where that business is running at an annual rate of over $1.2 billion
What's more, the Enterprise Risk Solutions business, when we started that business in 2007, was a collection of products that represented just over $100 million. ERS is now a $400 million run rate business. Even professional services, that business now is up at $150 million in annualized revenue. That was less than $15 million back in 2007. We're doing a lot of things. I think we're doing them very well. I want to spend a few minutes and dive into each of the segments and talk about what we're seeing going on. Again, in RD&A, it's our biggest, it's our most profitable business. We've got a number of different product lines within RD&A, and virtually all of them are performing quite well. You can see some of our smaller businesses, the economics business, and the structured finance analytics businesses.
Those are relatively small in the grand scheme of things, but delivering very healthy growth rates for us, again, on an organic constant dollar basis. The data and research that we source from our colleagues in the rating agency, which is the lion's share of RD&A, also performing very well at 13% and 9% growth rates. We feel like all aspects of RD&A are doing quite well, and we're very happy with the breadth of the performance across the various product areas in RD&A. We can also look at our performance. We can deconstruct our results according to the various growth attribution metrics that we look at in our subscription businesses. I know many of you are familiar with this chart, but for the uninitiated, let me just provide a little orientation so you can understand what's going on here.
What we're doing here, working from left to right, we start with the total base of our subscription business in each period. Think of this as if we have $100 of subscription business, in the first half of this year, we retained 95% of it. We lost 5% of that for various reasons, customers pulling out of various asset classes and therefore discontinuing products and that kind of thing. We started with $100. We now have $95. We added about eight points on top of that or $8 from product upgrades as well as price increases. We also added another eight points from new sales. New products to existing customers or the acquisition of brand new customers. The net of that customer retention plus upgrades in price plus new sales gets us to 11% growth during the first half of this year.
Again, these are our sales results. These are metrics that we monitor on a monthly basis. We cut this data a number of different ways so that we can understand which parts of the business are performing well. Where do we see weakness? Are there things that we can and should do to either replicate the things that are going well or act on the areas where we see weakness? Importantly, you see that over time, again, working from the bottom of the page, you have the full year of 2013, full year of 2014, full year of 2015, first half of 2016. You can see a pretty significantly consistent story here in terms of our retention rates running in the mid-90s%, which for those of you who know subscription businesses, mid-90% retention rates are pretty darn good.
Again, particularly in this environment, really reinforces this notion of the need to have nature of these products. You also see consistency across the other metrics as well. We feel like we have a good control over this business and good insight into the performance of the business that enables us to take action when we see opportunities or we anticipate challenges in various parts of the business. Turning to ERS, there are a couple of points I'd like to make here. First, ERS continues to grow very nicely. It's been growing over the last five years at a 16% annual rate. We've always talked about ERS as a mid-teens kind of growth business, and that's certainly what we've been doing.
Steve will talk a little bit about some product adjustments he's making in his area as he focuses on generating more operating income, which may have the effect of maybe tempering some of the top-line growth. Nevertheless, we view ERS as for sure the growth engine of Moody's Analytics on the top-line. We've got a steady growth trend. However, I should note that there is a fair amount of short-term variability in the results in this business. If you look at the chart on the right-hand side here, you can see that over the last 21 quarters, we've had about seven quarters where we've been well above our 16% average annual growth rate. We've had seven quarters that have been meaningfully below the 16%, and we've had about seven quarters that have been right around 16%.
The point is, over any short period of time, you can get some pretty significant swings in our reported results just because of the nature of the revenue recognition in this business and the project-oriented work that we do. You've got this lumpy quality to the financial performance in ERS. While we're on ERS, I should probably take a moment just to talk a little bit about some of the things that we do in this business, because we've talked about ERS a lot, and I have to acknowledge it's a little bit of an arcane business, and it's not exactly the stuff of dinner table conversation or the front page of The Wall Street Journal. But I just want to show you, just as an illustration. This is a document that I pulled off of the website of one of the largest banks on the planet.
What this is, this is a required regulatory disclosure that this bank, and in fact, it tells you here that all banks that are subject to the EU capital requirements regulations and/or the PRA, the U.K.'s regulator, they have to file this document and make it publicly available. What's in here is it's called the Capital and Risk Management Pillar 3 Disclosures document. I mentioned that this is not the stuff of dinner table conversations. Nevertheless, there are roughly 130 pages of tables that dimension the capital position and the credit risk and market risk and operational risk exposures of this institution. And this institution depends critically on Moody's Analytics tools, specifically tools that we deliver through Enterprise Risk Solutions, to generate this document and make it available publicly.
What's more, they rely on those tools to prepare a much more extensive set of disclosures that they provide directly to the regulators. The point here is that we provide, first, we keep track of all of these requirements that the regulators set forth and all of the calculations that are required to come up with these page after page of figures. We keep track of that stuff. We provide the calculation engines to enable institutions to actually produce the results that are required, and we provide the reporting templates. That is the format, the electronic formats that are required by the regulators. We are doing all of this work on behalf of banks that need to comply with these kinds of requirements. As I said, you've got one of the largest banks in the world is deeply dependent on us for the production of this disclosure.
Again, that's just meant to provide a little bit of insight into what it is that we do in Enterprise Risk Solutions. I'll spend a moment also on professional services. This is not an area that we talk about too often, it is growing in size. It's $150 million run rate, as you saw a moment ago. We've got a couple of different businesses in here, frankly, we've had some challenges on the top line in professional services. Some of those challenges have been things that, frankly, have been out of our control. In training and certification, these are businesses that are very much non-U.S. businesses that are with heavy concentration in Europe and in Canada. We've taken some pretty material FX hits in those businesses over the last couple of years, that's definitely affected our reported growth rates.
We've also had some softness in the Canadian financial services environment, which has impacted the demand for the training and testing and certification programs that we offer in Canada in partnership with the Canadian Securities Regulator. That's affected the top line. In our knowledge process outsourcing business or the Copal Amba business, we've also had some challenges in a couple of different respects. We've discontinued some product lines since we've taken over the business from the founders over the last couple of years. We've discontinued some business lines that we didn't feel that strongly about. We've also just kind of worked through some of the transition from a founder-led business to a business that's being run by a multinational, publicly listed company. We've also dealt with some idiosyncratic attrition issues with some very large customers.
We've had a number of things going on that have impacted the top line in professional services. I think it's fair to say that these businesses remain very nicely profitable. We're very happy with the operating income that we generate in professional services. I could put it this way, if we had the professional services margins in ERS, we'd be ecstatic. I mean, that's the kind of thing that we're building to and the kind of steps that Steve's taking. We continue to have good profitability in professional services, it is fair to acknowledge that we've had some growth challenges. We feel good about some of the stability that we see in the business, and we feel that the outlook for the various professional services businesses is quite improved over what we've seen over the last few years.
That's a quick review of our three principal product areas. I just want to offer a couple of important reminders about where we are as a company. Ray had alluded to this earlier, Moody's Analytics is very much a global franchise. You look at this map, all of the countries represented in deep blue are countries where Moody's Analytics does business, places where we have customers. I have to say, I'm scratching my head a little bit about what's going on in Paraguay, I assure you we've got our best people on that. The important thing to note here is that the things that we're doing are very much in demand among financial institutions all around the world. We're addressing problems and offering solutions to those problems that are very broad-based, I think we're having good success in building the business.
As you know, we've got more than half of our revenue in Moody's Analytics coming from customers outside the United States. It's a very global business. We've also got, as Ray mentioned earlier, a lot of operational scale. Over the last number of years, we've done a number of acquisitions, and we've engaged in quite a bit of organic build of our capabilities and our products. As a result, I think we now have a depth of capability and a breadth of reach and distribution that really enables us to continue to sustain good growth in this business over the foreseeable future. We're doing a lot of business around the world, and we're also, that business and the work that we're doing is being very well received.
This is just kind of an inventory of all of the awards and all of the industry recognition that Moody's Analytics has gained over the last several years. I think this reflects the strong awareness of our capabilities and the positive recognition of Moody's Analytics capabilities across disciplines and all around the world. Working from this position of strength, we feel that we're operating an environment that is characterized by very healthy demand for our capabilities and our products. I just want to spend a moment on here trying to identify for you why we feel so good about the demand drivers for Moody's Analytics. First, you've got a set of customer challenges that all financial institutions around the world are dealing with. Obviously, they're dealing with uncertainty in the macro environment. They're certainly dealing with increased regulatory scrutiny.
They are certainly focused on improving their efficiencies and managing cost. They're also trying to adopt a growing set of best practices where you've got institutions around the world that are all dealing with a common set of challenges and a common set of problems. Rather than each one of them individually creating a bespoke solution to those problems, they're looking to people like us who can offer a solution that can be applied broadly across a wide range of institutions, and can facilitate their responding to these challenges. The idea here is that an organization like us that can build a product once and sell it many times to solve the same problem that many institutions have. That model makes an enormous amount of sense in this environment where financial institutions are focused on efficiency and cost management.
We think that those challenges create demand for insight and authoritative opinions. We do a pretty good job of that around here. They also create the regulatory requirements as I illustrated earlier with this document, creates demand for financial institutions to manage their data in an efficient manner, to be able to assemble that data quickly and effectively, to report to the regulators and to report publicly on their capital position and on their risk exposures. You've got a number of new trends emerging here. These are less regulations than they are accounting standards, but you've got the IFRS 9 accounting standard and the US variant, which is referred to as CECL. Those are new requirements that apply to all companies, not just financial institutions, but all publicly listed companies that fit very well with the kinds of work that we do in Moody's Analytics.
We are very well positioned, and we're getting very good traction in helping institutions start to respond to and prepare for reporting under the IFRS 9 accounting standard, for example. You've got this need, this set of needs that is emerging, and it is quite intense. Those challenges and those needs give rise to people who can provide solutions that are credible, reliable, people who know what they're doing, people who can represent a market standard approach to solving these problems. We think that describes very well the Moody's Analytics profile. That's why we feel quite good about the underlying demand and the trends that are driving demand for our capabilities. There are a number of things that we have to do to ensure that we address these opportunities. First, we have to continue to focus on product development.
