Welcome to Moody’s 2015 Investor Day, both to those of you here in the room with us, as well as to everyone that's joining us via webcast and on our conference call line. My name is Salli Schwartz, I'm Moody's Global Head of Investor Relations. As we begin, I'd just like to review a few of our logistics with you. First, for those of you here in the room, all of today's sessions will take place in rooms C and D, where you are now. When we break and also for lunch, you'll find refreshments in rooms A and B, which are to the right when you exit this room. During the presentations, we ask that you hold all of your questions until the Q&A sessions at the end.
That said, if you do need assistance at some point during the day, please look for any of our volunteers, which have red tags on their name badges. For your convenience, we also have an information desk that's set up just outside this room. Finally, please help us improve our future events by giving us feedback on today. For those of you that are on the webcast, you have two choices. You can either fill out the survey that's at the link at the end of your broadcast, or you can fill out the survey that we sent to your email. For everyone in the room, you should have a copy of a survey at the back of your binder, or you can fill out the survey that we email to you after the event.
If you just take five minutes and give us your thoughts, I'd really appreciate it. With today's agenda, first we have Ray McDaniel, Moody's President and CEO, making his opening remarks. We ask that you hold your questions for Ray until the end of today's events after his closing remarks. Directly following Ray, Michel Madelain, President and COO of Moody's Investors Service, Rob Fauber, Managing Director and Head of our Commercial Group, and Jim Ahern, Managing Director and Head of our Americas Structured Finance Group, will talk to you about our ratings business. The session after that will include 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 our Moody's Analytics business with a focus on ERS. Following Mark and Steve's presentation, we will take a short break.
When we come back from the break, John Goggins, Executive Vice President and General Counsel of Moody's, will provide a legal and regulatory update. Following John, Mark Zandi, Moody's Analytics Chief Economist, will provide a macroeconomic overview. Our last session of the day, which covers various aspects of our financial strategy, will be presented by Linda Huber, Executive Vice President and CFO of Moody's, David Platt, Managing Director and Head of our Corporate Development Group, and Lisa Westlake, Senior Vice President and Chief HR Officer of Moody. After the financial strategy session concludes, Ray will make his closing remarks. With that, I'll now turn the event over to Ray. Thank you very much for taking the time to be with us today.
Okay. Good morning, everybody, thank you, Salli. Appreciate everyone dedicating a half day to listening to the Moody's story. I'm in the role of telling you very briefly a number of things that you will hear about in more depth from my colleagues. We'd be very happy to take any questions that you have once we've finished our prepared remarks. I'll start with guidance, move quickly to the macro conditions that we are watching, as I'm sure all of you are watching. Just make a few comments on those. Focus on the growth drivers for the firm. Turning to our guidance, you can see that we are confirming the guidance that we had in the end of the second quarter. Specifically, earnings per share of $4.55 to $4.65 for full year 2015.
This is really consistent with, as you might understand, with our expectations at the end of the second quarter. We had a strong first half of the year. We expected that there were going to be choppy conditions in the second half of the year, as well as some very challenging comparables to 2014 in certain of our business lines. Although some of the specifics have changed, this is at this point in time playing out according to our outlook at the end of the second quarter. As a result, we are reaffirming our guidance. Let me turn now to some of the macro elements that we are dealing with. You can see both for 2015 and looking out to next year, I think we, along with many other observers, are expecting subdued GDP growth in key regions around the world.
I would point you to the first bar in each of these groups of bars, which shows the 10-year GDP growth average before the financial crisis, is comparing that to what we are seeing now in 2015, 2016. You can see that really in all regions, and globally, we have a more moderate expectation for GDP growth, in particular, in the Eurozone. We have modestly increased expectations in the U.S., flat in the Eurozone, but at a low growth level, softening in China. The macroeconomic conditions which influence, in particular, the Moody's Investors Service part of our business, are pointing to growth, but pointing to subdued growth or moderate growth compared to what we had seen in prior years. That being said, there are obviously both opportunities and risks that are associated with this outlook.
In the U.S., we have had a generally positive story with good job creation, low unemployment, high corporate profits, accessible financing conditions. Outside the U.S., we have seen more challenging conditions, the opportunities really come from the effects of accommodative monetary and fiscal policies in some of the important economies where we are present. There are also risks associated with Fed tightening or expected Fed tightening, weak demand in Europe, really how well China is going to manage some of the challenges it has in some key sectors of the Chinese economy in terms of dealing with the slowdown that they have been experiencing. The ability to deal with that deftly is going to be important in that important economy. U.S. monetary policy. We have been expecting an increase in interest rates for some time. As everyone is aware, that has been delayed.
The story I think at this point is that when interest rates do increase, we expect it to be both modest and gradual. Low and slow is really I think the expectation at this point. I would just point out that the market is still anticipating a less than 50% chance of a rate increase by December. At least according to market sentiment, we are into 2016 before there is a probability of interest rate increases. As I said, I would expect that that is going to be very modest when those increases occur. In some ways, I think the motivation to increase rates at this point is to provide flexibility for the future in order to decrease rates if need be. Certainly, we are not seeing a lot of inflationary pressure. The growth outlook is, as I said, modest.
We have conditions that are not arguing for any kind of sharp adjustment at all. I would also expect to see a flattening of the yield curve as a result of this, the relative attractiveness of long-term financing versus short-term financing may encourage terming out of debt. We would think that is a positive. As we've seen in recent years, there has been a modest increase in the tenure of the debt that's in the market. Generally speaking, the terming out of the debt is going to be a positive for bond issuance. All of this leads to a question of what does this mean for Moody's? We still see generally accessible market conditions. This week is more challenging than last week. That kind of choppiness I expect is going to continue on for an indefinite period.
Benchmark interest rates and yields remain at historically low levels. The corporate refinancing walls, which we have talked about frequently with many of you, will begin rising again in 2017. The default outlook, although this has received quite a bit of attention lately, still remains relatively benign. We expect an uptick in defaults in 2016, going into 2016, but not a high default rate compared to historical averages. M&A activity has been robust, and there is still a very strong pipeline of financing related to M&A activity. Quantitative easing in Europe encourages more U.S. companies to go to the euro bond market because of the low cost of financing. These are all positive conditions for debt issuance. Now let me turn a bit to the disintermediation story, which again has been a long-term driver for the Moody's Investors Service business.
I'm going to highlight disintermediation in Europe and China. The story in the U.S. I think is fairly well understood. We have a fairly mature market in the U.S., although we are still seeing a large number of new rating mandates emerging from the U.S. The story in Europe is more structural. You can see that there has been a long, slow trend to increasing the % of outstanding debt in the market coming from bonds. This has doubled since 2008. I think this chart is also interesting because you can see the increase in the early 2000s and then where there's a modest decrease in bond representation in total debt in Europe. It was associated with the conditions that we saw from 2004 through 2007.
Really the question is, do we think those are the kinds of conditions we are going to see again, which might argue for a reversal of some of the disintermediation, or do we think that the conditions in the banking sector are going to be more restrictive in the future than they were during that period? Clearly, with the reactions to the financial crisis and regulatory changes that affect the banking sector, we would expect to see disintermediation continue. This has been a story that has been really part of the Moody's growth story going back into the 1980s and even into the 1970s. I would expect we will continue to see this long, slow, gradual movement to the bond market. It improves liquidity, safety, flexibility for firms. Again, we expect this to continue.
Looking at China, again, we see the growth in the bond markets coming from China. This has been choppy and you can see based on conditions in China currently that the changes, the opening of the capital account are expected to be gradual. It's again going to be an ongoing long-term process. I point you to the bar chart on the right because this shows the number of ratings that we have on Chinese entities. It has been a very successful story. These are cross-border bond issuers for the most part. We now have just over 180 rating relationships for these entities that are entering the international bond markets, Euro bond market, or U.S. market. Turning to Moody's Analytics, we have several growth platforms.
Obviously we have talked quite a bit about the Enterprise Risk Solutions business, Steve Tulenko is going to talk with you about that later this morning. We have had very strong growth across all of these businesses, and it's been both via acquisition and organic growth. We will break that out in more detail for you later this morning. What I want to point out is that the growth has come from all of the sectors. We have had particular success, as I mentioned, in Enterprise Risk Solutions. In some ways that masks the success we've had in the other businesses. I would point to the RD&A research business in particular, which has enjoyed very strong growth rates compared to its historical averages in the last couple of years.
We have the products and services in the pipeline that we think are going to continue to support growth at a very satisfactory rate in that business. That is our largest part of the Moody's Analytics business. Again, you're going to hear more about this later, it's been a great success story. We expect that to continue. All of this leads to what many refer to as our four box chart and what our growth expectations or our build for growth anticipates. This chart is largely unchanged from anything you would have seen before, I will call your attention to the changes. For one thing, on the pricing side, we now are saying as opposed to approximately 4%, we're saying 3%-4% in pricing.
This is in reaction to a very low inflation environment in many jurisdictions around the world where we operate. It's also a recognition of our increased size. The denominator in terms of what we're looking at pricing against has grown with acquisitions and with our organic growth. We also have added the potential for selective acquisitions as part of this story, that's not a change in our philosophy or our outlook or our expectation. It's really a recognition of what we have been doing in recent years. We don't anticipate a change in our acquisition profile, but we would expect to continue to look for selective tuck-ins that support the existing businesses we're in or are complementary. We believe that that is going to lead to low- to high teens growth in EPS on average, depending on how these various factors play out.
It's a very consistent story with what you've heard before. We've just tweaked a little bit of the communication around this to try and be as precise as we think we can. In summary, we like the businesses we're in very much. That makes execution the number one priority for us. It's not looking to get into other businesses, it's executing around the businesses we are in. We have financial resilience. Linda is going to talk about this a bit more later. We are able to grow this company under a wide variety of macroeconomic conditions and climates. We have the financial resources to pursue both attractive strategic growth opportunities and to return capital to shareholders. That is a very consistent message, consistent story with what you have heard from us in previous years.
Frankly, I expect we're going to be saying very much the same thing when we talk to you again next year. That's not to discourage everyone from coming and listening to us, but it's a consistent message. Thank you very much for listening to my remarks. I'm going to turn this over to Michel Madelain, who is the President and Chief Operating Officer of Moody's Investors Service. As I said, we're very happy to answer questions later once we've gotten our full communication out to you. Thank you very much. Michel?
Thank you, good morning, everyone. I think Ray provided a great setup to what I'm going to discuss over the next few minutes, I think in the context of much discussion of weaker growth and financial instability and negative market sentiment. This may come as a surprise to some of you, but I stand today with effectively the very same message that I gave you a year ago. I think Ray warned you on that actually. My message is really about confidence we have in our business, about the growth opportunity, and our ability to successfully execute. I think in this environment, it's very important, probably more than ever, to sort out what we see as being sort of the short-term noise and volatility from the longer-term trends that are impacting our business. That's what I want to do today with my colleagues.
The first message is about confidence in our opportunity. Why is that? First, because the credit and the economic cycles continue to be broadly supportive, we've seen an improvement in the resilience of financial systems globally. This is despite heightened volatility in the financial markets. We are also confident because our operating environment as a rating agency is becoming more predictable. Finally, we're confident because the business momentum we experience continues to be underpinned by what we see as robust and resilient growth drivers. My second message today is that against mixed issuance trends we've seen year to date, we have a number of growth opportunities in our portfolio, both internationally and in the U.S. My third message is that MIS continues to successfully execute a business strategy that is designed, one, to strengthen our core businesses, but also to invest in long-term growth.
Today, we're going to talk about the current environment, what we see as some of the positive long-term fundamentals, what is our MIS strategy, the commercial and international opportunities we're pursuing, and we want to also provide you with a spotlight on our activities in the structured finance marketplace, where we are very encouraged by what we see. Joining me today will be two of my colleagues, Rob Fauber, who heads our strategy and commercial efforts. He will share his views on our growth channels, our capabilities, and the results we see in the marketplace. Jim Ahern, who heads our U.S. Structured Finance Group, will provide insight into our structured finance operation. Moving to our current environment. When we look back and try to assess what is the midterm outlook for our operating environment, we see a somewhat improved, actually, environment.
This is really the result of a mixed set of positive and negative developments. This assessment is obviously influenced by what is our mix of revenues. As you know, we have about 60% of our revenues that are derived from the U.S. markets. About a third come from countries that are either in an expansion and recovery phase. Less than 10% are coming from economies that are either in contraction and slowdown. I want to put that in front of you in the context of much discussion about the situation of emerging market economies and the impact this could have on MIS. This positive outlook is also based on the macro developments that have taken place over the last 12 months. Ray has described them earlier.
Against that, what we have is we have indeed some new source of market volatility and some downsized risks that have emerged more recently. Again, Ray mentioned those earlier. I won't elaborate on that. What I want to do now is really talk about the asset class we rate and what we see as the medium-term growth opportunity and some of the short-term pressure. First, I will talk about what are those opportunities and how we look at them through the most immediate volatility we observe. I want to talk about the sustainability of the current level of issuance we're observing in the marketplace. Today I want to talk about the impact of an escalation of policy rates in the U.S. and globally on issuance volumes. First, let's talk about the growth dynamics.
Over the last 12 months, we've seen sort of a shift actually across our portfolio, in terms of medium-term growth opportunities. Here, what we've done is try to segment those around three buckets: higher growth outlook, moderate growth outlook, and lower growth outlook. This shift has really resulted from several factors. In some cases, the fact that we've observed very elevated level of issuance in the recent past, but in other segments, this is really driven by some of the macroeconomic conditions that we think today or we're anticipating, and their impact on that asset class. What do we see in the higher growth segments? We see U.S. and European High Yield, CMBS and structural credit in EMEA, and we see also Asia Investment-Grade. In our second segment, we have U.S. infrastructure, European Investment-Grade, global financial institutions, and U.S. ABS.
Here, the growth opportunity is really the result of slowly improving macroeconomic conditions, the impact of interest rates, but also the impact of some of the structural changes that Ray described in Europe. Finally, we have a segment where we expect slower growth relatively to the others, we have here U.S. public finance and U.S. Investment-Grade, which is really the result of the very high level of issuance activity we've seen to date. We also have Latin America Investment-Grade, a much smaller business, where uncertain and adverse macroeconomic conditions are expected to continue for the medium term. That sort of provide you with a high-level picture of the opportunity. One concern that is frequently expressed is really, is the current level of debt being issued in marketplace sustainable? I want to start with some facts.
First, if we compare the last trailing 12 months to the prior 12 months volumes, we only have three asset classes that are showing growth basically, between the two periods. Those are U.S. Investment-Grade, U.S. PFG, and Asia Investment-Grade. Two are the same level, U.S. CMBS and U.S. structural credit. All the others, in particular U.S. HY and European issuance, are below last year's volumes. That's sort of to put in some perspective. Also, when we compare the level of activity today with what we've observed at historical highs, we have only two asset classes where we have surpassed that level, that's U.S. Investment-Grade and Asia Investment-Grade. Overall, when we put that in context, we see that the current volume of activities are not outside basically our historical experience. At the same time, let's look now at corporate's financials and get a different perspective on this.
Leverage has increased. Leverage expressed in terms of debt-to-EBITDA for High Yield issuers has remained broadly stable, but it's at a high watermark. We know that leverage for Investment-Grade has been on an upward trend, and is actually moving toward an historical peak. There's no doubt that we have a much more highly leveraged system today. If we combine this recent activity and increased leverage, this is really why we see that lower growth opportunity in those two asset classes. Overall, I think that if you combine the balance sheet signals as well as the market side, we believe that this all leaves room for good level of corporate issuance going forward. I won't speak to structured finance. Jim will be on the stage in a few minutes, he will provide his perspective on growth opportunities for that asset class.
Last comment I want to make is about interest rates and the impact on issuance. Here, as you know, unfortunately, history doesn't provide a clear pattern as to what the implication will be. Not all period of rate increase have resulted in contraction of issuance. Also very importantly, not all asset classes are subject to the same impact. Another element of complexity is that there are many other aspects that are influencing the levels of issuance. Those includes the prevailing macroeconomic conditions, the refinancing needs, and obviously M&A activity, which continues to be an important support to the activity we see at the moment. That's in summary what I wanted to say on issuance volume.
The high level message here is that corporate and public finance issuance are the most sensitive segments, but equally important, we remain comforted by the economic context in which future rate increase will take place and that give us some comfort in term of when we look at our future outlook. I want to discuss now several factors that underpin our confidence, and some of those have been briefly discussed by Ray. The first one relate to the fact that we expect a continuation of low interest rates and default rates. Interest rates are low historically, and we expect them to remain so for a while. This is true for the U.S. and the U.K. economies. In the Eurozone and Japan, both countries and both regions are largely committed to a quantitative program, which will have a lasting impact on their respective interest rate environments.
Turning to default rates. We forecast U.S. spec-grade default rates, so it's kind of a benchmark, to increase moderately a year from now to 3.1% from 2.3% today. Just to put things in perspective, over the last 12 months, we observed 60 defaults out of 2,600 rated issues. That sort of gives you a sense of the magnitude, or the small magnitude of these default rates. Why do we expect an increase? Largely because the situation we see in oil and gas credits. Again, to put this in context, at peak default rates in the previous cycles, we observed level of default in a range of 12%-15%, so long way to go. When we look at the credit metrics we track and the rating volatility, both of those continue to support relatively stable credit conditions ahead in developed markets.
Refunding walls, this is something that is obviously important. It's an important of futurations activity and varies from year- to- year, but can be in the range of 25% of annual issuance. Here I'd like to make the following four observations. The first one is that, as you can see from this chart, the maturities are relatively evenly spread for investment grade over the next several years. This is despite an average change actually from previous years, and this is despite the level of issuance you've seen. Second, we've seen some contraction, as you can see from the prior year to this year in term of future maturity for loans and bonds in the high-end space, and this is really a reflection of the early refinancing that took place.
One data point here is that when we compare the five-year cumulative refinancing needs today to what we had five years ago, it's up 32%. When we compared that 32% for investment grade and 14% for spec-grade. Again here, a sign of strength in the maturity world. Overall, as a result, we believe that maturity worlds continues to support a favorable outlook for issuance and with close to $3 trillion of refinancing needs over the medium term. Ray spoke earlier today about disintermediation in Europe. Disintermediation continues to be an important and positive factors for MIS. In Europe, the share of bonds, as a proportion of total company debt, continues to progress almost, although slowly, as Ray said. Want to share a couple of data points here again to illustrate why this trend is important.
While in term of stock, bank loans represent 80% of corporate finance in Europe. Actually this year, in the first half of the year, bonds made up 80% of high corporate financing. You can see that there's a stark difference between the stock and the flow. The other point of data I'd like to give you is that we look at the last 12 months in Europe, Moody's has added 12%, no 8% actually, more corporate issuer relationship in Europe. Again, and that in a context of very sort of slow economic recovery.
Our belief is that between the gradual economic recovery, the impact of financial regulation, which in our mind will no doubt continue to constrain banks to increase their lending, as well as a number of policy initiatives that are taking place by the European Commission, in particular around the Capital Markets Union, and some of you may have seen there was an op-ed of one of the commissioner, Lord Hill, on the development of European capital market. All of that will lead to an increase in market-based financing activities. Turning to impact of competitive regulatory and public policy landscape. This is an important set of consideration. As all of those do in some way shape the opportunity for MIS, and I think the message here is that we expect limited changes, impact actually from the changes we're observing in these different dimensions.
Rob, in a few minutes, will talk about our competitive landscape and how MIS is performing in that environment, and the message here is that our positions are either resilient or improving despite these developments. The second on regulation is that to date, we haven't seen a material impact from regulation on our opportunities, although we continue to see Europe as the least predictable in term of possible outcome. Last point on public policy, as we expand our activities in new markets, we have to acknowledge that we're operating in it with a higher degree of complexity, but we are confident that these conditions remain manageable. In short, I think what we're saying here is that these factors have left us with good growth opportunities to date. Turning to a couple of words on our strategy and what we're trying to pursue here.
We remain very consistent in what we're trying to do and what we're effectively doing. Our strategy continues to focus on really three key themes. The first one is really trying to position MIS for long-term growth, both in developed markets and developing markets. We have activities in Europe, Asia, as well as Latin America and Africa to that extent. We're doing that through a range of strategic initiatives and tactical initiatives. Some are organic, some are external. What I think is very important is that each of these initiatives are really aligned with the development of this new capital market, China is a very good example, and the establishment of standards in those markets. We believe that that alignment is really critical to their long-term success.
The second sort of axis of our strategy is to continue to be very much focused on value creation and a strong engagement with the marketplace. This is especially important in the context of reduced reliance and regulatory reliance of ratings, and added value is critical. To do so, we do a lot of work internally, but also we leverage our ratings research and data in collaboration with Moody's Analytics. Three, obviously, we continue to focus on strong execution across our platforms and operation, and we're working obviously to continue to improve our resiliency and efficiency. We have a strategy that is validated by our performance to date, and it remains on course. That's the message I want to leave with you. With that, I want to ask Rob to come and discuss the opportunities we have and we see and how we're addressing them.
Thank you.
Thank you, Michel. Good morning, everyone. I want to say a few words about our commercial and international strategies and execution, and my remarks will reinforce two key messages. First, the relevance and positioning of MIS in the markets remains strong. Second, we continue to invest globally, not only in ratings quality, but also in the growth and opportunities we see in the markets over the medium to long term. Before I do that, I want to provide a little bit of context for where we've come since the financial crisis and where we're headed. In the years after the financial crisis, we focused on a number of areas that were critical to the health of the firm. Like the financial sector, we had to adapt to regulation. This meant new people, new processes, new infrastructure.
We established a sales and marketing function within the rating agency, but separated from the rating and analytical teams. We strengthened investor confidence through extensive outreach and engagement with the market. We enhanced analytical methodologies in every rating line, and we expanded our product set to meet the needs of the market with a focus on relevance and rigor. That was a big lift. With that accomplished, we're now looking forward. This means building on our position to achieve what we think of as the next level of market engagement. That's both analytically and commercially, and that's investing to meet the needs of evolving and growing markets around the world. In addition, we have programs to improve efficiency and streamline our technology and operations. This will allow us to reinvest back in the business and meet the needs of our various stakeholders.
Our commercial execution begins with our extensive global footprint. MIS provides ratings in over 120 countries. We're present in 22 countries physically and have seven affiliate relationships that cover domestic markets, including key markets like China and India. We have over 150 relationship management staff within the commercial team spread around the world. The largest team is in the EMEA region, which has both business development and account management staff, followed by the United States, Asia, and Latin America. We've continued to build up our presence in China. We now have offices and are expanding our staff in those offices in Beijing, Shanghai, and Hong Kong. We're looking at possibly opening several other offices around the world over the coming 12 to 18 months to further enhance this local presence. In the past, we've had a few questions at this event regarding the value of a rating.
Salli asked me to say a few words on this topic this year. When the commercial team meets with a first-time issuer, we engage in a dialogue around the value of a rating, and specifically the value of a Moody's rating. Central to the value of a Moody's rating is the transparency that it provides to investors and the relevance that our opinion has in the market. This, in turn, may translate into optimizing an issuer's funding costs. On this slide, I've provided a real-world example. For years, we had been calling on a major European industrial company, an unrated company. In 2013, the issuer engaged Moody's and S&P, and we published a rating on their multi-billion EUR MTN program. On the day of assignment, the yields on their previously unrated Eurobond issue tightened approximately 30 basis points, as you can see.
The feedback from the CFO was that the Moody's rating gave them access to U.S. investors, and I quote, "Gives us lower funding costs in general." A third-party research comment at the time cited two reasons why they expected the bonds to tighten further. One, inclusion in various indices, and two, the bonds will now be accessible to investors who had previously not been able to invest in unrated names. While many factors go into the pricing of a bond, and I can't pin the value of a rating to X basis points, although you may want me to do that, we believe there's a compelling story around the value of a rating and a Moody's rating in particular. This example resonates with issuers, with investors, and with bankers.
Continuing on the theme of first-time issuers, we've seen an interesting shift this year between issuance from first-time issuers and existing issuers. You can see on the top graph that 2013 was a high-water mark for first-time issuers rated by Moody's, followed closely by 2014. In the first half of 2015, we've seen a drop-off from that run rate from the past two years. There are a couple of reasons for that. One, the impact of the Shared National Credit guidelines that were rolled out by the U.S. banks that have reduced leverage loan volumes. Keep in mind, bank loans are a very important source of first-time mandates for us. Second, we've seen less private equity-led driven M&A relative to strategic M&A, particularly in Europe.
We've achieved revenue growth of 7% from our fundamental franchise in the first half of 2015, despite a decline in revenues from first-time issuers. Okay. Those of you who have attended Investor Day have seen this slide before. The story remains the same, that we continue to drive strong revenue growth from developing markets. You can see the significant growth in emerging Asia. Obviously, China is a very important part of that. Despite the challenges that China is currently dealing with, we do feel positive about the medium to long-term rating opportunity. Ray mentioned a couple of statistics. It's supported by the sizable number of domestic issuers who may become cross-border issuers in the future, as well as the potential expansion of foreign investment into both domestic bonds and bonds issued offshore by Chinese issuers.
Keeping on the theme of China, India, and Latin America all represent very important growth markets for us. You've heard us talk about this before. They're all places where we have made both organic and inorganic investments in some cases. In China, we've invested in what we call our Greater China strategy. Several years ago, the management team got together in Asia and we embarked on a series of initiatives to position MIS as the thought leader in the Chinese markets, leveraging both our onshore and offshore platforms. As a result, we have a very robust position in China, including three MIS offices and a 49%-owned joint venture, CCXI, which serves the very sizable domestic market there.
Leveraging these investments, the commercial team has done almost 300 meetings this year with prospective issuers and almost 80 meetings with intermediaries, to give you a sense of the calling effort that we've got there. In total, our various activities there generate almost $100 million a year of revenues. Note this is not what we're consolidating into our P&L, just given the joint venture accounting. The accountants made me say that. In India, we acquired majority control of our ratings affiliate, ICRA, in July of 2014. Since then, we've almost concluded our onboarding program that's included closer collaboration, enhanced support for the business, and risk mitigation. We've made some management changes. We feel very good about the management team that we've put in place there and the initiatives that they have underway.
They are clearly focused on improving ICRA's positioning in its core ratings business and looking for attractive analytics adjacencies similar to what we've done here with MA. We complement this ICRA presence with several commercial staff in Mumbai, in the MIS team, and that's proven to be a very effective way for us to cover the Indian market. In fact, in 2015 year to date, we've rated every cross-border bond that's come out of India. We're the only agency to do that. In total, we generate approximately $40 million of revenue between our ratings activities there. Note this excludes the ICRA non-ratings businesses that they have. A quick word on Latin America. We closed on the acquisition of Equilibrium, our affiliate in Peru earlier in 2015.
That gives us a physical presence in the domestic markets in Peru and Panama, and we feel that it gives us a very good presence in the tier 2 markets in Latin America and an ability to expand in the domestic markets there, which frankly, is an area where we've trailed our competitors in certain markets. I'll close with just a brief comment on coverage. Our coverage is really a function of the things that I've talked about, our relevance in the market and our global presence and analytical capabilities. The main takeaway here, as I think Ray and Michel have both alluded to, is that we're probably more relevant and valued by investors and issuers now than ever. In most fundamental markets around the world, we cover more than 90% of the market. We've even seen some gains in markets like European corporate finance.
Meanwhile, structured finance coverage really depends on the asset class and the geography. Overall coverage in the U.S. and European markets, which are by far the two largest, ranges between 60% and 70%, some sectors higher and some sectors lower, but generally a positive trend overall. We're cognizant that we operate in competitive markets with new entrants. That's what drives the reinvestment back into our core ratings and analytics platform, as well as our commercial organization that I talked about. Ensuring ratings quality, retain the relevance to the market, and in turn, our broad global coverage. With that, I'm going to turn it over to my colleague, Jim.
All right. Thanks, Rob, and thanks for the opportunity to spend a couple minutes with you to talk about structured finance, which has obviously been a product that's been through a difficult time and a difficult crisis, but nonetheless, is showing resilience, and in many cases, we've seen some good growth stories. With that, the first slide I'm showing you is basically the growth trends in the various regions that we operate. The orange line, you're looking at the growth trend in the United States, excluding GSE. A good growth story for the United States. I think there's a couple drivers for that. I think that we're recovering in certain sectors such as the auto sector, where we've doubled auto sales since the crisis over the last six or seven years.
We're also seeing a steady growth trend in CMBS as well as CLO and probably a more mixed story regarding other sectors such as RMBS, which I'll mention and talk about a bit more briefly later. One other fact to observe with the U.S. growth story is the significance of securitization in the funding of the U.S. economy. The U.S. issues about $6 trillion of debt annually across all the different sectors, treasuries, corporates, munis, et cetera, of which, if you include the GSEs, almost a third is securitization-related. It still provides a very meaningful source of funding annually for our market. The story in EMEA is a bit more mixed. You can see the trend line on the blue. This reflects just the securitization in the dark blue and cover bonds in the light blue.
This is a function, to some extent, of the bank de-leveraging that's been mentioned in other sectors of our panels, as well as some of the regulatory headwinds, higher capital charges for securitization. Nonetheless, we think there's a re-emergence opportunity coming in Europe, as mentioned by others with the Capital Markets Union, an emphasis on looking to markets for funding volume and growth. There's also a policymaking effort being made around securitization to relieve capital pressure for bank and insurance company investors for high-quality securitizations, and this is another tailwind that we think is coming. The slide for Asia, the green, it's a smaller market, but it's been a steady market for us and pretty stable in countries like Australia, sorry, Japan, Korea with the growth story being, as mentioned by others, China and India.
We rated our first securitization deals in China in 2014, mainly auto sector cross-border. The quotas that the Chinese government is giving the market should allow for increased securitization volume to support the de-leveraging of the banks in China. India, we rated our first structured deals in 2015. We think that there's a big initiative going on there to grow capital markets. The regulatory framework, the legal framework is evolving and should bring tailwind in India. Mixed stories, but generally growth overall. I put this slide up here not to bore you with the regulatory challenges we face. An anecdote I'll share with you about the regulations that securitization has faced is the Dodd-Frank rules when they came out were 943 pages, of which only 22 were securitization specific or securitization related.
Despite all the challenges and the headwinds we face with regulation, we think we're getting through them. What I wanted to send you as a message in this slide is a lot of the regulations over the last seven years brought uncertainty, but they're now being promulgated and closing and becoming final rules. What that brings us is clarity. It doesn't necessarily bring us a favorable operating environment or one that's intended to promote growth, but it's one that brings us stability and gives us a better view on our operating model and how we can operate within the securitization markets to be successful and productive in growth. The next slide I wanted to talk about is basically research. Before I talk about research, I wanted to mention competition, and I think the two are related. Competition for us is growing. I think we know that.
Ray's mentioned there's 130 rating agencies globally. In every market and every region we're in, we're facing competition, and certainly in the U.S., the competition has grown. Securitization in the structured finance product is maybe the most vulnerable to competition simply because it's transactional. It's specific to a deal rather than fundamental to a company in a market. How do we compete? What's the strategy around competing to ensure that we remain ahead of the trend here? Well, we compete through research. We compete through the visibility that we generate with our views, the timeliness, the relevance of our observations. We're producing a significant amount of research transactionally. We produce research fundamentally. We produce research that ultimately is driving our visibility in the market and our relevance in the market.
Through that research, that brings us additional engagement opportunities such as speaking opportunities as well as inbound and outgoing meetings with the investor community. The last slide I wanted to talk on, since this is a spotlight sector, is to talk about some of the select markets that we operate in. What you're looking at here is four quadrants. The bar on the left is 2007 issuance volume, the bar on the right is first quarter 2015. The green in the slide is the % of securitization-related funding that's delivered to each of these markets. You can see for residential mortgages, the story is twofold. You're seeing a decrease in the leverage of mortgages. $11 trillion in 2007, down to less than $10 trillion as we look at the product today.
What's interesting or the takeaway, however, is that the GSEs, which is the light blue in that chart, have actually shown an increase by more than a third of their share of the funding. That comes mainly at the expense of the private RMBS market, which is down to about 10% or about $1 trillion of the funding in terms of the stock. I'm very optimistic about the growth prospects for certain sectors of RMBS. We're the leader in rating single-family rental space. We're seeing a lot of risk-sharing deals coming from the GSEs, which we're rating. We're seeing reperforming non-performing loans, servicing advance, and other types of deals. What I'm less optimistic about is that we'll see a rebound in the RMBS market back to where we were during the bubble years in 2007.
That's mainly because, as you see, the GSEs seven years into their conservatorship are stronger than ever. They're financing more of the mortgage sector today than they were as we headed into the crisis. It would seem to me that the policy sentiment is leading towards keeping the GSEs and actually continuing to operate them as the main source of funding for housing in the United States. We look to the next table, student loans. I think there's a couple of takeaways there that are interesting. One that strikes me is the doubling of the debt outstanding in that market from $600 to $1.3 trillion in the last seven years. Securitization continues to play a meaningful share, you can see the light blue represents the amount of direct student lending coming from the U.S. government.
The government has effectively taken over the funding of education in a big way, and they've grown that sector in a big way. Securitization continues to fund this market, mainly through the FFELP product, which is a legacy product, but growth prospects there are going to be more muted, more coming from refinancing opportunities with FFELP paper, which has got a very long tail. Of course, as you might know, we're in the market with a new request for comment in that sector as a result. Nonetheless we'll have some resilience for us. The last two sectors that I'm highlighting, leverage loans. We've talked about leverage loans in other parts. I think Michel and Rob mentioned it. It's a growing space for us. CLOs is the main funding source for the leverage loan market.