The simplest way to describe what we're doing here is to say that first, we have to continue to make our products better and easier to use. If we do that, given that we've got a need to have product, people have to solve these problems. If we do that well, and we make it easy for our customers to do their work, that is going to reinforce our very high customer retention rates, and will also reinforce the pricing power that we have in this business. We need to continue to ensure that we're delivering very good quality products that are easy to use. What's more, we can continue to expand the coverage or the content in our products. We can add additional coverage, additional insight, additional perspectives that will help our customers address more questions and solve more problems.
Finally, we're also focused on ensuring that we deliver our intellectual property, whether it's our research, our analytics, it's our calculations. We have to be able to deliver that IP through whatever channels make sense for our customers. You heard Rob refer to this earlier. We are delivering the MIS research and data. Of course, we deliver that through our moodys.com website, but we also deliver that through mobile devices. We deliver it through other third-party channels. The idea being that whatever mechanism our customers want to use, however they want to pull in our information and embed that into their workflow, we have to be prepared to do that. We're focused on making our products better, expanding the coverage and the content of our products, and making our products more readily available, more accessible through more channels.
Through those kinds of product development initiatives, we think we can address these opportunities that we see in the market. What's more, we think that through thoughtful deployment of our sales and distribution capacity, we can direct our energy at the best, most promising opportunities in the market. As we talked earlier, we've got a lot of reach around the world, and our brand certainly resonates with customers all around the world. We're always looking at how can we direct our distribution capacity in ways that we can deepen our penetration of our customer markets. I think it's fair to say that much of the growth that we've enjoyed in Moody's Analytics over the last several years has tended to be quite highly concentrated among some of the largest and most influential customers in our various markets.
Having established our credibility with the big players in our various segments, we think we're very well positioned now to start to go down into the tier 2 and tier 3 institutions and address the problems that those customers have as well. Again, they share, perhaps not to the same degree, but they share the same set of issues, the same set of challenges as the large institutions. Looking at how we can redeploy our distribution capacity in ways that we can deepen our markets and deepen our penetration is an important part of how we're going to continue to exploit the opportunities that are ahead of us. Finally, I should take a moment and talk about what's happening in information technology and what we're doing about it in Moody's Analytics.
Clearly, like everyone else, we recognize that there is a lot that's happening with the emergence of new technologies, the emergence of fintech players and the fintech community. This, we believe, presents opportunity for Moody's Analytics. Again, we have to be very thoughtful. We have to be very deliberate about how we take advantage of those opportunities. The way that we're going about this is that we're trying to bring a bit more of a long-term focus to the work that we are already doing in ensuring that we deliver very good results over the short period, over the short term. We recognize that as a company, Moody's Analytics is a company that leverages technology. We're not a company that invents technology. We're not a company that will invent new ways of using computers. That's not what we're about.
There are other organizations that will do that. What we need to do is ensure that we're paying attention to these developments, we are understanding the implications of these new technologies for the kinds of things that we're trying to do, and we're understanding how our customers are thinking about and leveraging those new technologies. We need to ensure that in whatever direction our customers move, we are right alongside them, and we're enabling our products and our IP to be able to leverage those technologies. We've created a small team to focus on all of these kinds of issues, to be close to the newly emerging technologies, to work with our customers, to understand how they're thinking about those technologies and what they expect of us and other people who operate in our space so that we don't miss these opportunities.
It's an important addition to, I think, our operational activity in the sense that our existing lines of business are very focused on delivering this quarter's revenue, next year's revenue. We tend to have a pretty short-term, execution-oriented perspective within our lines of business. We want to add to that focus a bit of a longer-term focus, where we're thinking out three, five, maybe even 10 years about how the evolution of technology and our customers' adoption of that technology will have implications for our product strategy. As I said, we've created this new team. It's led by an Executive Director who's part of our senior executive team, who's really responsible for ensuring that we're focused on this important trend. There are certainly risks associated with these evolving technologies.
Frankly, we're much more enthusiastic about the opportunities than we are concerned about the risks because we think these trends will be good for Moody's Analytics in the long run. With that, I am going to yield to Steve Tulenko, who will elaborate on some of the specific things that are going on in ERS.
Thank you, Mark. Good morning, everyone. It is very nice to see some familiar faces out there. Nice to see a few of you again. I am going to take a few minutes to cover four themes to reinforce some of the things that Mark has talked about today. One, we are going to hit the point that ERS is a growth engine for MA and for Moody's. Two, we are going to talk about margin expansion and how we plan to do that, and how we are doing that. Three, we are going to talk about a recent acquisition called GGY up in Toronto. Then finally, I will talk a little bit about some technology trends that are affecting ERS, just to follow on with the stuff that Mark just talked about a few seconds ago. First of all, ERS is a growth engine for Moody's Analytics.
You saw the CAGR before, 16% CAGR since 2011 in terms of revenue growth. This chart on the left shows you ERS in the light blue and the rest of MA in the dark blue. Enjoyed some very nice double-digit revenue growth over the last several years. The first half of 2016 was good also. We enjoyed a 17% year-on-year growth in the first half in terms of revenue growth. Importantly, represented 51% of the growth for MA overall. ERS is generating a very nice, healthy revenue growth number for us, and we are pretty happy about that. One thing I wanted to footnote on the bottom right of the slide is the mix of revenue.
At this point in time, if you look at where we were as of the end of the second quarter, our trailing 12 months revenues were about 70%, 71% derived from products, and about 29% or 30% derived from services. That number is important because as we move through time, it can have big implications on both top-line growth but as margin expansion as well. We will talk about that on the next slide. That services number is one to think about in the future. Okay. This slide, turning to the margin expansion topic. This slide is one that you may have seen or may remember seeing last year. I showed you this stylized graph on the right-hand side in this event, actually, last year. Let me just refresh the big-picture strategic thinking that we are doing.
First of all, Mark mentioned we have spent a lot of time building out our products here in ERS, and we've developed a pretty nice market presence. Many of those awards that Mark mentioned were awards that were won by ERS itself, and we have multiple years in which we've won those awards. We're starting to develop and believe we have a very strong market presence. We have a robust product offering that matches up with that and is consistent with those awards. In addition to that, you have a very nice, healthy, robust demand. We're also seeing convergence among customer preferences, standardization in terms of the way the customers are tackling the problems that we help them with. With those three things combined, you have an environment that is conducive to operating leverage.
What we're doing very simply is investing in products, and that green line on the right represents what we hope will happen with our product revenues. Investing in products, often endeavoring to create a common code base that can be shared across the customers that are relevant, regardless of size. Tailoring, or I should say tapering back on the services that are required or the labor required to deliver and install those solutions. By investing more in products, we have more robust offerings. The products themselves can earn more economic rent on their own, and we need less labor to install and implement and configure those products. That's a big key part of the strategy.
We aim to drive that revenue mix towards the green and away from especially the red line, which represents those commoditized, maybe lower-value services that sometimes we've provided, especially as our products have been maturing. There are lots of other implementation and professional services we do provide. They're represented by that blue line, where we think they're more strategic. We do want to get involved with new product development ideas that customers are engaged in and innovations they might be thinking about, and this is a great way for us to learn with them along the way. We won't eliminate services altogether, but you'll see us tapering back on the ones that are lower margin. Okay. One example I thought I'd just offer, just to footnote this topic of the common code base, and Mark talked about some of the arcane things we think about in ERS.
I'll just offer an example of Tesla. Some of you may be cool enough to have one of those Tesla cars, right? They have some amazing feats in engineering in terms of battery technology and other technology related to the electric car. But within ERS, the thing that we find very interesting is the way they've done their software engineering. When you buy a Tesla, and you buy, say, the Model S, you're buying a product that comes with software that is embedded in the car. You can buy various options. You can buy the lower-performing option, which has one software set of characteristics associated with it. You can buy a very fast one, and you can even buy one that's considered so fast, they call it ludicrous, right?
The difference between the three cars, or the three versions of the car, other than a battery pack, is basically software configuration. The same software is installed in those automobiles and delivered, and then updated and upgraded electronically. The driver simply says, "Yes, I'll spend more money," and a new car is delivered by simply tweaking the software. The same offering is made available to the different market segments, and that's a very good analogy to what we're trying to do with our software products. Deliver some of those features to the big banks, other features to the smaller banks or insurance companies, and do very little work along the way to make those changes. Make some configuration changes rather than big installation changes. I offer that as an analogy to keep in mind in terms of what we're trying to do strategically.
How are we doing in terms of margin expansion? There's that chart on the left again, and then you'll notice I have adjusted the color coding on the bottom right of the chart on the right. Red and blue combined make purple. It's one of those things that I remember from elementary school. We've combined the services line just to track that one in altogether here. What we've highlighted is an inflection point. Basically, at the beginning of this year, the product investments that we have made and continue to make are starting to change the trajectory on that green line.
You're starting to see revenue growth accelerating there, you're starting to see the purple line leveling off, which is an indication that some of those services that we might have provided before, we're maybe handing over to partners to take care of for us. Maybe the products are doing on their own, and they don't require as much labor to install or configure. There's an indication that we're on track. It's early days, but so far the chart is looking the way we'd like it to look. I will note that these things are not perfectly predictable in that we might very much want to do a big project for a customer where we think there's a strategic element involved or an opportunity for us, and that project could dramatically affect these results one way or another or in any one quarter.
It's worth mentioning that, once again, Mark hit that point as well. Turning away from growth and margin and moving to the acquisition of GGY. It's a pretty interesting opportunity for us here. GGY is a firm located up in Toronto. They have a very well-respected actuarial software product, very robust. It's called AXIS. If you Google GGY AXIS, you'll see this is very prominently well-known in the actuarial circles. What it does is it provides cash flow modeling, valuation modeling, let's see, asset and liability management modeling to support life insurance company risk management activities and business decisions. They have a very robust offering. It's very wide-reaching and greatly augments our offering, which we already have in the insurance space. We're excited about the expansion here, expands our Department or another in Canada. They started in Canada.
They've done a really good job of getting out there in their backyard and developing the business there. They're starting to make some progress in the U.S. They've actually got several customers now. Some of the biggest insurance companies in the U.S. are customers of GGY also. We're looking forward to leveraging our brand, our distribution that Mark talked about before, to help GGY expand both in the U.S. and globally. We're very excited about the opportunity here. We really like the product. Their customers love the product, and we hope that our brand and distribution truly make a difference. That's a pretty exciting opportunity for us. Then finally, the technology topic. This one's pretty rich. Mark talked about the emerging business units and how we might be thinking about new and interesting experiments we might do here.