You can see that the CLO product funds approximately 50% of all leverage loans. This is a sustained percentage, even coming out of the crisis seven years later. I guess the main observation there is that there's some headwinds we're facing in that sector for the CLO sector, mainly due to the things that were mentioned. Rising interest rates, refinancing walls are out further, and actually competition from the High Yield bond market, because the High Yield bond market ultimately takes away volume from the securitization product. Nonetheless, I think the long-term prospects, the resilience of this product, the good performance through the crisis, portend for good stability. Last topic I'll talk about, commercial mortgage-backed securities, CMBS. Fairly stable market, $2.5 trillion of funding volume, securitization continues to be a meaningful funding source for that product.
We've seen some deterioration in underlying trend in terms of the collateral, rising LTVs, nonetheless, the securitization product can accommodate that and the deals that are presented to us with higher credit enhancement levels. It's still a product we rate readily, and it's a product that I think has sustainability with a favorable refinancing wall in the coming couple of years. In conclusion, I guess what I'd like to just reemphasize is that we've presented a bit of a mixed view about structured finance, we've presented a recovering story, one of demonstrated resilience, one in which we're getting increased regulatory clarity, and favorable tailwinds, particularly in sectors outside of the U.S. where we see some of our strongest growth prospects. Looking forward, I think Moody's remains very well-positioned in this space.
I think both organizationally and strategically, we've invested and we're well-organized and positioned to grow with this market as it grows. With that, I think I'm going to turn things over to Salli for a brief Q&A.
Great. Okay. If you have any questions for Michel, for Rob, or for Jim, please do raise your hand. We just ask that you wait for the microphone for the benefit of those that are joining us via webcast or conference call. Let's go ahead and start with Peter here in the center.
Thanks. I was hoping Rob maybe could more specifically talk about competitive dynamics and what's new and different in the market, what you're hearing back from potential clients, and maybe some specifics in terms of when the client chooses not to use Moody's, what the reasons tend to be. If I could just throw out a second question if I could. For Michel, you highlighted high yield as a particularly robust growth opportunity longer term, which I thought was sort of surprising given how robust that market has been in the last five years. I was just hoping maybe expand on that. Thank you.
First of all, on the competitive landscape, certainly some sectors we see more competition has emerged than others. I think a good example is what Jim talked about in CMBS. We actually have six active rating agencies, and Jim may be able to talk about the reasons that some of those agencies get selected. I'd say typically in the more transactionally oriented sectors, you'll see some of the other competitors being selected. In the fundamental space, as I talked about, our coverage remains very strong. Implications for pricing. Our pricing, I think, has remained solid. We tend not to compete on the basis of pricing. We're competing on the basis of the quality of the product and the relevance of the product. That hasn't been something that we've seen.
Certainly, I'm aware that new entrants may use pricing as a tool to get into the market, what really matters to the issuers, they're buying a rating that has relevance in the market, and they're willing to pay for that.
On the question of why high yield was in a position here, I think there's a couple of facts behind that. One is that we believe this is an asset class that will operate well in an improving economic environment. Our view on the U.S. economy is that despite the fact that we have, I think Ray talked about typical outflow could be this is an economy that is moving in the right direction. That's one fact. The second aspect is that we talked about the refinancing that needs to take place in that space, we believe that there are robust volumes behind that. Also, one of the factors here is that we've seen, as you very cognizant, we've seen a lot of volatility in that space. While we had a very strong beginning of the year, the most recent past has been less.
Overall, we continue to view that as among our asset classes and our portfolio one where we see a high growth potential relative to the others.
Yes, over here.
Apologies. Okay, we'll go ahead. Sorry, up here. We'll go to Alex Kramm next.
Just to follow up on the high yield discussion, taking it another direction. Michel, I think in your first slide when you walked through all the businesses, I think leveraged loan was missed on there, and I think you brought it up a couple of times, or the other guys brought it up a couple of times. Maybe talk about the leveraged loan outlook, and then I'll take a second question as well upfront. I think one of the things you've talked about as well over the last couple of quarters a lot more has been synthetic repatriation and how that's been a driver of issuance. With going into an election year, we've heard some of the candidates talk about tax changes in the U.S. and bringing money back over here.
Maybe you can just remind us how big that's been of a driver, how big that business is, and how you expect that to change if there's a U.S. tax change. Thanks a lot.
On the first one. Under the heading of high yield was really a composite of loans and bonds. Clearly on loans, I think as Rob described, we've seen the impact of some of the leverage lending guidelines that are effectively impacting the volume of activity. We also see new market entrants accessing that market to provide replacement capacity. Overall, I think compared to bond it tends to be a more volatile market. We continue to see a strong potential in that asset. If we look at the LBOs activity that are taking place, there's a lot of large volumes at place. We are rating those volumes. Overall, again, I think that despite the short-term noise, what we're trying to hear is really to provide a medium-term sort of vision. Loans continue to be an important asset for us.
Actually outside of the U.S. also growing basically. On the second question, which was around how important is, what would be the impact of repatriation? I'm not sure I can offer a clear answer to that. I think obviously we see the accumulation of cash balances for corporates and banks. We see how this is being deployed in many transactions. I don't personally, and I would Rob could provide some comments, but to date I don't see that as sort of a major factor in issuance volume either in term of where the issuance is. I think in term of mix between U.S. and international issuance to the point that Ray made earlier about the movement towards issuers moving to euro market to benefit from a rate is probably a more visible trend.
Okay. Switch over to this side of the room for just a second here. Maybe we'll go to the back with Doug Arthur.
Thanks. Rob, just on this comment you made on taking your engagement to the next level. You touched on the growth markets and somewhat on the commercial side. What is the analytical
driver that you mentioned. What's the cost of all these initiatives? Thanks.
When we talk about engagement, and keep in mind, we have a very strict commercial separation, right? What goes on in the commercial side of our organization is, think about it as sales and marketing. What goes on the rating and analytical side is really all around credit ratings and analytics. That team is engaged with the market around helping the market understand our methodologies, outlooks on sectors, understanding views on peer groups, those kinds of things. That's the kind of outreach that goes on on the analytical side, and obviously meeting with investors and so on. That's important to the franchise, just like what we're doing on the commercial side, which is more pure sales and marketing, and going out and meeting with prospective issuers. As I said, articulating the value of a Moody's rating relationship.
In terms of cost, we're already doing a lot of this stuff. We do look at each year, are there some incremental resources? Is it T&E expense? Is it sponsoring events where we can get speaking engagements? That kind of thing. Ultimately, it's being out in the market, meeting with market participants. A lot of that is already embedded in the business. That doesn't mean we don't make some selective investments in franchises and in my team where we want to bulk up that outreach. We're not talking about a significant step function increase in our expense base to do what we're talking about.
No, if I may just add. On the analytical side, I think what we've been doing for a number of years now is really to build an increased amount of our capacity actually to the interaction with the marketplace. I think what Jim described in what is happening in structured finance where research and engagement with the market is an important part of our strategy to regain credibility, gain visibility, and be in the flow of transactions. That's something we do globally across our rating groups and geographies. That has been something that has really been going on now for some time. We want to really make sure that is very important. It's very visible to the marketplace, and we continue to build on the efforts we've done to date.
One reason I highlighted China is because the maturity of ratings is in a different stage, obviously, than it is here in the U.S. Reaching out to future issuers, intermediaries, and having them understand the value of ratings and the capabilities of Moody's is actually very important. Many of those, whether it's issuers, investors, bankers, may not actually know. We spent a good bit of time thinking of strategies to make sure we get out in the market.
We have a lot of questions, and we're running out of time, I'll just take a couple more. We'll start here with Marshall.
I guess this might be for Rob. Since 2009, it's really been a rather quiescent period for innovation on the part of issuers when you compare to part of the 20th century and securitization and yields. Where do you see the next significant innovation in fixed income instruments coming from?
Hard for me to say. I'm not an investment banker. I would say that at least in our franchise, we have seen increased demand for, in some cases, unpublished or private ratings for various purposes. The growth of alternative funding channels and markets like private placement markets. That's an area where we've seen some demand in terms of kind of the next new thing in structured finance.
Yeah. I think it may not be a question of what fixed income products, but maybe what else is getting financed by fixed income.
Yeah.
We're seeing some sectors like marketplace lending. This is basically unsecured consumer loans issued by finance companies, and they're turning to securitization as their entrée into the capital markets or the fixed-income markets for funding. I mentioned single-family rental. As you're seeing a reduction in the percentage of homeownership, that's gone from about 70 to about 63% now in the United States over the last seven years. There's an increased supply and an increased need for rental properties. That product is turning to securitization, i.e., the capital markets for funding. We're seeing growth in markets rather than growth in instruments or products. Those are growth shoots, but maybe not at the same scale as a trillion-dollar RMBS market. They're more $5 billion, $10 billion, $15 billion a year type of growth product.
Okay. I'm going to take one more, and then we will have everyone available later on to take questions. Denny, I think you had a question. I know the topic we just covered is one of your favorites.
Oh, yeah. I do like that.
Wait for the mic. Here's one coming up here.
Yeah, I am interested in the innovation and structured products, so that's an interesting topic to ask. Heading back towards the discussion of your sales efforts in Europe. We talked about perhaps the disintermediation could slow if there's another kind of crisis. I think a lot of your disintermediation is also coming from putting more salespeople out there. How do you measure the productivity of the sales force that you have in Europe? How much can you kind of increase efforts there if the kind of overall tailwinds kind of slow a little bit in the next few years?
Look, we start by figuring out what we think the universe of potential issuers might be, we do that not only in Europe, but we do it in every market. Then we have a calling campaign. I think we can't convince someone that they need to issue a bond and stimulate issuance so that we can rate it. We want to be there early or first in having the conversation about the value of, again, of a rating and a Moody's rating. Particularly as you've seen issuance move beyond developed Europe and it goes into developing Europe, it goes into Africa, getting out there first, being first with the issuer is very important. A good example is you may have a bank in Africa, and if we can develop a relationship with them, perhaps even through a product we have called a private monitored rating product.
They may not be looking to issue for a couple of years. We can give them a private issuer rating, develop a relationship with them, so when it's time for them to issue, we've already got a rating relationship with them. Whether they have decided to go to market with one agency, two, or three, we're well positioned. That's really kind of how we think about the business development team.
I thank you for your questions. I know we didn't get to everyone, but we do need to keep moving along in our session. Thank you also to Michel, Rob, and Jim. We'll now move to our section on Moody's Analytics starting with Mark Almeida.
Thank you, Salli. You'll all be happy to know that we have a lot going on in Moody's Analytics, there's quite a bit we could talk about today. In view of the fact that Salli hasn't yet given us a bathroom break, we're going to be very disciplined and just concentrate on a few key themes and move through this pretty quickly. First, the business is growing very well, our strong performance is broad-based both geographically and across the product offerings. With a robust outlook for the balance of this year, we anticipate moving into 2016 with very good momentum. Second, Moody's Analytics is recognized in the market as a go-to source of information, technology, and skills that enable financial institutions to engage in analytical work that they have to do.
In light of the risk environment and regulatory pressures that our customers face, we expect continued demand for our products, our position will allow us to sustain very good performance over the coming years. Finally, with continued strong revenue growth and a solid reputation in the market, our Enterprise Risk Solutions business is achieving scale and maturity that position us to begin realizing more profit. That will drive margin expansion for Moody's Analytics overall, and we remain committed to achieving a mid-20s margin in the next few years. Against that backdrop, I'm going to talk about our overall results and outlook, then I'll turn things over to Steve Tulenko, who will tell you about what he and his team are doing in ERS. As I said, business has been very good at Moody's Analytics.
I'd like to spend a few minutes helping you understand what's been going on and why we feel so good about our performance. In managing this business, we are obsessed with making sure that we understand what's driving our results. Lately, that's been a little more difficult than usual because we have a number of extenuating circumstances in foreign exchange movements and acquisitions that are distorting the signal-to-noise ratio. Using the systems and processes that we have in place, we're able to cut through the noise so that we can see where things are going well and where they're not. This allows us to build on our momentum or, when necessary, remediate. This morning, I'm going to peel back the onion so that you can get a sense of what we're seeing and get a deeper understanding of our business performance.
For the first half of 2015, these are the revenue results that we've reported. In our earnings releases, we've told you that MA revenue was up by more than $55 million over the first half of last year. That's an increase of 11%. That's been driven by 10% growth in the Research, Data and Analytics unit and 26% growth in Enterprise Risk Solutions. Together, those businesses represent more than 90% of Moody's Analytics total revenue. The good performance we're seeing in our core is more than offsetting some of the weakness that we've told you about in professional services. As good as these numbers are, we've been taking a very substantial hit due to the strength of the dollar.
If the dollar was trading at the same level in the first half of this year as it was in the first half of 2014, we would have recorded another $25 million in first half revenue. In other words, if not for the stronger dollar, MA would have reported that we were up 17% rather than 11%, with 15% and 33% growth rates for RD&A and ERS respectively. You can also see that professional services would have been better as well. About half of the 7% decline there is attributable to negative FX impact. This 17% constant currency growth rate includes the impact of our acquisitions last year of Lewtan Technologies and WebEquity Solutions. We realized over $20 million from adding those businesses. The positive impact from the acquisitions offsets about 80% of the hit that we've taken from the stronger dollar.
To get to our true organic constant currency performance, we start here on the left part of the slide with our as-reported results, add back the negative FX impact, and subtract out the revenue from acquisition. That puts our first-half growth at $60 million, or 12% for the business overall, with RD&A at 11% and ERS at 26%. We are very pleased with those results in our core businesses. As we look around the industry landscape, and at the peers we compare ourselves to, 11% and 26% look like unusually strong organic growth rates. If we dive a little deeper into the numbers, we can see that the business is showing strength across multiple dimensions. Let's start by looking at our performance by geography.
We don't typically disclose this level of geographic detail, starting on the left side of this page, you can see that on a GAAP basis, the U.S. is doing great, and non-Japan Asia is strong, but the rest of the world looks very mediocre. Moving to the middle column, part of the reason that the U.S. looks so spectacular is that eight points of our 20% growth came from our two acquisitions. Both WebEquity and Lewtan are heavily concentrated in the U.S. market. On an organic basis, the U.S. grew 12%, which is still really good when you consider that this is our most mature market, and that it accounts for about half of our total revenue. The story gets really interesting when you normalize our overseas results on a constant dollar basis.
In the right-most column here, you see that our organic constant currency growth rates are quite strong across the board. Europe is up 13%, Japan is up 17%, and the rest of Asia is up 15%. Note that Europe's 13% growth is ahead of the U.S. on this basis. This highlights how what we've been seeing in MA is very different from what's going on in MIS, where you've heard that recently business in Europe has been light due to bond market conditions there. This is a good reminder that growth drivers for Moody's Analytics are quite distinct from those for MIS. It's worth pointing out that normalizing for FX movements, we've generated respectable growth in Canada, where the work that we do on behalf of the securities industry regulator in training and certification accounts for nearly half of MA's revenue in the market up north.
That softness in the securities licensing business is offset by the strength in our other activities with Canadian customers. These adjustments to arrive at our true underlying growth rates make it very clear that MA is doing quite well all around the world. Shifting from a regional perspective to a product-specific focus, when we drill down on each of our three reporting units, we observe that most of our product lines are growing at very healthy rates. These nine product areas shown here, which represent nearly three-quarters of the total MA business, are all growing at 9% or better on an organic constant currency basis thus far in 2015. Just as we saw with our geographic results, it is clear that the strength in the Moody's Analytics business is very broad-based and extends across virtually all of our activities.
This reflects the relevance of our product offering, the effectiveness of our distribution, and the power of the brand as we continue to build the Moody's Analytics franchise. Whether we're talking about the performance of our reporting units, our geographic markets, or our business verticals, we see consistently strong performance at all levels in Moody's Analytics. With a good first half behind us, let's talk about what we see coming for the balance of the year. As you know, we've reaffirmed our guidance for revenue growth for this year. Comparing our year-to-date results with the full-year outlook, RD&A and professional services look like they're more or less in line. However, for ERS, which is up 26% in the first half, we're guiding you to mid-single digit growth. You're probably scratching your head and wondering what's up with that.
What we have here is a prime example of the signal-to-noise problem. Let me be very clear. This is not an issue of impending weakness in the ERS business. Not at all. The problem is that we had an extraordinary fourth quarter in ERS last year. We're coming up against a very difficult comparable at the end of this year. As we've told you many times, there is a lot of quarter-to-quarter volatility in ERS revenue recognition due to the project-based nature of this business. As customer projects are completed or hit specific milestones, revenue is recognized and shows up on the P&L. The fourth quarter is typically the strongest quarter of the year because customers are eager to get projects done and move systems into production. This was especially true last year in Q4.
We finished a substantial amount of work and hit a ton of milestones, which allowed us to put up record quarterly revenue in ERS. It was so strong that we beat the previous record by 42%. We expect to finish 2015 with a very strong quarter. It's just not likely to be anything like what we saw last year, given the timing of the projects that are currently underway. Keep in mind that we've always talked about ERS as a mid-teens growth business, and that's still our view of it. Even though some years will be very strong, like last year's 25%, and others will be lighter, like the mid-single digits we expect for 2015. Over any four or five quarters, we may see results that vary meaningfully from our mid-teens long run expectation. Over longer periods, we feel very confident about delivering growth at that level.
You can see in this chart that over the past five and a half years, we've delivered mid-teens revenue growth, with a lot of short-term volatility. Looking at the quarterly year-on-year growth rates shown by these bars, you'll note that about half of the past 23 quarters have come in at or above mid-teens, while the other half have been lower. Again, the last four quarters have been very strong. Revenue growth in ERS since Q2 last year is running at 31%. You can understand how we might expect to see the next few quarters settle down a little bit. Before I ask Steve to come up and elaborate on the specific operational initiatives that he and his team are undertaking in ERS, let me take a moment to give you a little bit of insight into what's happening in RD&A.
As Ray noted, is a terrific business and where we're having a very good year. The story in our information business is that we're getting solid performance in all aspects of RD&A. You saw earlier that four product areas in this unit are growing at or close to double digits, and that's the result of strong customer retention, healthy new sales production, and continued contribution from price. In this chart, you can see that customer retention is running at above 96% in the first half of this year, and it's been rising steadily over the last several years. Similarly, we're continuing to get about 5% annually from price increases, and new sales production contributes another 6.5 points to our growth rate. All of these metrics for the first half of 2015 are in line with or ahead of where they've been in the recent past.
To put this in a bit more context, the 6.5 points of new sales production that we generated in the first half of this year represents close to 450 unit sales at an average price point of just over $40,000 each. We're seeing new sales come in a wide range of transaction sizes and from existing customers as well as new customers. Importantly, new customer penetration in the first half of 2015 has brought more than 100 newly acquired clients to Moody's Analytics. All of this speaks to the extent of the reach and distribution power that we have through our sales organization. Remember, this data covers the RD&A business only. We have a very substantial amount of sales production coming out of the ERS and professional services units as well. Let me conclude with one other perspective on our year-to-date sales performance.
This chart illustrates how we've grown the business over the last few years. Just to orient you, we're showing cumulative sales production over the course of 2013, 2014, and thus far in 2015, starting with January on the left and progressing through to year-end on the right. The orange area on this chart represents cumulative sales production during 2013, with incremental growth in 2014 shown in blue. The thickness of the blue layer shows that last year, growth was somewhat modest until early June, and then we sustained the incremental growth that we realized during the summer through to the end of the year. This year, by contrast, you can see that the green increment is much stronger, reflecting the much better growth that we've been generating right from the start of this year. What's more, 2015's incremental growth has been increasing steadily throughout the year.
Together with our very healthy sales pipeline, which I can tell you is about 15% larger than it was at this point last year, we feel very good about our prospects for the second half of 2015, which will give us good momentum going into next year. I've told you that we've been doing well across Moody's Analytics, especially in ERS, and I've told you that we expect to continue to do well, especially in ERS, where we'll see some variability in our results over short time periods, but the longer-term trend is very strong. With that, let me turn it over to Steve, who will explain exactly what we're doing in ERS, and after that, we'll wrap up and take your questions.
Thank you, Mark. Good morning, everybody. Today, I have just a few slides to cover. I am going to talk about three key things. The first one is why do we think ERS is a good business opportunity for Moody's? The second one is where is all the revenue growth coming from? The third one is I want to talk to you about some of the adjustments we are making to our product strategy and our business mix to continue to enhance margin expansion that Mark mentioned before. After this, we have got some session for QA. Just before the break, we have a short video we will show you as well. I will talk about that in a second. Let's dive right into our first slide. Why do we like this business? Well, first of all, we think it is a pretty attractive market opportunity.
We get lots of questions from this community about the addressable market that ERS is working within. This chart is intended to really address what is a pretty complicated question. ERS works in a bunch of market segments, which I should say, works against a bunch of competitors. There is a relatively complex market structure. To give you a sense for how we think about addressing that question, here is the framework that we use, and this framework really applies from the big picture down to the smallest of product launches that we might think about. On the left of the slide, you have got our core markets represented. This is the place where we operate today. The next, the extensions, the market extension section is there in the middle.
That gives you a sense for places where we think we can go with our existing IP and with our existing capabilities. The third bar to the right represents the adjacent markets. These are places where we think our brand and our franchise is relevant and can have a big impact, but where we might need some more investment to really take those on. A couple of quick facts about the core. Let's look at that for a second. Figure that is about a $3.5 billion market by our metrics. That is the number of That is the value of money spent on products that are similar to ours, or could be considered competing with us in some way. That is global in scope there. We think we have about 10% market share. ERS' revenue is around $350 million. You do the math, it gets you about 10%.
In a market with a bunch of competitors, some might consider it a fragmented market. That is, we think, a pretty good job. 10% market share sounds pretty good. A little different from maybe the ratings business. Could be different from other industries that you might look at. When you think about it in terms of the financial technology, the software space, the analytics space, 10% market share demonstrates we are doing some good work. A couple other details here. ERS sells to about 2,100 customers around the globe. That is 2,100 individual names, parent companies. We have 4,300 contracts, so sales points that we have made within those institutions. Just to dimension that a little bit more, most of our business comes from the top 500 customers, the top 500 banks and insurance companies that we work with.
Maybe one other refinement there is some of our biggest customers might have as many as 15 or 20 different sales points within that institution. We have a couple of accounts right now where we have literally 20 different active contracts in place. There's a lot of work done with the largest institutions in the world. There are many, many different sales points that we can tap into. As we move down market, we look forward to cross-selling our capabilities into other institutions. Let's see here. Probably the most important takeaway for this slide is that in general, we're working in an attractive market. We have lots of opportunities to expand. We've developed a meaningful position which demonstrates we can be successful, and I think you can take some confidence in that going forward.
Now we'll turn to where is the revenue growth coming from? Mark talked about this, Ray talked about this. It's a great pleasure to be here on the day when we're talking so much about revenue growth in ERS. This slide's intended to give you some insight as to where it all is coming from. Overall, the CAGR for ERS since 2010 has been about 17%, the last few quarters we've been performing better than that. There are some details in the chart that give you a sense for what are the sources for that growth. The two solid lines represent the renewable products that ERS produces and sells into the markets. The dotted line represents the project work that we do.
These are sales of licenses and services to form a solution for a bank or an insurance company in order to help them manage risk and solve problems in terms of automation. The dotted line is obviously doing very well in the last few quarters, and that's a product of a lot of good work by our team, a lot of good work with our customers to bring projects to conclusion or make the milestones that Mark referred to. As that happens, revenue drops into the financial statements. Couple quick comments. The solid lines are demonstrating a very consistent pattern of growth. That in itself, I think, is something to keep in mind. Two-thirds, roughly two-thirds of the revenue from ERS is coming from renewable products. We enjoy very, very nice retention rates, certainly in the mid-90s, sometimes higher.
Sales growth has been good as well in terms of new business. Those lines we look forward to providing a nice base for us. The project revenues can have a big impact on our results in any one quarter. You can see from that dotted line, they can have a real big impact for us, both on the top line and in terms of margin. We're going to take a couple seconds on the next slide to take a look at this kind of work, this project work, because we think it's so important to understand our strategy and to understand where that growth is coming from. Maybe more importantly, how we can expand margin in the future. This question comes up a lot. How do you intend to expand margins within MA, and specifically with respect to ERS?
You've seen there's been a lot of progress in the numbers, both in terms of the top line and also the margin expansion in MA in the last several quarters. A lot of that's been due to that good revenue growth that you saw before. It's also due to cost not increasing at the same rate as revenue. That's a good thing. With respect to the good prospects we have for the future, we feel there's a good opportunity for us to be a little bit more selective in terms of the deals that we do. I've created a chart on the left here, which is intended to be illustrative. This is a stylized graph here. It is not actually plotting actual values, but it does represent, in general, the scale and the trajectories that we expect to see.
What you see here is we really sell 2 types of things. We sell products, represented by that green line, and we sell services, which are represented by the blue line and the red line. We've had some great growth from our product development efforts and the investments we've made in products. And that's why you're seeing those projects are coming to conclusion, and we're making the milestones that we mentioned before, and that's why the revenue growth's kicking in, like you saw on that chart earlier. We intend very much to adjust our orientation as those products are developed and the markets are maturing, and the customer needs are maturing, to shift away from some of those services that are lower-margin services for us.
We intend to, instead, focus on those things where we add value to the application of our product to our customers' business, in places where we think we can actually bring best practice to the table, or in places where we think by doing the project with our customers, we can actually learn something and continue to innovate our products as well. The services that are strategic to us, we will continue to reinforce and continue to deliver and develop. The ones that are maybe less strategic for us, maybe those that are more generic in nature and maybe more commoditized. Maybe integration services, for example, where other folks could provide the same service for us or for the customer, maybe a partner that we might work with.
We expect over the future here that we'll be de-emphasizing those efforts and redeploying and re-emphasizing the efforts that are more strategic for us, especially those that contribute product development in the future. That shift's very intentional. You might take an example, as many of you might be familiar with salesforce.com. They're, in a lot of ways, a good example of the kind of thing that we're trying to do here. We actually are a customer of theirs, and we bought their product. Then they actually said, "You know what? The work that we do in terms of integrating our product to your operations, we're going to hand over to a partner." They didn't actually do any of the implementation work with respect to the Moody's implementation, which I think is an interesting thing to consider.
When you talk to Salesforce, they do actually have an implementation staff, but they focus on those things that are most interesting to them, the places where they think they're going to learn, and the places where they think they're going to add a lot of value to the equation. In a lot of ways, we're modeling ourselves after that same strategy and letting some of the work go that might not be as value-added for us and for our customers. Okay. A couple take-home messages for us. We talked about the addressable market. We operate it in an attractive space. In terms of our core market and maybe those that are immediately accessible through line extensions or market extensions, it's about a $5 billion addressable market. With what we're doing today, we think we're worth about 10% of that in terms of market share.
Strong revenue growth in the last few quarters. You've seen that margins have expanded recently, partially because of that. The franchise does support growth in terms of acquisition or other big product investments. We've made some of those over the course of the last couple of years. We'll actually see a video in a second that is related to our stress testing efforts. That's a good example of a product we've invested heavily in in the last few years. With that market position and with a set of needs in the marketplace that are maturing, we expect to be able to deliver more operating leverage and grow both revenues and margin over time. That will take place especially with an emphasis on product-driven growth and on growth of services that support that effort. All right? You'll see a little shift in the mix there.
With that, we have some time allocated for QA, questions and answers, and then I'll head over to a video in a second. Okay. Salli, do you want to-- Thank you.
All right. Just a reminder, if you'll please raise your hand and then wait for the microphone just so everyone on the webcast and the conference line can hear you. We'll start in the back with Andre Benjamin.
Thanks. Two quick questions here. The first, on the ERS business, I was wondering, you started to hit on this in your explanation, but can you maybe give a similar breakout to what you did for RD&A in terms of how the growth breaks down between retained business and then pricing, upselling the existing customer, and then the new customer wins? Then on the TAM slide, as we think about particularly the adjacent market opportunity, how much of that comes from organic versus looking at acquisition targets in the marketplace? Is that TAM based on current spend or what you see as future opportunities based on where the market's headed?
Why don't I take a crack at that, and you can correct me. Andre, to do the kinds of analytics on the ERS business that we do on the RD&A business, we'd really have to separate out the two pieces of the business that Steve described. Look at the subscription piece of the business and the maintenance piece of the business separately from the license and services sales and revenue. Steve touched on it briefly, but if you focus just on the subscription and maintenance piece of it, we don't have the data at our fingertips. You'll see metrics similar to what we showed you for RD&A. Very high retention rates. I was going to say probably not quite as much from price, and a pretty similar level of new sales production. Is that fair?
It is fair. It depends on how you define it. Retention rates for the renewable products are in the mid-90s. If you think about software maintenance, for example, it can be very high. High 90s. Sometimes even better than some of the charts you put up before.
Right.
The credit scoring and analytic tools tend to be in the mid-90s as well. New sales rates are in the high single digits, depending on which product we're talking about. Again, some of those are driven by projects, so it's hard to disaggregate those. In terms of new sales, pretty good. Price, one thing to keep in mind, many of our pricing models are based on the size of an institution. If you think about it, banks and insurance companies like to buy other banks and insurance companies. If you get really technical, we often get a big lift from price when acquisitions happen and a big new set of assets is associated with our pricing system. Those numbers are actually pretty similar to the kinds of numbers Mark put up.
As for the addressable market and how we think about M&A in that context, I think it's fair to say that for the core markets and for the immediate extension opportunities, I think it's fair to say that we've got the right product and set of capabilities to be able to continue to grow in the core business and extend into the immediate adjacencies. In order to extend out into the other adjacent markets, that would require the development of new product or new capabilities, which we could develop organically through investment and organic development or through acquisition. Looking at those opportunities really drives our thinking around M&A. As we think about penetrating or entering those markets, we think about the buy versus build question. Can we get into those businesses quicker and more effectively through an acquisition or through organic development? Is that right?
Exactly.
Got it.
I'm just going to stay over there for a second and go to Timothy McHugh.
Thanks. The breakout on RD&A where you gave the faster-growing businesses, I guess, can you give us some more color on what's driving the growth of structured products or structured finance analytics and those other pieces that were all growing double digits? I guess, what's happening that's driving that? Then secondly, any more color on what adjacent markets are attractive for ERS? Some more specifics on what you might consider going into.
Sure. Let me take a crack at the first part. I think, Tim, I think you mentioned ERS specifically, but you meant RD&A. The good news is the answer's pretty much the same for everything. What's driving demand for what we're doing is related to two issues. One is the risk environment is becoming more challenging for our customers, whether you're in the fixed income capital markets or you're in the lending markets. Finance is a challenging business right now, and people are thinking in a very rigorous and disciplined way about managing risk, and we've got capabilities that help them do that. That is related very closely to regulatory-driven demand on many of the institutions that we work with to do a better job of managing risk and demonstrate to their regulators that they're doing a good job of managing risk. Our tools help them do that.
Associated with that, there's a fair amount of product development and innovation, not on a massive scale, for the most part. They are what I would think of as sort of normal course enhancements to the product. As we talk to our customers and we understand what their challenges are and what things they're trying to do to keep up with their business imperatives and their regulatory imperatives, we make enhancements and innovation to be responsive to those needs. An example in structured analytics, for example, is the emergence of rules around the Simple Supervisory Formula, and other new metrics or requirements that have been placed on people who are operating in the structured finance market. We've enhanced our products and our information services to help our customers address those issues. Part two of the question was what are we doing specifically in adjacent markets?
Adjacent markets for ERS. Lots of things could be done organically. Investing in credit scoring technologies to address opportunities to help lenders and borrowers in the middle markets be more efficient and borrow money more easily. There's a lot of work we could do there. There's lots of work in the risk management software space that we could invest in or potentially acquire. We could enhance our capabilities in any of the areas we currently work in to round out more product features or maybe enter new disciplines within the risk management area or arena.
We have time for just a couple more. I'll go to Craig Huber. Just up here with the microphone.
Two questions if I could. That slide where you showed a $3.5 billion addressable market for your core markets, what's your sense of what the growth rate has been there in recent years? The first question. The other question is, are you guys content with just ongoing strategy has been the tuck-in acquisitions. Are there any appetite, if you will, for a large acquisition, $500 million, $1 billion-plus?
Growth rate was higher coming out of the financial crisis, has created a fantastic legacy in terms of risk management culture for us. Coming out of the financial crisis where a lot of financial institutions and regulators alike rushing to establish new protocols and solve problems and protect themselves a little bit better. I would say we're going to beat inflation in terms of that growth rate, maybe 4% or 5% over the next several years because the legacy of the crisis is an interesting thing when you help people manage risk.
On the M&A question, you asked if there's an appetite for a very large acquisition. I guess the way I would answer it is, when we think about M&A, we think about what things make sense for our business, what things are going to enable us to continue to expand how well we serve our customers. I think we think in a very disciplined way about the industrial logic of the acquisitions that we do. That's really the starting point. Once we identify an opportunity, we're persuaded of the industrial logic, we think in a very disciplined way, David will talk about this more in a few minutes. We think in a very disciplined way about how much is that opportunity really worth to us, how much are we prepared to invest in it.
Frankly, our view is that currently in the M&A market, valuations are, I think it's fair to say, astronomical. The prices that people expect for everything are more often than not unreasonable. We look at a lot of things, we say no to most things because what we think these businesses are worth is not in line with what the sellers think they're worth. That said, I wouldn't say we have any hard and fast rule around, we don't do acquisitions above X hundred million dollars. Again, it starts with the industrial logic, you move on to the financial rationale making the numbers work. Where both of those things are compelling, we'll act.
I think I'll take one more just over here. The last question.
I have a question on ERS. Specifically, one, is the solution you're still offering right now highly customized on a per-client, per-customer basis, or has that gotten more scalable, and scalable at a lower cost level? Then two, you're growing very quickly there. Are you stealing share or are the opportunities that you're seeing more greenfield opportunities, and it's just a matter of getting your foot in the door first?