Within ERS, we might be more in the category of let's do product development and adopt new technologies that are most important to growth now rather than three or five years from now. What are we doing this year and next year to make sure that we hit our numbers? I've hit three themes here that I think are really important to our business, and I thought it'd be worthwhile to mention to you. We get lots of questions about this from this community when we're out visiting with you. There are three big technology developments that we see as they're at a tipping point. I'll start with cloud computing in the middle. By cloud computing, I mean finding a way to not manage the infrastructure, literally managing the metal. People don't want to manage the machines, the servers, the racks that are in their building.
Instead, they'd like to outsource that to other folks, leveraging much more capacity and much more storage capacity, computational capacity on a moment's notice. They like the flexible on-demand aspect of cloud computing. Banks are now getting to the point, insurance companies are now getting to the point where they're comfortable with at least some of their data being managed off-site and maybe even sometimes outside their firewall. That's a big change. Five years ago, none of them would do it. Very, very few. Today, we're starting to see real banks with real projects where they're actually moving infrastructure outside. That's a big change. That change enables the other two items on this chart. Let me take the big data thought.
By big data, I mean armed with all of this capacity and sometimes this flexible capacity that I might have outside of the four walls of my building, I can now ask much more interesting questions than I might have been able to ask before. I have much more processing power. I have much more storage capacity. I have much more data to work with, and armed with that, I can gain analytic insights that I couldn't get before. I might be able to get them in a matter of minutes rather than days or weeks to set up servers or days or weeks to allow the computations to happen.
We literally have bursting capabilities with some of our products and our customers are working with us where they will burst out to 10,000 machines for a matter of two or three hours, run a calculation, shut down the capability, and pull in the analytic insight. That big data trend is happening. People are starting to invest in it. I'm sure your own institutions are starting to hear about this more, but people are starting to spend money there, and we've got to adapt and adopt new technology to make sure we're there. You're going to hear words like Hadoop, Spark, Data Lakes, and you'll hear them more and more as we move through our careers here.
Finally, software as a service, it may be more than just software as a service, but along the same lines of managing your metal outside of the company, software can be managed outside of the company as well. This is another trend that's been important to us for a few years. It's increasingly important to our customers. Big banks, insurance companies, small banks are adopting this as their preferred method more and more often. People are less interested in customized homegrown applications that are unique to their experience and more interested in availing themselves of best practice, maybe benefiting from what other customers have seen and what other elements have been embedded to that single code base again. Armed with that, they can see a more effective, more cost-effective, more flexible, and often more approachable application that they can use.
By approachable, I mean they can walk up to the application that has been built for many different walks of life and literally use it on the spot. If you think about what you do with your personal devices, right. Your handheld devices. The learning curve on how to use those things is not high. Right. You walk up, you press the buttons, you have an app, you can figure it out. Software, industrial-strength software for large financial institutions now has to adopt some of those characteristics as well. It's not okay to go out and train the user community every time you make a change. It's very much preferred to have those changes easily accessible, easily understood, and approachable.
Those are three big important themes that we're working with, and we are investing greatly in our products to adopt those characteristics and make them a part of ours as well. With that, I will
Open up our Q&A session for Moody's Analytics.
Great. Just a quick reminder, if you'll raise your hand if you have questions and we'll get the mics over to you. Just a quick note, we're going to keep this session a little bit shorter just so that we can move back toward our schedule. We'll start up here with Peter.
Thank you. Mark, I don't mean this to be confrontational, but you've told us pretty much the same story for a few years now, and in particular, the focus on margin improvement. I think in the past, you've talked about mid-20% margins. I guess number one, is that still an objective? Number two, the progress has been painfully slow, I think. It's been just 10, 15 basis points a year in recent years. Why is that? Why aren't we seeing more? Why aren't we seeing an inflection in the business? What is it going to take to see that inflection?
Well, the good news, Peter, is at least I'm consistent, right? I would say this, I hope we tried to share this today. First, yes, that's still our plan. Steve tried to illuminate a little bit about some of the things that we're doing and some of the progress we're making in that journey. We're very focused on it. We think it's very achievable, and we feel good about the progress we're making so far. I will acknowledge that it's a little difficult for you to see that. I have to remind you that one of the things that we've said when we talked about margin improvement is I always added the all things being equal qualification.
The point here is that you have to keep in mind that when we have situations like we have currently, this year, for example, where the MA growth rate is running much higher than the MIS growth rate, that results in our attracting more allocation of corporate overhead to MA. The margin that we report, the MA standalone margin that we report from year to year is not on an all-things-being-equal basis. I guess what I would tell you is that from our standpoint and the work that we're doing, we think we're making good progress on that ambition. I guess what I would suggest to you is probably the best thing for you to keep your eye on is not the MA standalone margin, but the MCO margin.
I think if MA starts to contribute a larger and larger share of total corporate revenue and the MCO aggregate margin remains flat or even expands, that I think I would suggest, at least in part, that MA is doing what we set out to do.
I'm going to flip back and forth since we have a last time, we'll go to Alex up here.
Great.
Thanks. On the RD&A side, Mark, the new sales continue to be very impressive. I think you raced through this a little bit, maybe you can give us a little bit more detail on this challenging environment that we all face in the financial service industry. Where are these new sales coming from, geographies, new clients? Help us out a little bit.
It's pretty broad-based, Alex. We're seeing good take-up of the product around the world, across the different product sets, as I showed you. It's no one thing. A large chunk of it continues to be with existing customers taking more product. As we create more products and more variation of the product, we're able to penetrate different areas of the organization. We continue to get a very substantial number of brand new customers that we're acquiring at relatively low price points. We have, I think, a good history now of bringing in these customers at low price points, keeping them pretty much forever, and over time, as they get bigger, as they get involved in more things, we're able to deliver more product and extract more revenue.
Go back here to Manaf.
Hey, guys. I just wanted to talk about the professional services business some more. I know you explained all the headwinds at maybe laps or so, I guess how core is that to the overall strategy with Moody's is the bigger question here.
I'd say it's quite core. I think the key to what's going on in professional services is it enables Well, first, if you think about the training and certification businesses, think of those in many respects as sort of our entry-level products when we want to get into new markets. I made some reference to them on the slides about some things that we're doing in the Middle East, in Africa, in India, where we're starting to gain more penetration with our training and education services as sort of the first step for these institutions that are becoming more sophisticated, more advanced, and are adopting global best practices. We think that the training business is important to us in providing that entry point, particularly in new and developing markets. That's one thing.
In the Copal Amba business, I think that's important to us in terms of it deepens our penetration with large financial institutions. I've always thought of it as our providing people, again, from our platform in India, but people to enable these institutions to make better use of the information and the technology that they might be buying from us. That's, I think, a way to think about how we're deepening our reach into those institutions. You do have to keep in mind the other element of the
Bill Warmington from Wells Fargo. A question on the ERS side. Mark, you used the term looking for solutions that can be applied broadly across many institutions, it wasn't clear to me whether that was you were looking for that or whether the regulators were looking for that. My question is: Can you get those solutions adopted by the regulators as standards, either officially or unofficially? What's it going to take to do that?
Yes, we certainly like the idea that regulators are supportive of what we're doing. Practically speaking, we're not going to get an official endorsement from regulators. Having said that, I think that regulators are very much aware of the kinds of solutions that we're providing. Frankly, we spend a lot of time with regulators. They come to us. They spend days with us trying to make sure they understand our products, our models, our technologies. That as they're out talking with banks, frankly, what they're doing is they're testing whether the banks understand what they're buying from us. It's not so much really getting the regulators to formally endorse it. That would be nice, but I don't think that's really in the cards.
It's really a matter of when I talk about this broad adoption, the point is, again, that you've got many institutions all around the world that have the same common problem. The notion of each of them developing their own in-house capabilities and their own bespoke solutions to those problems, it just doesn't make any sense. It's just not an efficient way to go. Relying on someone like us to provide what I think of as almost like a utility that can be used by many institutions who are all doing the same thing, we think that makes an enormous amount of economic sense.
Move over here to Toni.
Thanks a lot. Just wanted to ask about the ratings data feeds business, have you seen expanded use cases over the years, what do you think the biggest opportunities are in that part of the business?
Again, I think it's consistent with this idea that you could do this work, i.e., keep track of ratings in your internal systems. You can do that through a manual process. We make all our ratings. They're publicly available. That's not a good use of anybody's time to have a battery of people in the back office trying to scrape ratings off of Bloomberg. It just doesn't make any sense. Again, as institutions move more and more toward automation and efficiency, there's a lot of interest in being able to get the information directly from us. They know that to the extent they have to use that either in confirmation statements or in regulatory filings, they know that it's accurate, it's reliable. They can have a lot of confidence that that's not a process that they need to worry about.
There are expanding use cases that are driven by regulation, for sure. All of those things, I think, are driving the good growth we see in that business.
I would just add that those big data questions, the ratings are maybe not millions of records, but it is a good place where you can get a good sense for credit for analytic models, right? You can look at credit in a location or by an industry and enhance and augment your modeling efforts.
Okay, we're going to go over here. I said I'd go to Craig, and then we'll go back to Jeff.
Thank you. Your overall blended margin is against high teens in MA. Can you just break down the three subsegments, where those margins were in the first half? Can you talk about where the upside is long term to get to the mid-20s? Is it from ERS?
The answer to your first question is no, I can't break that down because Salli will be really angry at me, and we don't want that. The answer to the second question is yes. The whole MA margin expansion story is on him. You knew that, didn't you? It's not new information, is it?
It's not new information.
No pressure. Okay. We'll head to Jeff.
Thanks. You had a chart in here, Mark, about the different buckets of RD&A growth, and you lump together upgrades and price improvement. I think it's about 8% year to date. Is it possible to break that out, and I'm specifically focused on the pricing side, what we should be expecting over the long haul? Thanks.
We put those together because frankly, the upgrades and price thing becomes a little bit of a subjective matter of interpretation. If you ask our customers, things that I think are product upgrades, they think are price increases. We put them together just because we felt that I think we capture the data discreetly, but for the purposes of this presentation, we felt that it was a little bit of false precision in breaking that out.
Is that a number we should expect going forward as a success in that market?
Yeah. Again, I think if you look historically, it's been around there. We feel good about where those metrics are, and we feel like we ought to be able to sustain them.
Okay. I think we're good with the questions. I just want to thank Mark and Steve again for their time. We do have a break now for 10 minutes, we will rejoin everyone at 10:45 A.M. Eastern Time. Thank you.
Good morning. I'd like to cover two topics this morning. First, an update on where we stand on the litigation front, also a regulatory update, and we have allotted time for Q&A as well afterwards. Nope, I already missed this slide. There we go. On the ratings litigation front, we continue to make good progress in resolving litigations filed since the financial crisis. Of the five dozen or so cases filed in the U.S., fewer than 10 remain. Outside the U.S., even better progress. We're down to two open cases and in fact we have no cases left against MIS. The two remaining cases, one involved our affiliate KIS in Korea, the other one's our affiliate in Israel, Midroog. Good story internationally. We just listed here some of the more common bases for dismissal. First one's important.
A number of courts have held that the mere fact that our ratings are not predicted with the benefit of hindsight, that's not a misrepresentation. A misrepresentation is if a rating agency puts out a credit opinion they didn't believe at the time they assigned the credit rating. Similarly, from a public policy point of view, the next basis is important. As you know, we publish and disseminate our ratings to a global audience, and courts have consistently held that unless we have privity or some contractual relationship, we don't have liability to millions of people who otherwise have access to our ratings. What's also interesting is what is not included on this chart. Of all the cases we had dismissed, none have been on the basis of First Amendment defense.
There have been various media accounts that that's important. In fact, we've been able to rely on traditional defenses that are available to any financial services firm. On the next slide, those of you who've been here before will recognize some of these decisions. In addition to having success in getting cases dismissed, we've had a number of favorable appellate court decisions upholding those dismissals. The first one, the Lehman Brothers case, is important because it affirmed the dismissal of various '33 Act cases. Plaintiffs wanted to impose '33 Act liabilities, liability under the Securities Act of 1933 on rating agencies because that's the lowest standard of liability. Every court that considered that forcefully rejected it and pointed out that in every structured financial transaction that Moody's rated, there was in fact an actual real live underwriter. Plaintiffs didn't have to go looking for spurious underwriters.
The next two appellate decisions, federal appellate decisions, we've had four federal appellate court decisions affirming non '33 Act case dismissals, and two of them are listed here. The Anschutz case, as I mentioned as the principle about you can't be sued for negligent misrepresentation in the absence of privity. In Ohio Police, the court noted, as we've consistently said, that the right standard is that a rating agency didn't believe the rating at the time it was assigned. In other words, they engaged in fraud, not negligence. This last decision, the most recent one, is important because unlike the other appellate decision, this is a state appeals court, and New York is obviously our home state and the easiest state to get jurisdiction in a lawsuit.
In this case, the trial judge denied our motion to dismiss on two claims, one for negligent misrepresentation and one for fraud. The trial judge was overruled by the appellate court, and the appellate court held that a negligent misrepresentation court must be dismissed in the absence of privity and that the right standard is fraud. Again, similar to the federal courts, the burden is on the plaintiff to prove that the rating agency at the time didn't honestly believe the opinion that it was made. That's, from our perspective, the right standard of liability. As I mentioned earlier, we've also had very good success in getting international courts to consider and adopt the reasoning that have been adopted by the U.S. courts. Two recent examples here, we've cited Israel and Italy. Also some common bases for getting cases dismissed have been lack of jurisdiction.
If our ratings have been assigned out of our London or New York office, that's where Moody's should be sued. Plaintiffs have often failed to prove any reliance on ratings. Turning to the regulatory side. As you are all aware, since 2007, our industry has been subject to extensive regulation in our two main jurisdictions, the U.S. and the EU. The legislative landscape is relatively stable. There is no new proposed legislation or regulation. Of course, the regulatory landscape continues to evolve as our regulators interpret the existing rules and regulations. That is done in part through the examination process. You'll see we're examined on an annual basis by the SEC, and we're almost continuously being examined by ESMA, the Pan-European securities regulator. The SEC is actually required to file two annual reports, and one of those reports summarizes their examination findings.
Those are interesting to read. The other annual report discusses competition in the state of the industry and provides a lot of interesting data about employees and market coverage. In the EU, the one remaining homework assignment under CRA III is both ESMA and the European Commission are required to publish reports on the industry. Around this time last year, ESMA published its report, and basically concluded that there was no need for additional legislation at this time, but they'll continue to monitor our industry very closely for the next three to five years. It's possible that the European Commission will come out with its report sometime later this year.
While there's no new legislation proposed in the U.S. or the EU, in other jurisdictions, particularly in Asia, there are revisions being made to the regulatory regimes, specifically in India, China, and Korea, who are considering new regulation, although we don't expect anything that's materially different from what we have to manage in the U.S. or the EU currently. That's it really on the regulatory front. Happy to take any questions you might have.
Thank you. The one thing absent on your list that I think people continue to ask about is your competitor, S&P, settling with the DOJ last year. I know you always say, "Look at our 10-Q, we haven't changed our language." Anything beyond that will be interesting. Secondly, referring to the 10-Q, can you just flesh out what the test is to when you would have to change your language? For example, if they came in and said, "Hey, we're thinking about a case, maybe we should have some settlement talks." At what point would you have to disclose something or would you not at all?
Sure.
Let's go from there.
Well, as you noted, the DOJ has said that there's an ongoing investigation, and we continue to respond to that. It's not really appropriate for us to comment on an ongoing DOJ investigation other than to refer you to our SEC filings. The standard is really one of materiality. If there's a material development in any of our litigation matters or investigations, then we have an obligation, and we'll of course make an appropriate disclosure, either in a setting like this or in our next 10-Q. Okay. Well, if there are no other questions, that'll help Salli get back on schedule. Thank you.
Thanks, John. We'll go ahead and move to our next session and our final session on financial strategy. We'll have Linda Huber, as I mentioned earlier, then followed by David Platt.
Thank you, everyone. On a lighter note, I would like to take full blame and apologize for coffee cup gate. Okay. Ray, who is an excellent boss but can sometimes be put off by small matters in these kinds of conferences, notes that these square coffee cups were perhaps not the best engineering decision. I watched Bill Warmington try to drink from his coffee cup without spilling all over himself. We issue all product liability warnings about the square coffee cups, and we promise for next year not to give you as a departure gift, the square coffee cup. You probably won't see these here next year. Corporate services works for me. I'm taking full responsibility for this action. We will fix the issue of the square coffee cups, which are new to me.
coffee cup gate explained, and we will move on from there. David Platt and I are going to tag team to talk about the financial overview, our capital allocation strategy. I will give the ever-popular issuance update, and then David Platt will come back and talk about corporate development. The key messages from this presentation, I want to talk to you about our strong financial performance and our total shareholder return over the period of the last five years versus our competitors, some of the peers in the group, and the S&P 500. I'll take you through our journey over this year. Our stock price has proven to be very resilient, despite the fact that it's been a very unpleasant macro year in terms of the events we've had to deal with. You'll see our P/E multiple is in the middle of the range.
For all of you, I think you would view that that means the stock's too expensive. To me, that means that the stock has room to go. We can look at that. The most important thing, though, that I want you to focus on is we believe the long-term growth opportunities are intact. We're excited about that. We are carefully managing our costs while running this business for a long-term perspective. We're balancing efficiency and reinvestment. We believe that the expense invest practices initiatives are going to help us get back to margin expansion, and I'll talk about that in a minute. We like to speak about margin expansion for the corporation as a whole, rather than for one division or the other. We'll take that on. Our free cash flow continues to be very strong.
We continue to return capital to shareholders at multiples of what others in the sector are doing. When we get to issuance has been stronger, but we are concerned about these macro factors that Ray had mentioned, the election, some of the other things going on with the Fed. Getting to it. All right, total shareholder return versus peers. We've got this chart here which shows that if you look at the total shareholder return since September 2011, around this time, 287% return if you consider our dividends. That's more than double what has been happening with the peer group, and you can see who those folks are at the bottom in the footnote, and more than double what's going on with the S&P 500.
We have a number of investors who tell us they sold the stock, they sold too early, and they often lament that decision. We have had a very good run here. We had a bit of a challenge in earlier quarters of this year. Let's take a little closer look at that. You see that at this time last year, we were right around $100. We were at $98.20. We kind of had a pretty calm period until the end of 2015. In 2016, just as the year turned, frankly, the markets kind of broke loose and things became very, very difficult. As we got into February, we were battling with both the oil price issue and concerns about China. Frankly, we didn't see this one coming to the extent that it hit our stock price when we went down to $78.45.
When this kind of thing happens, we get different reactions here at the firm. A lot of people get worried, and I get pretty excited because the stock is on sale. The stock is on sale, it dropped 16%. That puts us in a more aggressive place in our share repurchase program, we did that. Three weeks passed, the stock rebounds to $95.40. That was a pretty fast rebound. When the stock moves, it moves very quickly. We kind of slogged along until we got to Brexit. We did see Brexit coming. We talked to all of you on the second quarter earnings call. I am sorry, first quarter earnings call that Brexit was coming. We were very clear about this. We said that might be an issue for the markets. It was an issue for the markets for about a week.
Literally, issuance came roaring back after a week. Our stock dropped 14%. This is a high beta stock, happens all the time. This one we saw coming. Again, share repurchase program kicks up to multiples of what it would be on a more normal day. We are spending multiples more dollars and we get the shares at a cheaper price, it helps us. $87.88 on June 27th. Before a month passed, we were back to $105.29. The stock again, moves quickly. Recently we have had a nice upward trend. We are about 11%, 10%, 11% up from where we were at this point last year. Again, this has been one of the toughest macro years that we have managed since 2010. As Ray McDaniel said, we cannot control what is going on in the macro environment, the stock does seem to move back up.
For those of you who are old, like I am, you might remember Timex and John Cameron Swayze, "The stock takes a licking, keeps on ticking." Peter Christiansen understands that. We feel pretty good about that. We have made good progress over this period of time. P/E multiples. If you look at the same set of comparables, we are a little bit over 22 right now. If you go back to 2011, we were down around 12. That was too cheap, 22 does show that we still have some room to move up. There are some other businesses in this space whose business models I would submit are not quite as strong as ours, who have higher P/Es than we do. I would hope you will reconsider that at the end of Investor Day today and think that through a little bit more.