Customized versus not. Without a doubt, the market needs and our product maturity are coalescing. As we do a project, we develop features, especially in the early part of a life cycle for a customer that might be customized, and then you embed them in your standard product. As you've done five and 10 and maybe 20 transactions and 20 projects, you end up with a code base and a set of features in the product that can deliver almost everything or much of it out of the box. We are very intentional about doing that. That is the product strategy. Build features into the standard product, enable customers to use a standard set of features and a standard code base, and then manage that as efficiently as we can.
When you have your first customer of the product at the beginning of its life cycle, it's very different than it is maybe five years down the road. Maybe another way of addressing your question would be to take the example of some of our regulatory products have been out there for four or five years. Those are relatively standard cookie-cutter kinds of things. The stress testing world, for example, where the regulation is still forming in some jurisdictions, we adapt and the customers are adapting, and we're earlier in the life cycle. That's also a place where you might see big growth. As the product developments or investments are made, and finally the projects come to fruition, you start to see the numbers move up. Did I address the second part of your question there?
Stealing versus greenfielding.
Oh, yes. Different way of-
Market share.
Yeah, market share for us. I think a lot of what we're doing is expanding into new places. Either building new products in order to achieve new sources of growth. If you think about it, people do not replace their asset and liability management system every year. They try not to do that every year. They try to use that investment for as long as they can. Our growth is often driven by new opportunities, new ideas, and maybe new regulation might help us with a tailwind as well.
There is a replacement market, and when you build a better product than the other guy, you can hasten that replacement.
As I mentioned before, so Mark and Steve will be available later if anyone has additional questions, but I think we'll go ahead and move to our video here. As Steve mentioned, this is on our stress testing solution. This is actually a promotional video that we show to our customer base.
Heightened regulatory oversight around stress testing is creating unprecedented urgency within financial institutions to collect and consolidate large sets of risk, finance, and economic data, develop, validate, and maintain a broad spectrum of models, coordinate processes and workflows across multiple departments and business units, and produce and reconcile multiple sets of regulatory and management reports. Moody's Analytics helps financial institutions address these challenges with a stress testing suite that combines trusted economic scenarios developed by our world-class economists, unmatched loss and default data sets providing broad coverage of major asset classes and countries, industry-leading models to estimate credit losses and pre-provision net revenue, and enterprise software that integrates data, models, and reports, enabling banks to implement repeatable and auditable stress testing processes. From the click of a button, the solution efficiently executes an enterprise-wide stress test by bringing together the relevant data, scenarios, models, and reports.
Let's take a closer look at how it works. By centralizing economic data, risk data, and financial data into one data mart, the solution provides a single source of truth that helps banks coordinate decision-making across relevant departments with full auditability, lowering the risk associated with data consolidation. Within the data mart, users can leverage more than 4,000 built-in business rules to ensure data quality and to accurately reconcile data against the general ledger and other external systems. From a centralized model catalog, users can deploy a broad spectrum of models, including Moody's Analytics award-winning off-the-shelf models and the bank's internally developed models. Models are versioned and historized in line with regulatory expectations. A detailed audit trail records what was changed, by whom, and in which version of the model.
Natively connected to the data and model outputs, our reporting solution enables executives and regulators to better assess a bank's risk profile. Built-in configurations allow users to publish audited and validated regulatory reports in the required formats. These configurations are frequently updated to reflect new regulatory requirements, so you can be certain that you are always complying with the latest standards. Users can create configurable management dashboards utilizing the same data and insights from forward-looking analytics computed during the stress testing process. These dashboards can be tailored to each user or group of users to meet their specific needs. Moody's Analytics' stress testing suite provides an efficient and transparent alternative to the manual processes used by many banks today. At each step of the process, the solution executes the relevant tasks, recording the associated data, models, assumptions, and user overrides.
This repeatable process not only enables banks to comply with annual, quarterly, and monthly regulatory reporting requirements, but also empowers them to respond faster to ad hoc queries from regulators and senior management. Moody's Analytics' stress testing suite enables banks to dramatically improve the quality of their stress testing processes by centralizing data into a data mart to create a single source of truth for all relevant stakeholders, enabling institutions to apply both Moody's Analytics' award-winning models and the bank's own models, producing robust, accurate, configurable reports that meet both regulatory and management requirements, and executing a repeatable and auditable process that provides full transparency. Learn more about Moody's Analytics' stress testing suite. Contact us today.
Just so you're clear, Steve and I will be accepting contracts during the break, so feel free to sign up.
Well, thank you again to Mark and to Steve. We'll now take a 15-minute break, and for everyone here, refreshments are available in rooms A and B. For those of you on the webcast and on the conference call, we'll be back with you shortly. Thank you.
I can't say it. iPhone? Okay.
Testing one, two. Testing one, two. Test, test. Testing one, two. Testing one, two. Test, test, testing one, two. Testing one, two.
Did somebody tell you that?
It wasn't
Some of these mics are weak.
I think what was happening was we were able to hear more loudly here. We're sitting back here.
Certain people.
It's almost like that way.
Yeah. I can't come up anymore or else I'll see that.
We're moving them closer.
Okay. Yeah. You're right. Different people sound different on there.
Testing one, two. Test, test. Testing one, two. Test, test, test.
All good. All good. This one's done. Testing, one, two. Testing, one, two.
I hear it.
Test, one, two.
Can you hear me now? Sorry about that. I already messed up. Sorry. I pushed the wrong button. We have two updates for you this morning. The first one is where we stand as far as resolving our ratings-related litigation matters. We also have an update for you on regulatory developments. Oops, I went too far. We have made significant progress in resolving our ratings-related litigations that have been filed since the start of the financial crisis in 2007. As you can see here, of the nearly five dozen cases that have been filed since 2007, fewer than 20% of those remain. In the initial wave of cases that were filed in 2008 and 2009, plaintiffs' lawyers tried to make the creative argument that we should be treated as underwriters since that was the lowest standard of liability.
Those cases were all favorably resolved, and we got decisive opinions from numerous federal district court judges and, as you'll see on the next slide, a very strong ruling from the Second Circuit. Plaintiffs' lawyers moved on to alleging that our ratings were negligent, that we made negligent misrepresentations, and you'll see on this slide, we've also had success in getting those cases dismissed on numerous grounds, including those that are listed here. In addition to having good success in having cases dismissed, we've also had, when cases have been appealed, some favorable precedents created at various appellate courts. The first one here, In re Lehman, was referring to as making it clear that we can't be held liable as an underwriter, and that if anything, we'd be in the category of an expert.
Unfortunately, under the securities laws, you can only assume expert liability if you consent to being an expert, which Moody's has never done. If you were here last year, the first three appellate decisions are familiar to you.
The new one at the bottom is interesting in that we've had federal courts for a number of years successfully applying New York law from our perspective, but this is the first New York State appellate court that has also applied New York law and has come to the same conclusion as a number of federal courts, which is basically that, in this case, they reversed the trial judge and dismissed the negligence claim and said we could be held liable for fraud, but only if, in our case, fraud means, in the case of a rating agency, that at the time the rating was assigned, our analysts didn't actually believe that to be the appropriate rating. That's where we've been basically arguing since the start of the financial crisis.
Since part of 2007, there really was no precedent out there on what the standard of liability for rating agencies should be. On the regulatory front, we've made even more progress than on the litigation side in that we now have, as Michel and others have mentioned, final rules both in the U.S. and in Europe. Certainly in the U.S., the regulatory landscape is quite stable. We're not expecting any new rules or regulations. The challenge now is making sure that we're able to comply with the raft of rules that have been imposed over the last couple of years. In order to do that, we've made significant investments both in technology, but also on the compliance front. We now have approximately 60 full-time compliance professionals globally to help our analysts and others comply with all the new rules.
As you note here, one of the changes since Dodd-Frank and the various EU rules is we now are examined annually by both the SEC and ESMA. Again, last point here is just that unlike in the U.S., the oversight authorities in the EU are continuing to review the current rules and regulations to see if any amendments are appropriate. In the next slide, we just highlight some of the changes, or the final rules that went into effect this year in 2015. We've had rules imposed by Dodd-Frank on our industry more or less continuously since 2011. The final rules were promulgated in 2014, and they went into effect over a staggered period, with the last ones just going into effect this past June. Similarly, in Europe, under CRA3, there was some additional rulemaking that you see here that became final in 2015.
Towards the bottom, we note that the European regulators, particularly bank regulators and insurance regulators, continue to make use of ratings. In Dodd-Frank, one of the assignments that Congress gave to the SEC was to remove, wherever possible, ratings from regulation, and the SEC has done a pretty good job at accomplishing that. Both bank and insurance regulators continue to heavily rely on ratings as they provide oversight in their areas. As far as pending matters, you'll see we expect any day now a report from ESMA. This is one of the reports that were required under CRA3 on the state of competition in the industry. The European Commission will be issuing a report next year on the current regulatory regime and whether they think any additional rulemaking is required.
We're obviously of the view that ESMA has sufficient authority, the rules are relatively new and should be given a chance to see how they work before any additional actions are taken. We're optimistic, given that Europe is focused on a growth agenda, that they'll agree that at this point, there really isn't anything more that needs to be done. I'll be happy to take any questions on either litigation or regulatory matters that people might have. Is this a microphone?
John, on CalPERS, has the judge issued a specific date for trial in 2016 yet? Is it still in district court at this point? Obviously, some of your peers have settled. Any updated thoughts there? Thanks.
Sure. There is a tentative trial date that the judge has established in CalPERS. Right now, we're in the middle of discovery, and we're expecting that to continue through 2015. Once discovery is over, we'll be filing a summary judgment motion. The judge has said, at least as a target date, May of 2016 for a trial date, assuming if summary judgment doesn't go our way, then there'd be a trial. You're correct. Others may be aware that earlier this year, S&P settled. They used to be a co-defendant in the CalPERS case, and they settled for $125 million to get out of that case. As I said, we're very actively defending the case and continue to believe it doesn't have any merit, and we're in protracted and expensive discovery right now. Sorry. Get the mic. Hi, John.
Is there any update on any inquiries from the Department of Justice? Sure. As you know, as we disclose in our SEC filings, since the financial crisis, credit rating agencies, along with many other financial services firms, have been subject to heightened scrutiny by a number of governmental authorities, in our case, including the DOJ. To the extent there are any material developments, we would update our 10-Q. As of today, we are filing our 10-Q, there are no material developments though.
Can you just summarize two or three points in terms of the Dodd-Frank rules, the things that you think are supportive of the business and the things that maybe you might be challenged or change the business model?
Well, I think there are a number of Dodd-Frank rules that are in fact supportive of the business, or put another way, we either were doing or would be happy to do, but really the major change is documenting things that we were doing, so we're able to demonstrate to the SEC that in fact we are fulfilling our Dodd-Frank obligations. I think for many of the smaller rating agencies that complain quite vociferously about that, it is a challenge to comply with Dodd-Frank because of the cost. That really hasn't been an issue for us. As I mentioned earlier, our main challenge is making sure that all our analysts are aware of the rules because there are a wealth of them. They're confusing and voluminous, and sometimes they're inconsistent across jurisdictions.
We have a lot of training to help them with that, and as I mentioned, a lot of embedded compliance people to also help them comply with the rules. Our challenge isn't that the rules are having a negative impact on our business. We're pleased where we ended up on Dodd-Frank. There was no change to our business model, and it's very clear the SEC can't get involved in the substance of our ratings or our methodology. It's really demonstrating that we're managing conflicts properly and handling confidential information appropriately, those sort of things.
I think this summer The Wall Street Journal had highlighted money market funds or something in the change of the rules there. It seemed to imply that there was more competition, did that really change anything?
Again, it was bipartisan actually in Dodd-Frank. Both the Democrats and Republicans agreed that one of the objectives for our industry is that both securities regulators and bank regulators should rely less on ratings and regulation. As I mentioned, the SEC has pretty much finished their homework in that area and has removed references wherever they could or reliance on ratings. The bank regulators, not just in the U.S. but globally, continue to rely on ratings. That really hasn't affected our business. Just to be clear, we were very supportive of Congress and Dodd-Frank on removing ratings for regulation because we're concerned that it leads to commoditization of ratings and other negative consequences. We're very supportive of that effort.
Is there any fear on your part of the proposed regulations of investment advisors and brokers indirectly raising issues about ratings? Is there any evidence of any substantial fund or other institution that is no longer using any ratings?
Obviously that's a decision that each fund or entity has to make on their own. Dodd-Frank, and it's a good question, Dodd-Frank, while it encouraged regulators to stop relying on ratings, they do not in any way require individuals, whether if you're a fund manager and you have investment guidelines that say you can't invest in investment-grade bonds unless they have an investment-grade rating from Moody's, you're still completely free to do that. Our understanding is that people still have those voluntary guidelines in place, but that's something that is up to each individual fund and up to us and our analysts to continue to demonstrate the importance of our ratings and our research. We think we've done a good job doing that, and our ratings are as relevant as ever.
DOL.
Department of Labor?
Yeah.
Again, nothing that's material to our business, no. Okay. No other questions, happy to turn it over to Mark Zandi, who will be giving you the macro perspective.
Thank you, John. Good morning. My task is to give you a sense of the outlook for the global economy. I think I'll chat for about 15 minutes or so, I'll turn it back to you and see if you have any questions or comments that you might have. For careful observers of our forecast, I'm not sure, are there any in the audience that are actually following that carefully? Maybe not. If you are, you'll have noted that I'm relatively optimistic about the global economy. It's been pretty consistently optimistic. A year ago this time when we were meeting, I expected the global economy to continue to expand, and it has. For growth to actually pick up, maybe not this year, but as we move into 2016. I'll have to say that's probably overly optimistic.
The global economy isn't performing as well as I had anticipated. Not so much in the developed world. The U.S. economy, the European economies, are pretty much sticking to script. I don't think growth has improved, picked up in terms of jobs and GDP. Everything feels like it's sticking to script so far in the developed world. Not so in the emerging markets. The slowdown in China, not totally unexpected, although its growth is a bit choppier than I would have hoped for. The rest of the EM has slowed in a much more pronounced way than I would have expected if we had this conversation a year ago. I think the principal reason for that, and this is something I missed, is the decline in oil and commodity prices. A year ago, we were over $100 for a barrel of oil.
I did not think we'd be at $45 a barrel today. That was quite a surprise. A lot has to do with the behaviors of the Saudis and the ramp-up of their production. The collapse in energy and commodity prices conflated with the slowdown in China and relatively high debt levels in Asia, particularly among non-financial corporates in Asia, has led to a much more pronounced weakening in growth. As you know, Asia has been so key to global economic performance since the recession hit back six years ago. I will say I have been disappointed, and growth has come in below my expectations, and that's largely due to the EM, particularly Asia, the emerging economies of Asia. I also will acknowledge that the threats to my optimism are greater today than a year ago. I'm still optimistic.
I still think growth globally over the next two to three years will be roughly what we've gotten over the past two to three years. It won't be boom-like, but it'll be fine. Close to the global economy's growth potential, we should be okay. I do think there are more threats. I'm going to spend a few minutes going through three key threats to my optimism and give you a sense of how threatening I think they are. These are rank ordered. Threat number 1 is China. The Chinese economy is struggling. It does have significant structural problems. No surprise there. We knew about these problems, and they've been building for quite some time. Everything from overdone real estate markets to unproductive state-owned enterprises to problems in the banking system.
Most fundamentally, the most significant structural problem is illustrated here, that's leverage, the increase in debt. This is the debt-to-GDP ratio, all in. This is all debt. Household debt, non-financial corporate debt, financial debt in the financial system, and government debt, both at the federal level and provincial, state and local level. I'm showing the change in the debt-to-GDP ratio for a number of different countries leading up to financial crises. The first set of bars is for the United States, showing the debt-to-GDP for the U.S. from 2003 to 2007. 2007 obviously being the peak right before the housing bubble burst. We were at a 200% debt-to-GDP ratio by 2007, and the debt-to-GDP ratio over that five-year period leading up to the crisis increased by 24 percentage points. That says 24%. That should say 24 percentage points. Percentage points.
The 24 percentage point increase. Look at the U.K. The increase there for the 2007 crash, also quite significant. Japan leading up to the 1990 crisis. Korea kind of lost their minds in the 1990s, discovered credit cards and went on a shopping spree, and it didn't all work out very well in 1998. Look at China. That last data point is for June of 2015. The debt-to-GDP is now 250%, and it's risen 41 percentage points over the last five years. This doesn't augur well. If you look at all the case studies across country over time, any time we've seen increases in leverage to the degree that we've seen in China over the last five, that doesn't work out so well. There's always a subsequent crisis, a problem.
There are good reasons to be nervous about the Chinese story and what's going on in China. Having said that, though, my view is that the Chinese will be able to navigate through this reasonably gracefully, at least over the next several of years. I'm not arguing this is not going to be a problem at some point down the road, but that road is well out there. If not at the end of the decade, into the next decade. I think over the next three years, they'll be able to manage and roughly hit their growth targets. You can see that they've been roughly doing that here. The orange line represents year-over-year GDP growth in China. There's a lot of debate about the quality of this data, and I think it's a reasonable debate.