A little bit of a conversation about where we have been and sort of what is happening right now. Going back to 2006 on this slide, we had a pretty difficult time from 2006 to 2011. If you look at this, the first two green boxes here, the share count reduction in tax planning added back about $1.01 to the EPS view of the company stock price. Whereas the business, mainly because of the drop-off in structured finance, contributed to $0.96 of decline in the EPS over this time. At this point, everyone in the finance team wrote in their self-evaluations that we are in fact very important to the corporation. It was very helpful to have those factors working for us. If you look at 2011 to 2016, you see a very different phenomenon there.
The share count reduction gave us $0.38. The activities and business lines, and this is the way it should be, the business lines have added $1.64 to EPS. The results of what Mark and Michel and Rob have been doing, four times what we've been able to do with share repurchase. The business performance is really driving this company. Very important that you keep that in mind. We're very pleased about how the businesses have done. We'll now look a little bit harder about where we are in 2016. I took a look at these charts, which had been my favorite charts, and I was a little depressed because this year has been more difficult than many of the ones we've had recently. If you look at revenue on the upper left, 11% CAGR. This year, we're sort of flattish.
If you look at EPS, 17% CAGR this year, we're kind of about where we had been last year. Operating margin from 2011 to 2014, we increased the margin 400 basis points in the light blue line, which is the simple operating margin, recently down 220 basis points. Our cash flow continues to be extremely strong, so that's good. What's going on here? What do we think about this? What are we going to do? Where do we see this going? We think in five-year increments, so we're looking at 2017 through 2021. We go back to the famous four-box slide, and this really frames how we think about growth. Ray talked about this, and in the four-box slide, we have the least amount of control on the left and the most amount of control on the right.
If you look at this slide, and let's just take the low end of some of these numbers. Ray had talked about debt market issuance. Maybe we're optimistic here, maybe 2%-4%. This is just to play devil's advocate. I'm not saying this is what's going to happen, okay? Again, this is not what's going to happen. We're playing devil's advocate here, okay? Write that down. Say we only get 1% growth in debt market and global GDP growth. Disintermediation, take 2, growth in Moody's Analytics, take 2, and in pricing, take 3. You have 1 plus 2 plus 2 plus 3 is 8. 8% top-line growth is still pretty darn good. If you have other companies you can buy which have 8% top-line growth in this very weak growth environment, you might want to consider buying them.
I believe that the pricing box on the right-hand side and pricing reports to the finance function, we feel pretty good about this, and we think that that's going to be at the upper end of the range, okay? You should think about that a little bit. As we get below the revenue line, if we get a high single-digit number from the lines of business, we can do some pretty great things. Dave Platt will talk about how we've done with acquisitions. I want to talk a little bit more about margin expansion because this is an important thing. We've sort of fallen down on the job a little bit on our margin expansion story, and we have to get back to it. We will talk about that in a minute. Share repurchases have continued to be very important for us.
Net reduction in number of shares outstanding of 3%-4%. We buy back 6%, we usually issue about 2%, and the net is 3%-4%. With all of that, with the levers below the line, as Ray had spoken about, we see the long-term EPS growth opportunity from the low teens to the high teens. Yes, with these tools, we can turn even a number in the high single digits, if you want to call eight that, we can get to low to mid-teens. We've done this many times before. Going forward over the plan period. That's not to say we're going to be able to make this work every single year and every single quarter. We feel better about this plan as we move through the plan period.
Let's see where we want to go with this. For full year 2016, we haven't liked the way the revenues have come in, and we've flexed expenses, and we've been pretty aggressive about this for us. $60 million of expense actions. We reduced incentive compensation. We've been limiting hiring in my shared services area, Rob's MIS area. We have to review case-by-case backfills with Ray and me on Tuesdays at 11:00 A.M., and those are not fun meetings. We've reduced other expenses, travel, timing of IT projects. For my shared services group, and we're not the biggest, we don't travel the most, we've taken down the T&E line by 60% over last year. We've worked really hard. We've had some offsets, and because we're Moody's, we always tell you exactly what we're doing in a very GAAP-compliant way.
GGY's operating expenses and some other things have given us $30 million back in expenses. The net for this year is $30 million for what we're expecting. We had told you we thought we'd have about $20 million, this additional 10, the delta of 10, gives us about $0.02 more in EPS. If you noted the restructuring charge that we took, we did some trimming in mainly shared services and somewhat in the rating agency area. If you exclude the restructuring charge, our expense growth guidance now would be in the low single digits and equal to the revenue view. That's if you exclude the restructuring charge. Again, you'll have to think about how you want to consider this. Again, we realize we have to work on expenses because we've had a tougher time with revenue. This is a multi-year adventure.
From 2012, we've been investing in new areas. Rob told you about that. We have to improve our technology. For MIS, we had to wait until we knew more about the regulatory front. We've taken this on in earnest, and we're kind of at the midpoint of that. We can see the end in sight. We're pleased with it. We're retaining our key talent. We like the experience of the talent we have. We have no thought of juniorizing the rating agency staff. We like what we're doing. We like the tenure of the people we have. Cybersecurity has been a big new area. This is expensive for us. We probably don't talk about it that much for a reason, but it's costly for a company like this that has to be sure we have very good cybersecurity. That, as you know, is an arms race.
We keep going with that. Now, in 2014-2016, we've been looking at even more cost control. 2014, we bought in the rest of the Copal Amba business, and these are our employees. We are not offshoring per se. They're our employees who are located in India, Sri Lanka, Beijing, San Jose, Costa Rica. We've been moving work, which is perhaps not the highest level work that we do to our employees in these areas. We flexed incentive compensation, as we've said. What we're looking to get to, at least for shared services, is a 60/40 model, 60% onshore, 40% offshore as we move forward. It takes time to do all of this, and we have to be really careful not to break anything, because the quality of what we do is what this business runs on.
As we go through 2017 and onward, you should start to see improvement. The operating model will be more efficient. We're going to be using offshore more effectively, and again, these are our own owned employees. The technology enablement will help. We're very pleased about all of that. You can see here what each of the groups are doing. Rob and Mark talked a little bit about this for MIS. We're adding technology to the mix. For Moody's Analytics, the focus on getting the margin right and the sales force efficiency. Shared services, we're managing our costs very aggressively. For all of us, we're flattening the rate of headcount growth. 65% of our expenses are people. We have to think about that. Making good use of our own Copal Amba team.
We have many hundreds of these people supporting us now. They are very good employees. We're able to do this at much lower cost. We're managing compensation. We're differentiating in performance. In terms of our real estate, as you may all appreciate today, we're packing a lot of people into smaller spaces. The densification is saving us a good amount of money. For example, each floor in this building or in our Canary Wharf building in London, lease rate is $4 million a year. I would rather not spend money on more space. We're working carefully on our real estate footprint with a lot of respect for the rating agency's standards for data privacy and things like that.
What we would like to do and what we intend to do is to use these best practices and expense management to get back to the mid-40s in the next several years. Mid-40s, we feel that that is back to where we were and maybe even a little bit better. This will take some time. You should not look for this in 2017. We're going to build slowly. We do think that we can get this done. We're very pleased about returning to margin expansion. Now, capital allocation. Take a look at this slide. I'd like you to really think about this. On the left, we have what Moody's has done. On the right, we have what the peers have done.
If you look at our slide, we've used 8% of our capital over this 3-year period for M&A and 5% for CapEx. That's 13% of our capital. Look at the peer group average to the right, 29% expenditure for M&A, 18% for CapEx. That's 47% of the other company's capital being used for discretionary spending. Dividends are about the same, 16%-17%, share repurchase is really where this difference is most clearly delineated. Share repurchases, we use 71% of our capital to be returned to shareholders through share repurchase. Other companies are using 36%. If you think about this, other companies are using 3.5 times more capital for mergers and acquisitions and for CapEx than Moody's is.
Dave has a very interesting slide that shows that this may not have been so helpful to other companies' share prices, I'll let him get into that. I'll let you make your own decisions as to whether the capital expenditures from competitors are working as well as they should. We are very disciplined, and we're very committed to returning our capital to shareholders, and we believe this has worked very well. Perhaps the most important slide, the most underappreciated slide here is this one. Since 2011, we've reduced the share count by 14%, net reduction 14%, 191 million shares outstanding. Dividends on the right-hand side, 23% CAGR. The group has gone up nine. That matters. We continue to have our payout ratio be 25%-30% of our net income, which we have been honoring.
You can see here through the second quarter, I believe this is to August, we've returned $661 million in share repurchase, $215 million in dividends. The average repurchase price is $95.30. The stock today is $109, $108, and change. We've done quite well with that. We think we've bought back quite well. We will continue this plan. This is what we do. It may not be what you like as an investment thesis, it has worked out well for us, and Dave will talk some more about it. Cash flow has continued to be quite strong. Wanted to throw this in there. In terms of our cash balance, $2 billion in cash on the balance sheet, $1.6 billion offshore, $400 million onshore. We're doing very well there. Our leverage metrics, we have added some debt to our balance sheet.
We like our ratings in the neighborhood where they are or better. We are not going to add a lot more leverage to this company. We're comfortable where we are. We have started our commercial paper program. We haven't issued yet. We have a bank line of $1 billion, which is undrawn. If you look more closely at the ratings from the other firms, they do include operating leases, pension obligations, and don't give us credit for all of the offshore cash. If you're thinking about leverage room, you have to think about all of those things. We like where we are. The maturity profile is also very good. We don't have any concentration of debt here. In 2017, we have these very unpleasant last remaining private placement with a 6.06 coupon. It looks towering in this day and age.
We got to figure out what to do with that because we have to pay up to bring that in early. We're thinking about that. We're not sure yet. That's the last remaining expensive piece of debt we have, and we'll get to that in a minute. We have borrowed offshore. We can borrow anywhere. As we said, we've got the extra capacity of the bank line and the commercial paper program. Really good flexibility. New charts for those of you who love new charts. Weighted average coupon of the bond portfolio on the upper left has gone from 5.5 to 4.1. Some of you are thinking, "Okay, that's wonderful, but interest rates have gone down." What does that mean? If you look at the coupons of our bonds on the right, you can see that.
You can see our spreads have come down. You can see on our 2024s, which are our longest-term bonds, the spreads have tightened by 130 basis points. This is a very real indication of the quality of our credit as perceived by the public debt markets, and the fact that we are now a seasoned issuer. Very pleased with how our own issues have performed. Something to think about on that front. Going on to ever popular issuance update, again, we get these views from other banks and other economists. We have color-coded these to make it really, really easy for everybody to see what we're thinking here. Investment grade has been running hot. Biggest August ever.
We had sort of a timing issue there after Brexit. Perhaps we are seeing some pull forward from what we're going to be seeing in the elections and with the Fed. Very strong August and strong September, $130 billion. This is again U.S. investment grade. Pipeline strong. M&A pipeline, $120 billion. Issuance forecast ranges from up 5%-10%. You'll recall at the beginning of the year, there was all kinds of gloom and doom. It was going to be flat to down 5%-10%. Again, you should not put a lot of weight in the prognostications about how much debt issuance there is going to be. High yield is yellow. It was quite active. We will be down from last year for this year's high-yield issuance. Leveraged loans also, we think of as yellow. The market has been good. CLOs have emerged.
That's been really good. The pipeline is strong. Again, we expect to be down a little bit in terms of overall issuance from last year. If you flip over to Europe, investment grade there is green as well, underpinned by the ECB's activity. As Jim Ahern had said, investors are coming here looking for yield. Conversely, issuers are going to Europe looking for inexpensive financing. There are a lot of U.S. companies doing what are called reverse Yankees to try to tap those very low-cost European debt markets right now. High yield in Europe, a lot of volatility around that. A lot of this deal flow is refinancing. The pipelines are characterized as light. Some little bit of implication there from Brexit. With that, to finish this. Again, the key messages. We're very proud of the company's financial performance over the last five years.
We've done very well compared to others. The stock price has been bouncy this year, but we're well ahead of where we were at this time last year. We're happy about that. We feel good about the long-term growth opportunities. The four-box still works. Even if one or two of the boxes comes off a little bit, we will be fine. We're carefully managing our costs, and we're focusing on the margin. We understand what we need to do with the margin, and we're all working on that. Free cash flow is still one of the best reasons to own this company. We are very generous in our return of capital to shareholders. Again, if you want someone else to use your capital to buy acquisitions, you can choose that model. Dave will talk more about that.
Recent issuance, as we said, has been stronger, but we are very much aware of the choppiness coming up in the fourth quarter. With that, I'm going to sit down and turn it over to my esteemed colleague, Mr. Platt.
Thank you, Linda, good morning, everyone. I suppose the level set one thing I can definitively assure you is that we will not be buying manufacturers of square coffee cups for our M&A acquisition program. To start, let me offer some thoughts about how we approach M&A at Moody's. First and foremost, we are disciplined buyers. We have a great business. Our revenue growth and margin profile presents a very high bar. As a result, we consider many acquisitions, but we execute on few. Second, we ask ourselves some very basic questions. Can we simply explain why the deal is strategic? Can we meet our return requirements under a P&L that we can realistically achieve with confidence and accountability? On every deal, I tell the teams the same thing. Focus on the P&L that you can deliver, not the valuation.
Valuation is the outcome of the P&L that can be realistically achieved and not the other way around. Are we thinking clearly about the integration process and synergies and how they will be achieved? I can assure you this is always easier said than done. Deals in the sector, as we all know, are expensive, and we want to buy well. Keeping strategic focus and price discipline is essential. Said differently, again, I tell folks this all the time, a deal cannot be strategic if the numbers do not work. While willing to stretch, we will not price for perfection. If we can't answer these questions well, we think capital should be returned to our shareholders. In terms of transaction activity and what we've been up to, a couple of observations. First, we are constantly in the market and looking at deals.
Since 2005, we've looked at about 500 plus companies and spent approximately $1.3 billion. We have a very active M&A dialogue. We are always talking to bankers. We are always talking to companies. We want to know what is going on and happening in the sector, and we have a fairly good read on what others are doing, what others are thinking. Where possible, we try to transact on a proprietary basis. More to that in a moment. So far this year, give or take, we've looked at about 50 different opportunities. Everyone has sort of mentioned this in their comments, so I will as well. Our business and M&A program is global. Both MIS and MA are keeping us busy. We have continued to emphasize middle market, tuck-in type acquisitions, and we are agnostic to size.
The unifying thread is: Is the deal strategic, and can we make money? I've spoken to this slide before, so let me offer some comments again about our acquisition requirements. We look for opportunities and transactions that offer clear industrial logic, standards, essential information, proprietary data and analytics. Can we leverage our brand, our global reach? Are we enhancing our market opportunities? Are we deepening our ability to serve the information, credit, risk, and analytical needs and workflow of our customers? Second, we use multiple financial screens to make sure we are carefully using shareholder capital. We are very P&L and cash flow focused and really want to understand how long it takes to get our money back. Not to get too esoteric, but in our cash flow models, we think hard about the terminal values and what they are telling us.
Specifically, we do not want to rely on the back end, on terminal values to make the numbers work. We evaluate transactions on an unlevered basis and are not using financial engineering to achieve returns. Bottom line, the numbers need to work, and the deal needs to make sense. With respect to the bottom half of the page, again, this threads through also to Linda's comments, we are very much aware of what others are doing in the sector. That being said, we have a great business, and we are fine sticking with our knitting. We trade in line with the sector, for the most part. Sometimes, I'd be remiss to say that anyone would ever think that we certainly don't think that we're appropriately valued. Hopefully, you'll take that into consideration.
We generally trade in line with the sector, obviously, we've been generating solid shareholders return. I think in terms of, again, what others are doing, or others may not be doing, perhaps the better way to say how we think about M&A here is that we want the M&A program to be value-enhancing and supporting the story. We don't necessarily want the M&A program to lead or to be the entirety of the story. We are all proud of this page, and I'm pleased to report that over the last year, we continued to execute successful strategic M&A. Black Box Logic was attractive RMBS data tuck-in for our structured analytics business and had very solid incremental economics when we brought it in.
Finagraph was a VC-like investment, an enabling technology to extract financial information via the web. It goes hand in hand and supports our small and medium-sized enterprise strategy within ERS, then further complements what we're doing with WebEquity, which we acquired in 2014. Both Mark and Steve mentioned GGY, which significantly expands ERS's presence and capability in insurance analytics. We were very excited about this deal. It was a private Canadian company. We acquired the company, the business, on a proprietary basis from the founders, solid people, very deep capabilities. One of the things I particularly liked, which was a real hallmark of the transaction, was the owners very much cared about their legacy and the employees, sort of what I call the stewardship question. That was a very exciting transaction for us to continue to build ERS. Korea Investors Service, again, very logical.
MIS, we were able to acquire 100%. It further underscores our long commitment to Korea and the Asia Pacific. Just this morning, we announced a collaboration and investment with Euler Hermes Ratings, which is a German-based credit rating agency and a subsidiary of Euler Hermes, which is a world leader in trade credit insurance. MIS and Euler Hermes Ratings are going to work together to launch new credit rating services for SME companies in Europe. We believe that this collaboration has a variety of good prospective opportunities for us. It extends our thought leadership in an important sector of the European economy. In short, each deal was strategic and met our investment requirements. All support organic growth and are consistent with our commitment to providing leadership in understanding, measuring, and managing risk. We have teams deployed and are busy integrating and/or collaborating.
The other part of it, I would be remiss not to say this. Most of this was also happily funded with offshore cash. Post-acquisition monitoring and approach is straightforward. We integrate as quickly as practical. We make sure we preserve what was special about the business we acquired. We actively monitor and analyze performance. We make sure that we are in front of potential issues, and we very much try to understand and learn from what did not go as planned. There are multiple points of post-close accountability. We do annual impairment testing with our auditors. This is not a simple exercise. It is very time-consuming. It involves multiple groups, including mine with our controller's office and our auditors, and there is consistent and regular reporting to senior management and the board of directors as to our acquisitions.
To sum up, we take a practical approach to integration, and post-close, there is very high accountability. Okay. There are several things going on this page with respect to expanding our addressable markets. Let me sort of break it down left to right. Our core markets are generally healthy and growing. Again, we are actively transacting and seeking to transact. MIS, long-term view, spending a fair amount of time in emerging markets. Within ERS, looking for opportunities to meet the complex and changing risk management and regulatory needs of our financial institution clients. Our DNA, we want unique and must-have content. Again, within professional services, across both training and Copal Amba, we're willing to selectively invest to increase scale, capabilities, credentials, and service offerings. On the right side of the page, in terms of adjacent markets and what we're thinking, we find many of them interesting.
The reality is that valuation expectations are very high, and we are mindful of potential revenue growth and/or margin dilution. I'd say thematically, we're very pragmatic. Generally speaking, we are flexible. We believe that we are willing to think and act creatively, look at joint ventures, partnerships. We don't necessarily have to own everything. We're willing to make venture capital-like investments to be positioned in enabling technologies that can all serve to drive content insight efficiency. Finagraph is just an example, and we are selectively doing more. We're not predisposed to M&A. We will work with our lines of business to assess buy versus build. In all cases, getting back to sort of principles, what market need or problem are we solving? What do we bring to the table that's special and unique? Are we defending the core? Are we investing for growth?
Are we deploying shareholder capital effectively? Ideally, if we can find opportunities where we can use our offshore cash, that's better. To sum up, our business is solid. The bar for acquisitions is high. We have an active M&A program and are very much in the market. All the transactions that we do, that we consider, that we think about need to have clear industrial logic and meet our return requirements. We actively seek to grow and expand our current and adjacent addressable markets. The sector is expensive, and we are very disciplined. We conduct regular post-close review to ensure accountability. Common sense and our mission guides our decision-making, and we are very careful with our shareholder capital. I appreciate your time, and I will turn the podium over to Salli, who will lead us through Q&A. Thank you.
Thanks, Dave. Linda, we'll go ahead and start over here with Mark Ling.