One of the reasons for the angst is lack of transparency around their data. I think the change in growth is roughly right. The level in terms of the growth rates might not be exactly representing reality, but the slowdown and the pace of the slowdown is. The green line represents the quarter-to-quarter change at an annualized rate. You can see every time growth dips, Chinese authorities respond through monitoring fiscal stimulus, and they rejuvenate the economy, and they, again, roughly hit their growth targets. I think that'll continue to be the case. They have the will necessary to engage. You can see that in the current slowdown. They're cutting reserve requirements, interest rates. They just recently devalued the yuan. More fiscal stimulus. They're now asking local governments to provide more support to construction infrastructure development. They have the resources to do it.
Reserves are down, they're still quite large. No problem there. They can defend the yuan if they need to, no problem. I think it's still a very relatively insulated economy that they have a lot of control over, particularly the financial system. This isn't Asia circa 1998 when you saw huge capital outflows that caused a great deal of problem in Southeast Asia and it reverberated around the world. That's not going to happen here. It's a relatively closed financial system. Completely concur that this Chinese slowdown is an issue. We need to watch it, and it ultimately may be a problem, it's not going to be a problem, in my view, over the next several of years. One other quick point. How they manage through this recent period is key to how well they are able to manage this longer run.
If they use increased leverage to juice up growth in the current period, that's only going to exacerbate their problems down the road. If they're able to manage through this without increasing leverage, and I'm hopeful they will be, then that will make it easier for them to manage things later in the decade as we move into the next. Second risk threat is the normalization of monetary policy. I do think the Federal Reserve will begin raising interest rates. You get a sense of that here. This shows the federal funds rate target. My forecast, which is the green line. This is through the end of 2018. The Fed's forecast, that's the orange line. This is just the meeting of the dots that they provide for their forecast. The blue line represents what the futures markets are saying.
A lot of assumptions in that calculation. Liquidity out after six months is low. You have to take this with a bit of salt, but it gives you a clear sense of where folks think things are headed. In my baseline optimism about U.S. growth and global growth, I think this will be pulled off reasonably well. Not that there won't be a lot of volatility. We're already observing that in financial markets as we gear up for the first rate hike, which my sense is will be by the end of the year, probably in December. Nonetheless, it will be reasonably graceful. Now, here's the threat. If you look at this chart somebody's wrong. It isn't me. There's a lot of adjusting to do here, and there will be a lot of volatility in financial markets going forward as markets adjust.
That's a euphemism for declining equity prices, wider credit spreads, probably a stronger value of the dollar, and that all implies lower commodity prices because they're priced in dollars. I'm expecting that, but the volatility could be meaningfully more than I'm anticipating, and that could undermine economic growth prospects, particularly in the context of some reasonable concern about transactional liquidity in markets. It feels like markets post Dodd-Frank and some of the regulatory changes in the Volcker Rule have reduced transactional liquidity in markets. There's bigger changes in market prices for any change in underlying fundamentals, and that's something that needs to be watched. The other thing I'll point out is that this is based on some recent work that we've done. The stock wealth effect is actually quite large, about the largest it's ever been.
That is, for every change in households' stock wealth holdings, you get a change in their spending. That's the so-called wealth effect. Historically, the rule of thumb is for every dollar change in stock wealth, you get $0.02 change in consumer spending. Based on our work, it's now closer to $0.06. $0.06 doesn't sound like a whole lot, but when the value of the stock market's swinging around by trillions of dollars. A 10% decline in stock prices, which is roughly what we've seen in this correction, that translates into about $2 trillion in lost wealth to U.S. households. Multiply by $0.06. That's a lot of dollars. That is something we need to watch very carefully as well.
My sense is that we will be able to navigate through, even with this volatility, and that goes to the strength of the U.S. labor market. It is very strong. We got another data point this morning. We put together an estimate of employment each month based on ADP payroll records. Came in at 200,000. We're creating 200,000 jobs per month consistent. I don't see any slowing. We've seen a surge in job openings in the last year or two, and that augurs very well. At this pace of job growth, you can see we're quickly absorbing the unemployed and the underemployed. This underemployment gap here shows not only unemployed, but part-timers who would like to work full-time and people who have stepped out of the workforce.
The gap is now less than one percentage point. If we continue to create 200,000 jobs per month here, we'll be back to full employment by the summer of 2016. June 13th, to be precise, we'll be at full employment. We're closing in pretty fast, and that has a lot of very positive implications for wage growth and household formation. Yes, the normalization of monetary policy is going to be tricky. There's going to be volatility. Yes, that's going to put some pressure on consumers through the wealth effects. Given this labor market, I think we should be able to navigate through. Finally, the third thread I just want to highlight, and I know this is more relevant to the folks in the room, is the concern that the bond market broadly is overvalued. I think there's evidence that it is.
That's shown here. I'm actually quite proud of this chart. It's a little complicated, but I'm going to make you digest it. This shows the difference between the yield on the 10-year bond and a measure of expected nominal GDP growth. A 10-year Treasury yield is, in a sense, a proxy for the cost of capital. The expected potential GDP growth of the economy is the return on that capital. In a broad macro sense, in the long run, those two things should be equal. The 10-year Treasury yield should equal expected potential GDP growth. You can see over the period shown back to 1970, and it's shown back to 1970 because that's when my data on expectations begins, it actually works out. The difference is literally zero. This actually holds in theory and in practice.
Half a standard deviation around that is about 100 basis points to just under 90 basis points. You can see that's my rule of thumb for valuation. If we're over that, then the market's undervalued as it was in the early 1980s. Below that, meaning that the 10-year yield is below expected potential GDP growth, then the market is overvalued. I think for good reason, for reasons that will be persistent, that is global quantitative easing. You get a sense of the impact of quantitative easing here on 10-year yields. This is for the United States. This is the three rounds of QE plus Operation Twist. This is based on various econometric methods that we've employed. You can see that the 10-year yield is about 100 basis points lower as a result of QE.
This effect on long-term rates will only abate as the Fed's balance sheet normalizes. Even if the Fed simply allows the securities on its balance sheet to mature and prepay, it'll take roughly 10 years. This 100 basis points will come out of the 10-year yield over a 10-year period under that scenario. One other quick point. Because the 10-year yield and long-term yields are determined in a global market, it's not only about QE in the U.S., it's now about QE in Europe and in Japan. Even though the Federal Reserve has ended QE and will allow its balance sheet to wind down, QE in Europe and Japan is in full swing, and I don't see that ending anytime soon. That will continue to put downward pressure on long-term interest rates globally and here in the U.S.
Yes, the bond market is overvalued, but I don't see long-term rates spiking. They'll rise, but in a relatively slow way over an extended period of time, I think a very conducive environment for continued growth in credit and bond issuance. With that, I'll stop. Hopefully I allayed some of your concerns, but I'll be very interested in any questions or comments that you Yes, sir. Why don't you wait for the mic. Go ahead. Yeah.
Thank you very much. William Feinman here with Wells Fargo. I had a question for you on a chart that was shown earlier, showing a doubling of student loan debt over the past seven years. The question is, given that and the rising defaults that you're seeing there, does that pose a threat to the U.S. economy or not?
Yeah. Good question about student lending. Yes, it will have a negative effect on the economy. I think it already is to some degree. I think although the evidence here is pretty scanty, it is affecting single-family home ownership. It is because kids with debt-to-income ratios now that are too high to qualify for qualified mortgages under the new QM rule. I do think it's affecting timing of marriages and household formation. I think these are on the margin. I also think it's affecting small business formation. There was actually a really very good study that came out from the Philadelphia Fed a few weeks ago showing student loan debt across counties in the U.S. and looking at small business formation in those counties, and showed in a very nice way, a rigorous way, that it's having an impact.
One reason why business formation in the U.S. is low is because of student loan debt. It's encumbering kids, and they're unable to do. When I started my company when I was 30, by that point, I had paid off my student loan. I'm not sure kids, if they have so much debt now, would be able to do that. I think it is. I don't think it's an existential threat at this point to the economy broadly. The weight, but it's not an existential threat because it's a taxpayer problem. $1.2 trillion in student loan debt outstanding, $200 billion, I'm obviously rounding, $200 billion is in the financial system, made by private financial institutions. That's high-quality student loan debt.
That's underwritten to credit standards, pretty high credit standards, because those guys went through the wringer not too long ago, and they have been chastened by that. Co-signed. The trillion is government-backed debt, so it's a taxpayer problem. It's not a financial system problem. That's when it's a financial system problem, that it becomes existential, that it really could cause the system to seize up and we have a real large problem. I view this as one of those things when you look back over 10 years, you say, "Oh, what a mess. It would cost us." But it's not one of those things that pushes you down into the abyss.
The other thing I'll say, though, is my sense is that when we do have the next recession, and that obviously is coming, this will be a very serious problem, and I would not be surprised at that point if there was a ramping up of the debt forgiveness plans that have already been put in place by the Obama administration. They're there. You just can change the parameters of those programs to allow for more debt forgiveness, and I think that would be a very likely outcome. I'll say one more editorial thing and then I'll quiet on this. We're financing our kids' education in an entirely wrong way, right? Very clear evidence that when you increase the subsidy in student loans, all you're doing is jacking up tuition. Right? A New York Fed study came out, showed that beautifully.
It's like throwing subprime mortgages on top of the housing market. It's not improving affordability. All you're doing is jacking up house prices. Right? We got this all wrong. We should be using that subsidy in the student loan program and increasing the supply of educational services to bring down the cost of education, or at least slow the growth in tuition. It's just completely wrong-headed what we're doing here. Unfortunately, that's not going to change for a long time.
What you said about the increased wealth effect struck me as counterintuitive for two reasons. The first was that with the increased amount of wealth in the upper tier of the socioeconomic spectrum, I would think less of that would be spent. The second reason is that even below that stratum, more and more of that is in retirement and other tax-deferred accounts. I would think the spendability of those assets would be lower. Maybe you can explain why you think that is taking place.
Yeah. Excellent point. My reaction when I was doing the work with a couple of other colleagues was exactly the same. Really? What's going on here? Just to give you a sense of the work, we have data on financial asset holdings, stock holdings, and other financial assets down to an individual level based on information collected by Equifax and their subsidiary, IXI. We have actually very good regional data, so we're able to estimate the relationship between consumer spending, incomes, and wealth with a lot more data points than anybody else has been able to do up to this point. It's based on lots of data over an extended period of time, and it holds up. Although, let me say secondly, it's not stable. It varies a lot over time. It depends on the environment that you're in.
Historically, the stock wealth effect has been well below the housing wealth effect. Now in the current environment, the housing wealth effect is actually quite low. It's only about $0.02, and the stock wealth has increased. What's the intuition behind, which is what you're asking. It really has affected the spending patterns of those folks in the top quintile of the income distribution. If you look at the saving rate for those-- so you can look at saving rates across quintiles, and you can see the saving rate for every income group has actually gone up in the recession, the bottom four. The only group for which it has gone down significantly is the top quintile, where that saving rate is. Your sense is that they're wealthy, they're doing really well. Why would they spend more out of income? That's precisely what they're doing.
A very dramatic decline in their saving rate, and they're spending a lot more because they feel wealthier, and they're spending a lot more out of it. It is in the data. It's pretty clear, and it's pretty strong evidence that that's about $0.06. One final thing I'll say, because it isn't stable. It was even higher back a year or two ago. It's starting to come down, and the housing wealth effect is starting to kick back into gear, particularly in those markets where house prices have risen back above pre-recession levels. You're starting to see the housing wealth effect kick back into gear. You can tell I get quite excited. I have got a paper if you're really interested. If you want to go through it. Yeah. We have time for one more question. Yeah.
Mark, what are your thoughts on just the durability of issuance growth, given that we're six years into this benign interest rate environment and just given where corporate leverage sits?
I think prospects are good, I think for the following reasons. One, I am optimistic about the economy and growth, and that's a necessary condition for issuance and for credit growth in general. Second, I do feel like interest rates will rise, but the rise will be modest and only over time, and we're talking about normalization of interest rates. If it's because the economy's improving, it's all good. We're not taper tantrum with jumps in interest rates that are disconnected from the underlying economy and growth rate. The third reason is disintermediation. That's just going to continue. I think it has been in force bond issuance for a long time and will continue going forward. That becomes more of a support in growth overseas than in the U.S. Disintermediation process is much more advanced here than elsewhere. Nonetheless, I think that will continue to be the case.
Finally, let me say one more important point I think about this. There is a lot of concern about bubbles developing in different markets. If you had asked me about the CLO market leverage lending a year ago, I'd say, "That was a bubble," but I'd say, "That should be on somebody's radar screen. They should be looking at that more carefully." Fortunately, somebody did. The regulators are on top of this. Before the crisis, I never got a call from a single regulator about anything. Now I get a call every other month, what should I be worried about, from different agencies and organizations within not only in the U.S., but international financial agencies as well. They're all over this, and they have no compunction about using macro-prudential tools to try to rein in where they think there might be excesses developing.
The market's self-correcting as well. Take a look at the junk corporate market. Here in the United States, you go back a year ago, and I don't know the numbers exactly right, but these are orders of magnitude. The spread off of treasuries was 350 basis points. Well, that's pretty thin. The average since the junk bond market was put on the planet was 500 basis points. It's not 200, 250 basis points like it was pre-crisis, but pretty thin. Look at it today. I think yesterday I looked, it was like 700 basis points. It's self-correcting. You're wringing out these excesses as they're coming along. They're not festering, and they're not building, in part because of regulatory oversight, in part because one of the side results of the lack of transactional liquidity might be you wring out these excesses pretty quickly in the market.
The bond market feels healthier to me as a result of all of that just lays the foundation for better credit growth, better bond issuance, longer run. Will it come to an end at some point? I'm sure. I just don't see it in the foreseeable future. Well, on that happy note, thank you. It's now my pleasure to turn the podium over to Linda Huber, who's going to lead the way on our financial strategy discussion. Thank you very much.
Thank you very much, Mark Almeida. My first request from the staff was to lower the microphone from John Goggins' altitude to an altitude that might work for the rest of us. That's what we're doing. We are embarking on session 5, which is financial strategy, I'll soon be joined by Dave Platt and Lisa Westlake. What I'm going to do to start is the ever-popular issuance update, which I know you've all been eagerly awaiting. I'll talk a little bit about the financial overview and the performance of the company and our capital allocation strategy. Then Dave Platt will talk about corporate development and how we're thinking about that. Lisa Westlake will speak about incentive compensation. Our key messages for today, we understand that issuance has been choppy, and the market has been subject to volatility.
The thing we would ask everyone to note is pipelines are quite full, I'll talk more about that in just a moment. We'd also like to point out that Moody's stock has performed well for shareholders, we feel we've executed in a very strong way, even during times of volatile market conditions. We're used to this. We've seen this before. It doesn't feel too much different than when the market had some issues when we had the situation with Russia moving into Crimea, for example. We are working to very thoughtfully deploy the cash flow we generate, we are primarily returning that to shareholders. We'll take a look at that in a moment. We want to stress that we have deep and broad access to the capital markets, which is a very helpful thing for us as well.
Going to the issuance update, this is a summary of what we're hearing from various investment banks that we've polled as recently as yesterday. Again, this is not a Moody's view, but really this group of banks and what they're telling us. Looking at investment grade first, September month to date, as of yesterday, was at about $85 billion in issuance. You'll recall that for U.S. investment grade, $100 billion is a good month. This morning, Hewlett-Packard went into the market with its deal, it's possible that September will finish at about the $100 billion level, which is a pretty good month. Year to date, we're at $950 billion, which is up 20% year-over-year, and expected for the year, $1.2 trillion, which is up 15%. The pipelines are described as average.
Part of that is we've seen funds flow out of investment grade. That happened rather dramatically when the Fed decided to hold. This week, so far, we had had very limited supply until this morning. We are seeing jumbo deals come back. The HP deal is a jumbo deal. We've seen 32 jumbo deals this year. That's $5 billion and larger. Those are very helpful to us. Investment grade, the pipeline is there. The M&A backlog is definitely there. That looks to be about $100 billion in and of itself. M&A deals keep coming, the pipelines are full. The question is just when they will move. Similarly, on high-yield bonds, $15 billion of issuance this month, $220 billion this year, which is down 10% year-over-year. We're expecting flat-ish for 2015 for high yield, the pipelines are above average.
The reason for that is this market has really backed up. You just heard Mark speak about what's going on with spreads. They are higher. With all that, we've still seen 11 new deals priced in September versus four in August. That's a good trend. We have seen funds flow out of high-yield funds. The high-yield sector has not returned very well compared to other sectors. We do see the pipeline building again due to volatility. We would note that execution risk is elevated, that means we're going to have a very common situation where there's a window for high-yield issuance and that opens and closes. We would expect that that will continue as we move forward.