Thank you. Excuse me. Thank you. My question is to Linda about just the framework of the guidance. The guidance is, and you've been clear on average over time, low to mid-teens EPS growth, but it was 14% since the end of 2011, right? That included this huge unprecedented benefit from QE in the U.S. and this massive surge in issuance that created one year, really two years of massive growth. When you look forward, it seems like the biggest difference in messaging from my perspective is on the margin and controlling costs a little bit more carefully. 14% is closer to low teens than mid-teens, and you're replacing expense management with unprecedented benefits from QE. I don't understand why the low to mid-teens is still a good range long term.
Thanks. You, I think, have understood the components of what we're trying to say. There are a couple of things that you've brought into consideration there, I want to try to unpack some of that. Actually, if you look at issuance around the world over the past few years, absolute dollar value of issuance hasn't increased that much. I would refute your argument there. I would also call attention to the refinancing walls, which are moving up very dramatically, particularly in high yield as we move through the next 5 years of the plan. We feel really good about that. Whatever we're able to do in terms of value for customers and bringing pricing to that equation, that's compounding. We knew 2016, we talked about this, was a period of time where the refinancing walls were a little bit light.
We talked about the cupboard being a bit bare. We knew this was going to be a tougher year for us. Going forward, we see that trajectory perhaps looking a little bit more favorable, all things being equal. As you've heard from some of my colleagues, we expect rates to be lower for longer. We're not expecting rates to go roaring up because there isn't much growth in the world. We think we have a relatively, potentially steady state view with interest rates right now. We have very strong refinancing walls, and if we bring appropriate value to customers, we may have some pricing ability. We actually feel pretty good about that.
One of the greatest issues that we wrestle with investors is this idea that all the debt in the world that's ever going to be issued has been issued, which is kind of curious to us because there are those very clear-cut refinancing walls that we look at. There's a lot of debt to be refinanced. We would be happier if CapEx picked up and there was more debt issuance for CapEx, but that would require more growth than is being seen right now. We think the equation can work. You're absolutely right. Sharpen the pencil on what we're doing with cost management and efficiency. We do think that we can make the equation work.
We're going to keep going this way, we'll go with Tim.
Hi. Linda, just on pricing, I think a year ago, or maybe it was 2 years ago, but it felt like you pushed us to the lower end of the 3%-4% range. You said the higher end just now. I guess what's behind that? Can you talk more about that?
This is frankly something that too much attention is paid to. Sorry, don't mean to offend you, Tim. We're looking at pricing power for the entire corporation. I think Moody's Investors Service is overly focused on. Mark showed you some very powerful slides about his business. Looking at everything we're able to do as a corporation, we feel that a balanced view is 3%-4%, maybe a little higher, maybe a little less high. We have to be careful about what issuance is actually going to come to pass. That matters because as Ray often says, even if you move price a little bit on bonds that aren't issued, the answer is still 0. We feel comfortable about where we are if issuance plays out in the way that we expect that it will. We're pretty comfortable with where we are.
We'll go back here to Manav, then we'll come up to Peter, then I promise we'll come to this side of the room.
Sorry. Hey, Linda, just to clarify there, the mid-40s margin target that you said, that's the GAAP number. Does it depend on that 8% low end of revenue growth that you laid out? Just for this year, the tax rate came down. You said issuance is really strong in third quarter. You said costs were better. You said you kicked up buyback. Can you help us understand what the potential range of negative outcomes in fourth quarter you guys are assuming to sort of not move the needle?
Okay. Manav, you're trying to get me to answer the fourth quarter guidance question, which I'm not going to answer, or Salli will be mad at me. I think some of the things we're thinking about, we have some puts and takes, we left the guidance range $455-$465, excluding some of the other things that we did. The reason for that is it could break to the upside. We could have better issuance. If we have an unforeseen election result, the markets could trade off, and issuance could fall for a week or a month. We don't know where that's going to go. The Fed's timing, of course, is uncertain, which could pull issuance forward or not. We haven't made any changes to what we're doing with share repurchase.
The guidance on that remains the same as Ray had said earlier on, and we are working hard on costs, as we said, and that may help us for a few cents. The $10 million better expense savings will give us about $0.02, we think. We're watching everything. If we have pretty good growth on the top line, yes, we can continue to convert that on the bottom line, and we think that still works.
Come up front here.
Thanks. Linda, I just want to be clear on the messaging around the margin because it.
I knew Peter was going to ask the question.
Our favorite topic. I wasn't sure if you were saying that for 2017, we shouldn't necessarily anticipate margin improvement because of investment spend, or do we see it sooner? Related to that, to get to the mid-40s, would that imply sort of an expectation of maybe 50, 100 basis points a year? In violation of the Salli Schwartz edict. I also wanted to ask you, this German deal seemed kind of interesting. Is this getting you into the D&B market space? How should we think about that? How big is that opportunity?
Sure. Dave can take that up. Peter, we're thinking about a five-year period here, and we're going to work toward margin expansion back to the mid-40s on the simple operating margin over that period of time. We are continuing to invest as we move through 2017 and 2018. If we are able to achieve margin expansion, that will come more toward the latter years of the plan period. The honest answer of what's going to happen when, fortunately, I can't answer even if I wanted to, because we haven't done our budget yet for 2017. We'll have to talk with you about that in February. I think we're trying to indicate that we are paying close attention to all of this, and all of us are pulling together on that front. When David mentioned Euler Hermes, I think the owner had actually been Allianz.
Dave, I think you.
The parent insurer in France is Allianz in Germany.
Right. Okay. Now that we've got that straight for all the French and German people in the audience, I'll let Dave continue.
With respect to the deal this morning, I think in terms of the market opportunity, I wouldn't necessarily try to dimension it. It's meaningful. We've talked about in the past the fact that there's elements of SME credit that are somewhat atomized, meaning there's a lot of different places where providers of information in that space. With respect to this, we've been working on this for a long time. Euler Hermes is going to be a prospectively great partner. They have a variety and long history of data because of their trade credit insurance operations. We're going to be able to work with that information within MIS using our methodologies. We view this again, SME credit in Europe as a fairly important element of a more prospective support of growth in SME company growth in Europe and capital formation.
As a philosophic matter to extend our thought leadership, we want to be present in this part of SME credit in Europe. Similarly, and again, there was elements certainly of this in the Finagraph transaction that we did it for Mark and Steve on Moody's Analytics. We're also thinking about ways to participate in SME credit, which Moody's Analytics already does in various parts of its product set, and it complements what's going on within ERS, which works across the tier 1, tier 2, tier 3 banks. It is an area where we're spending time and thinking about how to be additive and bring something special to the table.
Okay. We'll move over here. We'll start with Alex.
Thanks. Just want to follow up on the margin commentary. You talked about efficiency gains. I think you had BCG in earlier this year to look at processes across the company. Just wondering, can you give us a little bit more color on what are the big buckets are or projects are where you think they have cost reduction opportunities so we can get a flavor of how achievable that is? Do you have an absolute dollar value in mind in terms of like where maybe you or consultants have said, like, this is an absolute number you can take out in the next five years?
We no longer have any outside consultants working with us on this, Alex. We're doing this ourselves. I did a lot of this work when I worked at a West Coast financial institution 15 years ago. We know how to do this. We can get this done ourselves. We are working on that. In terms of the efficiencies, sometimes you have to invest in the technology before you can harvest the benefits of that. A very simple example, we have a lot of people in our billing team. We check our bills very carefully. That's an important thing to do. If we bring some more technology to that part of the system, we have to think about the best use for all of those people. That would just be one example of things that we need to think about.
That project will not be done tomorrow or even at the turn of the year, so we're going to have to keep working on it. We do see that we will get more efficient over time. We are mindful of our employees who are often very talented, and we want to redeploy them in other areas. We think about that. We're not going to go slashing and burning through this company. We're pretty pleased with where we are. Our margins are very good. We'd like to do a little bit better, but we're going to do it very thoughtfully and we are going to be the stewards of our own course in that along with Mark and Rob.
Okay. We'll come up here to Andre.
Thank you. I guess I wanted to follow up on Peter's question about the acquisition amount this morning. I wanted to think about why not enter that market in a more meaningful way than just a 5% stake. Why do it in Europe and not the U.S.? Why not do it organically? I guess in that slide on page 106, we have all the adjacent markets. Just how do we think about where this now fits in relative to the other opportunities that you're evaluating in terms of handicapping?
Okay. I'll take it in pieces. First, in terms of the Euler Hermes investment specifically, it is an ESMA-regulated CRA. First and foremost, there are rules which govern our ownership to what we can actually have as another CRA. In terms of doing it on from a de novo basis in Europe, while we thought about that, one of the things that was prospectively what we believe is special about the collaboration is access to the data and information that Euler Hermes has. They are similarly a very conservative, a very old and respected company, and how they have been willing to share or prospectively have their information used, they've been very, very circumspect about. The time it actually took to do this transaction and work with them and develop a trust was something that was a longer-term project.
We believe that the collaboration and the partnership will go well, and we'll continue to sort of explore how we can prospectively do more in SME credit, either prospectively together or if there are other ways to pursue it. In terms of doing something larger or the United States, or what we're doing in MA, we already have several products in MA that sort of speak to SME credit. It's not that We're not there. In terms of trying to further build it up and figure out how to do it in the most impactful way and bring new and better insights into the market, that's something that we are working on considering, and it's part and parcel of the enabling technology work that Mark, Steve, and the leadership in Moody's Analytics are doing.
We're just going to take these last three, then we do need to leave a little bit of time for Ray. Alex, I'm going to move to the other ones first. We'll go to Craig, who's just second row here on the end.
Linda, could you just talk about this ongoing concern out there in the market about potentially higher short-term rates if hypothetically, Fed raised rates, say 100 basis points over a year? I assume it would come because better outlook on growth in this country. What do you think that would mean for debt issuance? What's your base case there?
Sure. Craig, that would be a pretty aggressive scenario. I don't think anyone who works on these things for us or that we have seen would see a rise being that rapid. In fact, if that did happen, that would indicate vastly improved fortunes for growth in this country. We think that it might take a while to adjust to, we think it might be good for Moody's. That quick a pace would not be helpful, some increase in interest rates would actually be somewhat helpful. We're not totally afraid of this kind of increase coming.
We're going to go just back here to Joe, just in the back on the left side.
Hi. On page 106, you talked about the adjacent markets and potential for M&A. Assuming valuations were not at par, how would you rank those markets from an attractive standpoint? You also talked about, I think, in one of the slides, that you're willing to take some dilution for three years before. I'm wondering how that works into your margin expansion story.
I think the question of sort of rank ordering the markets is, I'm glad to perspectively handle it offline. Honestly, the issue with all those markets is there's pieces of them that are perspectively good. There's a wide disparity between their organic growth rates and/or their margin profile. I don't want to get into sort of false precision. I think the reality is there's places there, whether it's index, whether it's SME, whether it's other types of data that run sort of the spectrum of commodity-like versus specialty must-have. Another way to frame it is standards-like versus alpha. Standards fixed point, which we try to philosophically be, versus alpha, you have to be the smartest person in the room every day, and the day you're not, you don't have utility.
The fact of the matter is, again, where we currently exist on the left side of the page in our current markets, those have had very good growth rates and very good margin characteristics. The right side, again, they're all logical, and they could all be pieces could be selectively logical, but again, it'd be selectively and surgically. I suppose in short, there's pieces within all of them that we like. In terms of the prospect for dilution, there are some things that we buy that they meet our return requirements. There is some back-end loading in terms of the time it takes for us to bring them in, integrate them, and sort of turbocharge them, push them up. That's where we may see a little bit longer time to get them pulled in.
That's part and parcel of what we're doing, and of both the strategic thesis and the analytics.
To answer your final piece, acquisitions are not helpful to increasing the margin. Dave and I have this conversation several times a week, sometimes once a day. We have to be very thoughtful because the happy situation that we face is that most anything we do will be diluted, and we have to be very cautious about that. I think we footnoted that on our margin slide appropriately.
All right. We're going to take one last one from Alex, assuming it's brief. Okay.
Okay. I don't know.
Then we'll go to Ray.
Yeah, just actually following up on your last point on the M&A side. Can you actually talk about your historical M&A and the kind of growth rate that those companies have had? I assume they've all been growing faster than the core Moody's business, but any sort of numbers you can throw out there, and then post-acquisition, maybe within two, three years, the kind of improvement that you've seen because they're now under the Moody's umbrella. How much have you, to use your word, turbocharged some of these companies?
It's hard to generalize. I think I'd put it this way. On the margin front, for the most part, there's some of the transactions that we do where because of what we're able to do once we onboard them, there's a fair amount of cost. They're mostly data. We can take them in, and the incremental margin is significant, and it's higher than what we have. In terms of sort of steady state growth rates, I suppose, I think the best way to answer the question is on balance, we are at a minimum trying to look at opportunities that have high single-digit growth rates sort of coming in. Because we are able to sort of fold them into the machinery, are able to get them longer to our average long-term growth rate aspiration, which is around 10%.
Again, to generalize, some do better, some do a little bit lower. On balance, I guess I would say all these transactions are beating our return and our acquisition case assumptions for the most part.
Good. Well, I just want to thank Linda and Dave for their time and on the presentation and questions. We have just a few minutes left with Ray for his close and final Q&A.
Okay. Thank you very much. We do have a few minutes for any additional Q&A, which I'd be happy to handle or ask one of my colleagues to come up and address if it relates to the areas that they have talked about. One thing I did want to mention, echoing an answer that Linda gave to the interest rate question. If we saw interest rates 100 basis points higher by this time next year, I actually think that would be very good news. I don't think we're going to, but I think it would be very good news. The need for, at some point, business expansion, business confidence, investment in property, plant equipment other forms of capital expenditure are really the source of new money activity into the bond markets. Refinancing is great. Being able to look at the refinancing walls and the opportunities that presents is terrific.
At the end of the day, our business and many other businesses are benefited by demand for capital. New demand for new capital. That's really where we've seen a lack of growth in the last few years. It's symbolic or emblematic that we have low interest rates. We have negative interest rates in some jurisdictions. Those symptoms of a lack of growth, lack of business expansion are what we really want to get through cyclically and turn the corner on that. If we did see official rates higher, substantially higher over the next 12 months, I would expect that that goes along with conditions of new money borrowing probably spread, if not compression, probably holding spreads. The borrowing conditions would remain very attractive by really any historical measure.
If we could add the new money borrowing, new demands for capital, that's going to help with disintermediation, it's going to help with capital expenditure source funding, and as a result, ratings. I think that would, on balance, be a good profile for us to be looking at. Let me see if there are any other questions that you had for me. Go right here.
Hi, I just had a quick one. Could you just remind us what % of your MIS business is refinance versus new bond issuance?
The refinancing this year was running about two-thirds of the issuance. Is that right? I'm just looking over at my colleagues for confirmation. Sorry. When I said two-thirds, those were mentions of using bond issuance for refinancing activity. When a company talks about why it is financing, it talks about general business purposes, refinancing, capital expenditure. It's been mentioned as a reason for financing in about two-thirds of the bonds that have been issued. But the actual refinancing component, because you mentioned many things or firms often do is about 35%. Yes, Bill. I'm trying to do this in a way where you can pass the microphone to people at the front.
Linda had mentioned the juniorization of the analytical staff in passing. It's something that S&P is reputed to have been doing. The question is that something that you will potentially eventually be forced to do if your competitor in a duopoly is essentially doing that? If so, what kind of implications does it have for hitting your margin targets, also in terms of impact on your culture?
Well, I'm not going to speak about a comparison with any single competitor. Our strategy to be the rating agency of choice is a strategy that invests in the seniority and expertise of our analysts. We don't want to juniorize our analytical staff, regardless of what anyone else does. We want issuers and investors who meet with us to have a rich dialogue ideally to come away from discussions with us having learned something about themselves or their industry that they perhaps didn't fully appreciate. We think we need an experienced staff for that. We want people who have very significant, not only tenure with Moody's, but experience in their industries and with their portfolios. That is the model we are very much committed to.
I won't say we would never change it, but that's what we think is going to position us in the best possible way for the long-term future. Yes.
A few times today, people mentioned innovation. I was wondering, does that ultimately fall under you or is it-
Different innovation. Yeah.
Right. Does it ultimately fall under you or is it more spread to the individual like MIS and MA? Are there metrics that you are looking at internally that, I don't know if you can share, that we can use in the future to measure how you're doing on innovation and product development in disruptive areas?
Yeah. I think we will be talking about this increasingly as we move forward. We are looking at innovation and product development at the MIS and at the MA levels. We do come together and look at it corporately and in particular, well, I shouldn't say in particular, but in addition to organically what we can do, how some businesses that we might invest in or buy would fit into enabling technologies, innovation. You've seen some of that in some of our recent investments and acquisitions. In terms of metrics, I think it's going to be fairly easy for us to pull out certain products that you would consider technology-enabled or innovative or meeting a new customer need. Mark made a mention of IFRS 9 and what we can do in terms of software solutions for that. That will be fairly discrete.
There are going to be other things that are going to be much more difficult to give you a hard metric on in terms of how we might be using big data. Just to give a simple example, in what you might consider to be a very traditional component of our business, can we use population data, population demographics, trends in population statistics to help inform, for example, our public finance ratings on municipalities, and thinking about that in new and innovative ways. That's just an example. What can we do with machine learning and machine production of narrative research and using what we can get from big data to help inform that. We'll talk about it. We'll measure it where we can. Certainly, anything that works we're going to brag about. Not everything will be able to be pulled out into a discrete package. Yes, Peter.
Ray, we've heard a couple times today about competitive dynamics in the ratings business, and I think that's different than what we've heard in prior sessions at the Moody's Investor Days. It hasn't really been much of a focus. Is that something you're focusing more on? Do you see some structural changes in the competitive environment?
I don't see any structural changes in the competitive environment. I always think about the competition. It may have just gotten more air time today than it has in some of our previous investor days. In terms of our coverage, our share, the comprehensiveness of our ratings, those have not declined at all at an overall level. Certainly, we have areas where we are stronger and less strong. Depending on the activity in those areas, we might see cyclical adjustments in coverage. Overall, really no changes. The areas that have been most competitive historically remain the most competitive currently, and where we have particularly strong positions, we continue to have particularly strong positions.
Can I ask you a follow-up on that? It's more competitive, I think, in the structured finance market, and I think perhaps it's become more competitive even in the last five years. I think historically the view was that that was a more profitable component of your business. Does that suggest some implications in terms of margins over time?
It is not a more profitable part of our business. It is transactional, it is more cyclical. There are peaks and valleys in structured finance and in the component parts of structured finance. One of the things that I've observed in structured finance is certainly not that our position is any less. The competition around us has become somewhat more fragmented because of the number of participants in that market. Rating shopping has always been a characteristic of structured finance, and that looks like it's going to be with us in the future just as it has been in the past. Whether rating shopping involves four or five or six rating agencies really doesn't change the dynamic of the fact that ratings are shopped in that area. Yes.
Yes. Thank you. We're based in Germany, and we're quite close to a company which is still sort of like a startup, and they're trying to come up with a challenger product to your product, actually, ratings and based on big data and AI. I was just wondering, you have 1,600 analysts, and I was just wondering why there is still the case that it's still very human-based, this judgment on credit, and why hasn't it evolved actually more into automated sort of process?
First of all, I point out that to the extent that firms have competitive developments underway in terms of using algorithms and data to compete with traditional ratings, we have that also. We've had it for over a decade in Moody's Analytics side of the business. We can provide with our EDF product a credit score on a vast number of firms. At the end of the day, the characteristics of the rating system that are particularly valued and hard to replicate are the fact that they are, as I said, they're relatively stable, they're predictive, and importantly, they're predictable. It is more difficult to get those characteristics if one is using algorithms based on market data, bond pricing, equity price movements, et cetera. There's a lot more noise in the system.
The stability of the rating system, the judiciousness with which rating analysts and rating committees contemplate whether to make a rating change, take a rating action, and having a human being or a group of human beings to talk to about your credit as an issuer or as an investor are highly valued. I think there will be alternative products that serve other market needs, just as Moody's Analytics offers alternative products that serve these other needs. Those components of the rating system have proven to be very resilient, and I expect they will continue to do so. Perhaps even become more important going forward. Okay. I want to thank all of you for joining us today. I think we've pretty much got you out of here on time. I hope you found the presentations constructive.
We will be available in the lunch area for anyone who wants to continue to speak with us. We look forward to seeing you next year. Thank you very much.