Leveraged loans, the last category that we look at in the U.S., about $4 billion in the month of September, $270 billion year-to-date, which is down 30%, $375 billion expected for the year, which is down 15%, we see an average pipeline. The highest volume in four weeks came during the week of September 8th, which is right after Labor Day. Year-to-date, we've also seen funds outflows from this area. You've heard a lot about the Shared National Credit program, fondly known as SNC. SNC has caused some decline of activity in this market, generally, the regulators and the banks are starting to understand each other. Banks will commit insights for well-structured deals for top-tier high-yield credit. We're starting to see this move again, we think that that is a very good factor.
The summary here, the pipelines are quite full, above average in high-yield bonds. We've got to wait for those pipelines to open, we're hoping with the equity markets back up today and potentially greater stability as we move into the fourth quarter, maybe we'll start to see some movement. Stay tuned on that. We switch to the financial overview, I like to do these funnel slides. We're comparing Investor Day of 2013 to Investor Day this year. What we do here is we look at our performance over the previous three years. We get Goldman Sachs to help us with this to keep it honest. In the Investor Day work of 2013, looking at the previous three years, we had four companies that had performed as well as Moody's, American Tower, CF Industries, Intuitive Surgical, and Mastercard.
That was looking at the guidelines of the numbers we had put up over the previous 2 years. This year we did the same thing, looking at our numbers, and we start with the S&P 500. If you look at EPS growth over 23%, you take out four-fifths of the companies, and you come down to 98 of them. If you look at revenue growth over 11%, you take out more than half of the companies, and you have 40 companies growing at greater than 11%. Then if you look at companies with margins greater than 41%, there are two of us. There is Moody's, and there is Gilead Sciences, which is a biotech company which has found a treatment for hepatitis C, which I think has even been mentioned as potentially a cure for hepatitis C.
Fortunately, we at Moody's do not need to cure any diseases, which is probably a good thing for us. We do have very strong financial performance, and we continue to be very pleased about that. You'll note that the companies that had this strong performance in 2013 are no longer included in this group. How does it look in terms of our performance and what we've done for shareholders? We've returned 131% over these last 3 years. If you look at the peer group average of 49%, we're doing close to three times better than that, which is quite good. We're also doing better than the S&P 500 at 44%. The performance has been very good. A large part of that has been our P/E expansion. You see that our P/E multiple has reset.
I was much happier when it had reset at 23 times. Now it's back down to 20 times because the market's P/E has also backed off, as you can see. But we're in the middle of the pack. We had been closer to the top of the pack of our competitors, but this is a great improvement from when the multiple was closer to 10 times. We believe if we can continue to demonstrate strong growth, the multiple will continue to trend higher. Looking at our overall financial results, I think you've all seen this slide before. Revenue CAGR over the last few years of 13%, EPS on the right at 19%, our margin guiding to 43% this year, and our cash flow conversion continuing to be three times as strong as the S&P 500. Pretty strong set of performance numbers.
We do get the question, as Mark had focused on, are we doing this organically, or are we doing it through acquisitions? You can see here, if you look at 2014, our growth was 12.2% total, excluding acquisitions, 10%. For the most part, we are modest in terms of our acquisitions. $400 million of acquisitions is a very heavy year for us. This year, because we're lapping some of our acquisitions, they have helped us. For the most part, most of what we do is organic growth. In terms of how the business will fare in these choppy market conditions, we're always somewhat frankly surprised that investors don't perhaps take enough note that half of our revenue is recurring. If you look at these slices, the purple part at the top is the Moody's Analytics business.
It has a great deal of subscription revenues. It's growing very nicely. It does have good pricing power, which I think Mark and Steve were able to convince you of that a few minutes ago. In the rating agency, we do have growth in the fees that we monitor in monitoring of ratings, and we do get fees for those. Pricing, of course, is helpful to us. This whole stack of fees is growing at 10% a year. That continues, in some sense, even if we don't rate anything else. The recurring part of the business, which is half of our business, is very important to us and a very attractive attribute of the Moody's business. Now if we look at what's going on with the transaction side, this is also very important. Issuance for MIS is not the only factor driving revenue.
No matter how many times we try to explain this, we still get the questions that we always get. If issuance is going to be down, isn't that going to be devastating for Moody's? Well, if you look at the issuance charts here, the stacked bars are global issuance, and the black lines are Moody's Investors Service revenues. What you can see even for the first half, there's some rounding down in the line in the bar chart down below. Issuance actually was down in the first half by 3%. Yet we drove revenue growth by 8% in the rating agency, which was a terrific performance. If you look at the period 2010 to 2014, issuance growth was 5%, revenue growth was 13%. This is the challenge of the management team.
We have to find a way to hit the growth targets that we have mentioned to you, that we've committed to you, and we have to do that even if issuance looks like it might trend down. We've seen these conditions before. In fact, even the first half of this year has seen issuance down but revenue up, and you'd heard about FX, and I'll talk about that in a minute. Now, what about interest rates? You've heard the optimistic side from Mark Zandi. Some of us are perhaps a tad less optimistic. The reason for that, you can look at this chart. Rates have historically come down. This chart goes back to 1992. In the last trailing 12 months, the 10-year rate has been averaging 2.4. This morning, it's about 2.1.
Again, when I graduated from college back in the dinosaur age of 1980, the prime rate was 19.5%. When I talk to younger people and they say, "Oh, rates may go up 25 basis points," it kind of amuses me that that's not really such a huge increase at all. As Ray had said, if rates do go up, we expect that to be a low increase and slow. Flattening of the yield curve would be helpful for us as terming out might continue. We've got two periods here, 2008 to 2009 and 2012 to 2013, where in fact rates did go up 100 basis points and then 120 basis points. This is a very steep rate of increase. Yet our revenues, both Moody's Analytics and MIS, continued to go up because growth is helpful to us. The question is, where is growth in the U.S.?
Where is growth in China, as I think Mark explained very clearly? Where is growth in Europe? Today prices were announced to be down one-tenth of 1% in Europe, and Mr. Draghi speaking again about additional QE. We do have one economist here who feels that there will be QE4 and that we may see interest rates moving down before they move up. Let's see how this all plays out. Again, we're used to these choppy conditions, and we've been going through this now for quite some time. It's been a long time since the Fed has raised, and we'll see how this plays out. But it's good to look at both sides of the possibilities of what might happen. If we look at what has happened here with EPS, this is an interesting chart. We like to challenge the team by putting together new charts.
Moody's EPS in 2005 on the left-hand side was $1.81. In 2010, we reached $2.13. We often get the question, what's going to happen to you if anything like structured finances decline happens again? Jim Ahern and mentioned this. We had about a $550 million revenue drop because of the loss of structured finance revenues with the financial crisis. What did we do? The finance team got very busy. Though the business saw $0.60 of EPS decline over this time, by repurchasing shares and also by good tax planning and taking down the tax rate from 43% to 33%, we were able to add $0.92 of EPS. We think we're pretty good at moving all the lines on the income statement. But I'm happy to note now since 2010, EPS at $2.13, now at $4.48 for the second quarter trailing 12 months.
The business has really done this. Hats off to Mark and Michel. My colleagues have done an extraordinary job. We're doing this the hard way with $2.16 of EPS coming from the business performance, and that's the way it should be. We're not doing this below the line. We have repurchased shares, $0.28 of benefit from the share count reduction. That's nice. Tax planning, we can't do too much better on the tax line. With the worldwide interest in looking at tax rates and collections, we are quite conservative at Moody's, and we will continue to be that way. We have to be very cautious about what we do on the tax line. Again, the business performance, we wanted to highlight this. It's been what has been driving this company for the past five years. Again, very important thing for us to note.
What about this FX situation? If you look at FX, it has been difficult for us this year. Five percentage points of growth have come off because of FX. We grew at 8.7%. We feel terrible whenever we're below double digits. If you take out the effects of FX, as I think Mark showed very well for his business, we'd be at 13.8. We would be at double digit. Even 8.7 in a 1% growth world, which is what the rest of the S&P 500 is doing, ex energy, is pretty good. In fact, it's pretty great. If you look at how we're dealing with this at Moody's, we have an interesting situation. The circle on the left will show you revenue is largely in euros, and you see 20% of our revenue in euros.
In fact, 20% of our expenses are in other currencies on the right, then 14% in GBP. For a while, we've had the EUR weakening and the GBP strengthening, which is exactly the opposite of what we would want, and we're hoping that these things are remedied soon because it has caused us some FX challenges. Quickly on cash flow, we continue to provide really good free cash flow, and we still have a very CapEx-light model. Quickly now, what are we doing with capital allocation? This is a very happy story. Moody's, in the past five years, has returned more capital to shareholders than our peers, 74% of capital return to shareholders through share repurchases and dividends. Our peers are doing 47%. Half again better from Moody's. Why are we doing this?
It's because we survey all of you, and 70% of you say you want share repurchase. 70% of you say that's very important. 70% of you also say a strategic acquisition of size is not important. We actually do listen to our shareholders, and we try to act on that. We're very committed to this idea of returning capital, and we target two things, our dividend payout ratio, which is dividends over net income, 25%-30%, and we're within that range at 27%. Our share repurchases, we've guided to $1 billion for this year, and our range is $1 billion-$1.25 billion in the future. We call this our landing zone, and that's what we're trying to achieve.
Year to date, as of yesterday, we're very close to $900 million of share repurchase having already been executed, and we've brought in close to 9 million shares. We feel pretty good about that. We view that our stock price is at an attractive place. We're on sale. For us, that provides a good opportunity. We are putting our money where our mouth is. We are in the market right now, as we usually are, and we are repurchasing our stock. This page probably has not had sufficient focus, so I wanted to draw attention to this. Over these past five years, we've reduced the share count by 13%, about 3% a year on average. We've increased the dividend by 224%. The CAGR on that is 26%, and we're at $1.36.
We've increased the dividend seven times in the last five years, and that's a very important thing. We are in a healthy place, and we're able to do that. The circled figure on the left is also very important, $1.6 billion returned to shareholders in the last 12 months. We could have taken that money, we could have done an acquisition. We could have done an acquisition around the market top. We listened to what our shareholders wanted, and the shareholders have told us that their preference is return of capital. We think we've executed pretty well on that, and we continue to reduce the share count. Again, this strategy is the same strategy we had last year, and we will continue with the same consistent strategy going forward. Our average repurchase price has also been pretty effective. We dollar cost average down.
You can see that our repurchase price has been well below the end-of-the-year price. So far for the first half, we repurchased at about $100. We have a little bit better opportunity recently. We'll see where we close out the year. We had been at $108 at the end of the first half. Again, we feel we've repurchased quite effectively, and it's a good way to return capital to all of you. Quickly, we're also a very seasoned capital markets issuer. When I came to Moody's, we had some private placements. We had two of those. Then in 2010, we moved into the public markets. We've been issuing generally once a year. Then we got very fancy last year, and we issued in euros. Part of this is an effective hedge to our euro exposure, which is really great.
We got just amazing execution on our euro bond offering earlier this year. We're very pleased about that. Our bonds are performing pretty well. If you look at the orange dots at the top, that's the general investment grade spread. We issued at about 235 over, and that's tightened to about 135 over. That is a good example of the market space and what Moody's is doing and our own credit worthiness. That's very helpful to us. We have very well-spaced maturity profiles. We have a good amount of room within our rating category. We are going to stay at this triple B plus rating level from Standard & Poor's. We have several hundred million dollars of room, but we don't like to be right up against the edge.
We don't have $1 billion of debt maturing in any more than that in any three-year period. We do have $1 billion of undrawn credit facilities. We have plenty of liquidity, and we feel that we have plenty of dry powder as well. Our key message is here. We understand it's a choppy market, but issuance looks okay. The pipelines are full. That's good for us. The stock's performed well. We're thoughtfully redeploying our capital back to you. We have deep and broad access to the global capital markets. The message you're going to continue to hear is we have confidence in our businesses. They are great businesses. We've all executed, we believe, pretty well. We have the same strategy being executed by the same people. Consistency and predictability are important to our shareholders, and we think that we've demonstrated that.
On that note, I'm going to turn it over to the esteemed Mr. Dave Platt, who's going to give you some more details as to how we're thinking about the corporate development opportunities. Then Lisa will round out our performance with some further details on our compensation plan. Turning it over to Mr. Platt.
I have to adjust this down a little bit more than Mr. Goggins again. Linda, thank you. Good morning, everyone. To start, I thought I'd offer some thoughts, and I've had a good assist from all my colleagues across the way, on how we approach M&A. First and foremost, we are disciplined buyers. You've heard it earlier throughout the day. Simply said, we have a great business. Our revenue growth and margin profile presents a very high bar for M&A. As a result, we consider many opportunities and execute on few. Second, we ask ourselves some very basic questions. First, can we easily explain why the deal is strategic? Can we meet our return requirements under a P&L we can realistically achieve with confidence and accountability?
On every deal, and we go to pains to do this, we tell our teams to focus on the P&L you can deliver. Do not focus on the valuation necessarily how much. What P&L can you achieve? The valuation will then sort of take care of itself. Are we thinking clearly about the integration process and how potential synergies will or might be achieved? Inevitably, this is easier said than done. I think we all know that deals in our sector are expensive. We want to buy well. Keeping strategic focus and price discipline is essential. In short, a deal has to be strategic, the numbers have to work, and while we are willing to stretch, we will not price transactions for perfection. In terms of our transaction activity, a couple of observations. First, we are constantly in the market and looking at deals.
Since 2005, we've looked at over 500 transactions or potential customer companies, and we've spent about $1.2 billion. We have a very active M&A dialogue and are always talking to bankers, companies, conferences, and want to know what is happening in the sector. Where possible, we try to transact on a proprietary basis. We do, of course, participate in auctions, but if we can do so, we'll try and negotiate transactions and do them efficiently in that manner. So far, we've looked at over 50 potential opportunities this year. Our business, and thus our M&A program, is global. Suffice to say, MIS and M&A are keeping us busy and on airplanes. We continue to emphasize middle-market tuck-in transactions. That all being said, we are agnostic to size. We'll do large. We'll do small. Is the deal strategic, and can we make money?
Some specific comments about our acquisition requirements. First, Mark said this very clearly, and I actually borrowed it from him, we look for opportunities that offer clear industrial logic. Standards, essential information, proprietary data analytics. Can we leverage the brand and our global reach? Are we enhancing our market opportunity? 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, among a variety of other things, how long it takes to get our money back, your money back. Not to get too esoteric, but in our cash flow models, we think hard about terminal values and what they're telling us.
In particular, we do not want to rely on a terminal value to make the numbers work. We evaluate transactions on an unlevered basis, we're not using financial engineering to achieve returns. Bottom line, again, the numbers need to work and make sense. As to the bottom half of the page, we know what others are doing. We are fine sticking to our knitting. We want to ensure that our M&A program is value-enhancing to the business. We're all proud of this page, and I am pleased to report we continue to successfully execute. Each deal on the page was strategic, it met our investment requirements, we have teams deployed, and we are busy integrating. In terms of what we've been doing recently, Lewtan Technologies, it was a proprietary transaction. It effectively doubled the size of our structured analytics business.
We really liked it had a strong position in Europe and further broadened our product offerings, and the integration has been going very well. Equilibrium, Rob talked about this, provides credit rating and research services in Peru and Panama. It's a great platform to expand into other domestic markets in Latin America and further reinforce our cross-border franchise. The nice thing about the deal was Equilibrium had been a Moody's affiliate for several years. We are very fortunate here to have a long and trusted relationship with the management team and the people on the ground. In terms of our post-acquisition approach, this is similarly straightforward. We integrate as quickly as practical. We're trying to make sure that we preserve what made the business special and our decision to transact. We actively monitor and analyze performance. We make sure that we are in front of potential issues.
We're always trying to understand and learn from what did not necessarily go as planned. Ideally, we try to minimize those circumstances, but we're always learning something. To sum up, we have a practical approach to integration and post-close review is frequent and very high accountability. There's a lot on this page, let me try and break it down. First, our core markets are generally healthy and growing, and we've been transacting. MIS, again, take a long-term view, and we are looking at opportunities worldwide. ERS We like the business. We're looking for opportunities to meet the complex and changing risk management and regulatory needs of our financial institution clients. Our DNA simply stated, we want unique and must-have content.
In professional services, I think it's safe to say we're willing to selectively invest to increase scale, content credentials for our training area, and service capabilities at Copal Amba. In terms of the other side of the page, the adjacent markets, we very much find some of them quite interesting. The reality is that valuation expectations, particularly today, are high, and we are also mindful of potential growth and margin dilution. I think generally speaking, we're flexible. We're willing to think creatively. We are decidedly not a venture capital group, but we are thinking about how to take advantage and be well-positioned for the changes that we see in technology-enabled innovation. It's also, and this was said earlier, but we're not predisposed to M&A, and we work quite actively with our lines of business to assess buy versus build opportunities.
In all cases, across everything that we're doing, sort of a philosophy of sorts. What market need are we solving? What do we bring to the table? Are we really strategic enough to justify the price that we have to pay? Our mission, are we defending the core? Are we investing for growth? Are we deploying shareholder capital effectively? I'd be remiss if I didn't say this, and of course, we are trying to find opportunities where we can use our offshore cash position. To sum up, our business is solid, and the bar for M&A is high. We have a very active M&A program, and we're in the market. Deals have to have clear industrial logic and meet our return requirements. We're actively seeking to grow and expand our total addressable markets. The information sector is expensive, and we are very disciplined.
We have regular post-close review to ensure accountability. We use common sense in our mission to decide that and guide how we're making decisions here, and we are careful with shareholder capital. I thank you for your time, and I'll turn the conversation over to Lisa Westlake.
Thanks, Dave. Good afternoon, everyone. You've made it to the final presentation. What I want to do today is provide you a very brief review of our incentive compensation. As many of you know, total compensation is about 65% of Moody's overall total expenses. Incentive compensation, depending on the year and our performance, runs between 10 and 15% of total expenses. To begin, this slide actually is right out of our proxy statement. We're trying to do three things with our incentive compensation. The first one is to link the achievement of business objectives with each individual's performance. That pay-for-performance link we want to have there. The second is we want to align executives' rewards with our shareholders' interests. We want to make sure that those work in lockstep.
Finally, we want a program that's competitive so that we can attract and retain and motivate our management to deliver business results. You can see on the bottom of the slide the basic components of our compensation. Pretty straightforward. We have salaries, we have annual cash bonuses, and we provide equity. Equity is in different forms depending on your position at the company. How does this all work? Well, basically, we set targets for one year and three years, and then depending on our performance against those targets, we fund a pool of money that then is allocated to individuals based on their individual performance. In the top table here, you can see what the funding metrics are for various individuals, depending on what business they're in. The top chart is the annual bonus metrics.
The bottom table are the metrics that we have. These are cumulative three-year metrics for our three-year performance share plan, which is one form of equity that the named executive officers and basically the top 50 employees at the company are awarded. In terms of our annual cash incentives, the charts below show you how those various metrics are weighted. Again, they differ depending on who you are and the area of responsibility. The first bullet point on this page, though, is very important. This is a best practice. All of our plans have both thresholds and caps. What does that mean? That means if business performance does not achieve a minimum level, our plans just do not fund. You might ask, "Well, has that ever happened?" The answer is yes. That happened one year during the financial crisis.
Our plans are working the way they're supposed to. On the other side, we have caps. That means we don't continue to pay at all costs. Payouts are capped at a certain number. We feel that that's very good in terms of one of many ways we have policing risky behavior. There's really no way anybody here can vet the ranch in terms of trying to max out their incentive compensation. The other thing to note would be the fourth bullet point here. For the top 50, we also have a modifier which takes into account customer value goals. If we achieve or exceed those goals, we can increase the funding for the annual bonuses by up to 10%.
In terms of the long-term incentives or equity, we provide, as I said, performance-based shares. You can see how those metrics are weighted in terms of that. We also provide employee stock options. Those are pretty standard. They vest ratably over four years, and then they expire over 10. This chart is meant to answer the question, well, why do you believe the metrics you have are the right ones? We often get that. By this chart, you can see why we think they are. First of all, they help us focus management on one-year, three-year, and 10-year goals. We feel we've got a short-term and a long-term view, which is important for managing the company. These metrics, among all that we could possibly choose, also align our goals with the strategic objectives of the company. They're also aligned with shareholder interests.
We've done a lot of work in partnership with the board's independent compensation consultant to validate the correlation of these metrics versus others and company performance. These have the highest R squared. In terms of how do we use our shares, are we being responsible? These charts are meant to say, yes, we are. Basically, you can see in the orange, about 1.4% of outstanding shares are awarded to employees. Over a three-year period, it's about 1.7%. You can see in the right-hand chart, over three years, we've been running between the 25th and the 50th percentile in terms of share usage. With all the good share repurchase activities that we've had, we've effectively been able to more than offset any dilution that employees owning stock would cause to shareholders. How do we ensure that our managers have skin in the game?
We require them to retain ownership of stock. They're in it with the rest of you in terms of owning shares. You can see what the ownership requirements are. This, again, is considered another best practice. What's not on this list is everyone of the folks in the top 50 who are not named executive officers or direct reports of the CEO are also required to hold one times their salary. We have quite a bit of share ownership requirements at the company. To sum up, I'd like to leave you with four key messages. The first is our comp plans are directly aligned with shareholder interests, and they also match pay with performance. There's been a lot of focus on that, and we feel that that's really important. We have robust independent governance around executive compensation.
Our board of directors is very involved with all of those decisions. In terms of benchmarking, we routinely benchmark what we're paying, and we are in line with peers and also the broader financial services industry. Finally, we're really pleased that shareholders have approved our executive compensation programs last year, or this year actually, with a 95% favorability vote. With that, I'm going to invite Salli back up, and we're happy to take questions.
Great. We'll start right up here in the front with Alex Kramm.
Thanks. One for David and a quick follow-up for Linda as well. First of all, David, I think you started your conversation with the first measure or the first thought process is something strategic. When I look at the Moody's Analytics presentation earlier, and they talked about that 10% market share slide, I guess, are there opportunities for consulting transactions as well, I guess, in terms of are there companies that do something very similar that you could buy, maybe take out a lot of costs, get the margin up that we all want in MA? That's a question for you. Then Linda, just I think you raced a little bit through the whole share buyback and leverage discussion.
Can you just rewind for a second and say how much capacity you have left, how you feel about levering up a little bit more to buy back stock, in particular at these prices, and also how your overseas cash and ability to lever impacts that? Thank you.
All right. Well, to start, if I think about this over the last three years, we've been adding to the MA set of assets. Some of these have been more to gain scale, gain presence, particularly in the ERS, Copal Amba, which was also part of our greater India strategy and to serve our financial service clients.
Precisely to your point, as we think about sort of where we are now with the scale that we have in several of our MA businesses, what you're talking about is precisely what we're doing. We have a nice opportunity, and we're looking at several things where we have the prospect to not only increase our market share, our capabilities, but we're having a great conversation around, okay, what can we take out to have a higher contribution of the acquired revenue $ down to the bottom line?
Alex, I'm sorry if I went too quickly through the leverage and buyback story. To rewind, as you had asked, I think we're happy with the leverage level that we have. We're happy with the rating we have. I think we would view we have three to $500 million more of extra capacity that we could use. We're pretty happy with the share repurchase activity we have achieved thus far this year, which has been pretty strong, and I think $1.6 billion that we've returned with all forms of return of capital. It's been a pretty strong statement already. Because we dollar cost average down, now obviously we can buy more shares for less money, so we're already in some sense doing what it is that you've asked.
We've guided this year to $1 billion, you can see that we're sort of ahead of pace. We'll have to see how that goes. We're well aware that the stock is at an attractive price right now, we are in the market quite constructively right now. We'll see where we want to go in the fourth quarter. I don't think we're absolutely capped exactly at $1 billion, but we're going to stay in that ZIP code. We do have a little bit of room on leverage, but we don't like to push things right to the edge. I think we're pretty comfortable where we are, and we think the share repurchase program is performing pretty well given this bit of a downdraft we've seen in the markets recently. I hope that covers it.
All right. We'll go to Peter Appert next.
Thanks. Linda, you guys have done a great job in terms of driving margin improvement at the MIS business over the last five years. I think last year at this session, you talked about being comfortable with where the margins were currently. I'm wondering if that, number 1, is still the view. Number 2, could you talk about how much flexibility you have to manage the cost side of the equation in the context of what could be potentially a more difficult revenue environment on a near-term basis? Then 3, related to that, how important is maintaining margin in the context of a more difficult revenue environment? Thanks.
Let me take those in reverse order, Peter. I think that maintaining the margin, maintaining what we guide to is a very strong commitment at Moody's and for the management team. We like to hit our numbers, we intend to do that. In terms of cost flexibility, on a short-term basis, and really without causing any real damage to the business, we generally view that we could take out about $50 million in costs. Our first lever would be to reduce the pace of hiring. We can pull back on some technology projects, though not all. We think pretty hard about that equation and how that works. The margin is in a ZIP code where we're pretty happy with it right now. We're thinking about this for next year.
We'll have more to say about that in February, but we have moved up the margin 500 basis points in the last five years. We are really focusing on being a growth company is important to us now. Growth means the PE multiple will continue to expand. Our investors are very largely growth and GARP shareholders, about 85%. We have found that if we invest in our businesses, and we gave Mark and Steve some money for their Apollo project to further flesh out Enterprise Risk Solutions. You know what? All that money that we gave to them, which was in the many tens of millions of dollars, has paid off very well. We think we've deployed that capital in a pretty judicious way, which has been very positive for the investors.
As I think Dave set out, first thing we want to do is feed the businesses that we have, protect the core. You heard from Rob that increasing the relationship management, if you will, the commercial side of the business, that's been a really good investment for us, and that has allowed us to up our coverage. We feel like what we've done has really made sense. Investment in the core first, and we're pretty happy with the margin. We'll see where we come out next year. We have, I think it'd be fair to say, very lively conversations, Ray and me, with the heads of the business, and they have some pretty good ideas of things that we could do. These are great businesses, and we found if we feed them responsibly, they continue to grow, and they grow at the pace of teenage children.
They keep growing pretty rapidly. We have a very happy situation that way, and we don't have to make tough decisions between investing in growth and returning capital. We're able to do both, which is a really terrific attribute of this company.
We'll move just to the back of the room here.
Hi, Lisa. A question for you on incentive compensation for credit analysts and MIS. Just hypothetically speaking, in a given year, if MIS revenue grew 10%, presuming you can fund that growth with the same number of credit analysts, what happens to the compensation of those credit analysts? Does it also go up 10%? The context of the question is, are you competing for talent with investment banks, which would imply that you sort of do have to keep raising compensation in line with revenue?
We do not raise compensation in line with revenue. What we do is we routinely benchmark globally what companies are expecting to do in terms of merit and promotional increases. That's how we set our budgets from that perspective.
We have a different pay structure for analysts than they would receive if they're in an investment bank. We also have a different, I'd say, quality of life while still having very interesting work. The pay is different, and we very deliberately do not pay like investment banks. I don't think the regulators would like us to tie analyst compensation to revenue growth.
Just to add to that, the marketplace right now is pretty tough for financial services. One of the global banks announced 200 job reductions in investment banking today. All of us, the three of us, used to be investment bankers, I think we're able to compete pretty favorably.
Stay over here just for a minute. Go up to the front with Vincent.
Hi. Question for David and question for Linda. For David, if I notice on the deck from last year, the total addressable market for your core markets was $18 billion. It is $17 billion this year. I know I'm kind of splitting hairs, but just a bit of color as to the change there. Then for Linda, just going to slide 15, I see the pricing initiatives, you guys are being a bit vaguer. You're saying the revenue contribution is 3%-4% there going forward. I think last quarter is 4%. I guess if it's just a volume issue there.
My answer, unfortunately, is not terribly interesting. There's the science and art of looking at the markets. Over the last year, we undertook with Steve Tulenko and his team just to continue to sort of parse apart the opportunity for ERS. There was some moving around of the parts that we considered relevant addressable market pieces. That really accounts for the change.
On the pricing front, there's less to the pricing change than meets the eye. It's not very exciting. We're still looking to be at the higher end of that range, inflation does not exist in certain countries, and we have to think about our pricing in the context of inflation. As Ray said, the company has grown very dramatically, we have to think about what we're able to do in the terms of just the general size of the denominator, as Ray put it. The revenue has grown pretty tremendously. We're very thoughtful with our pricing. We do price to add value for customers. I think Rob showed you a pretty good example that ratings still return quite a bit of value if you listen to what the issuers are telling us.
We think we've got that equation about right, and we like to ensure slow and steady progress and not do anything that would be viewed as less than comfortable for the issuer.
I'll take one over here in the side of the room. Then I'll move over here.
Hi, Linda. I just wanted to ask about the Copal Amba business, I believe you oversee it, what you're seeing from the integration there. Then, I believe for professional services, you lowered the guidance a bit. Is that growth in Copal Amba or potential FX or anything else there?
That's a great question. I do oversee the Copal Amba business. On Saturday, I'm back off to India. We all have lots of travel to India these days. The business, I think we had explained this in previous earnings releases. We did minimize one of the lines of business we were in. We didn't think that one was a keeper. The year-over-year lap is a little bit difficult. Also, we are serving some of the major global investment banks. Interestingly, a number of them have undergone strategic reviews during the summer period. A number of them are looking very carefully at costs, and that can break very favorably for the Copal Amba business. We need to see some of these customers move ahead in terms of making their decisions and implementing them. We have very high hopes for the business.
We're going to expand a little bit more into looking at what we can do in the risk and regulatory space, look a little bit further about what we can do in big data, we're very pleased with the way the business is performing. The integration has gone very smoothly. We're pretty happy with it. A few tweaks, but it's going well, FX is not really an issue there.
Come over to this side of the room here.
I have a question on issuance. I think there was an article in The Wall Street Journal and also in Bloomberg about the high-yield market. One party mentioned was Altice, for example, having tepid response to M&A issuance they were hoping to do. I was wondering, one, if the high-yield bond market is not doing so well, do you kind of see that volume shifting over to leveraged loans? Do you think it would actually cramp M&A activity in that space? Two, with the outflows in investment grade as well, do you kind of see this same trend spilling over to U.S. investment grade and M&A activity possibly being affected there?
Right. On the Altice transaction, I don't know that one. I'm not as familiar with it specifically. We rate transactions. We don't advise on how transactions should be priced or when they should be brought to market. A theory might be that transaction came during a period where we entered a very violent change to a risk-off sort of view in the marketplace. That transaction may have found itself the victim of an unfortunate timing when investors perhaps were looking for more return for their risk. The high-yield market has been operating this way forever. It's episodic. Windows are open, windows are closed. The returns on high-yield bonds for investors have not been that great this year, perhaps they're reassessing that in terms of the pricing that they're requiring to have those deals clear. I think there's some of that going on.
Leveraged loans, we talked a lot about the regulatory view of leveraged loans. The Fed and others don't want too much leverage to build up inside the banking system, so they've been very careful about how much leverage individual banks can hold. The contraindication would be the TXU deal, which was done many years ago. Several of the banks held big chunks of that paper on their balance sheets, and that's not something that's encouraged these days. I think that market will sort out. Maybe we're repricing risk in the high-yield market. That, again, is something that happens every so often. U.S. investment grade, much more unusual to see deals pulled in U.S. investment grade. Again, seeing the HP deal today, we would expect that that will kind of right itself and come back, and we'll see a lot of this M&A financing move forward.
Most of the M&A financing right now is investment-grade financing. As a number of people noted, strategics are buying companies, generally not private equity firms at this point. Strategics are more often high-grade issuers, and so we would expect that that market will probably come around. We see these kinds of mismatches now and again, though.
We'll take just a couple more here quickly, please. We'll start with Craig, and then Denny, I'll go to you.
Okay, Craig, we've got our pens. Go ahead.
A cost question, Linda, please. Your famous four-box chart up roughly 10% for your long-term average outlook for revenues for your company. What's your outlook for cost match against that? Does it have to grow 9%, 10%? Is there room to have it lower than that? At least the margin expansion.
Right. I think what we're generally trying to do, Craig, as a rule of thumb, is cost should about equal revenue growth. Ray calls that proposition a handshake. He very graciously encourages all of us to have a handshake between our revenue line and our cost line. Since the revenue line is larger, if those numbers are the same, you do get some margin expansion. The question is, how do we choose to deal with those extra dollars? Do we reinvest them, or do we allow for margin expansion? On the cost side, we watch our costs very carefully. I think you've seen we have very good discipline on the cost side. I think the short answer would be pretty close to what the revenue line would look like. Sure.
You obviously feel, you and the management team, that costs need to grow almost in line with that in order to get that 10% growth to continue for the long term?
We do need to invest in these businesses. They're really great businesses. There's no magic here. We need people to drive revenue. We need salespeople and analysts and people to write research. We need to do that as efficiently as possible. We do have good leverage in certain areas. Another investment-grade bond with a well-staffed team that has capacity. The operating leverage on that additional rating would be very high. If we're looking to add ratings in places where we have a less strong, numerically sort of commercial team, we may need to make that investment. The short answer is, it depends. We're pretty pleased with where we are on a cost basis. We keep good discipline, and we think very hard about the margin we want to deliver, then we act to deliver that margin.
You're unfortunately going to have to wait till next February when we decide what the picture will be for 2016.
Marshall, do you mind if I just grab Denny first here?
I had one for David and one for Linda as well. For David, on the indexes licensing is called out as an adjacent market, that's something where it seems like the Moody's brand would certainly help sell indexes. I don't know if acquisition where the multiples might be pretty high is the right way. Maybe it's a joint venture, maybe it's something else. What types of things have you guys explored in that area to kind of use that Moody's brand name to get into indexes?
You're right. The index space is interesting, particularly the fixed income index space. We've been asking ourselves the buy versus build. Some of the numbers in the public domain around the index processes have just been in places where there's not enough that we're able to bring to the table in those situations where people are talking about 20-plus times EBITDA and so forth. We've been doing work and studying the question with Mark's team, who's a capital markets research team. We're asking ourselves, what can we prospectively