Good day, and welcome, ladies and gentlemen, to the Moody's Corporation 4th Quarter and Fiscal Year End 2012 Earnings Conference Call. At this time, I would like to inform you that this conference is being recorded and that all participants are in a listen only mode. At the request of the company, we will open the conference up for question and answers following the presentation. I will now turn the conference over to Salli Schwartz, Global Head of Investor Relations. Please go ahead.
Thank you. Good morning, everyone, and thanks for joining us on this teleconference to discuss Moody's results for 2012 and our outlook for 2013. I am Sallie Schwartz, Global Head of Investor Relations. This morning Moody's released its results for the Q4 full year of 2012 as well as guidance for full year 2013. The earnings press release and a presentation to accompany this teleconference are both available on our website at ir.moodys.com.
Ray McDaniel, President and Chief Executive Officer of Moody's Corporation will lead this morning's conference call. Also making prepared remarks on the call this morning is Linda Huber, Chief Financial Officer of Moody's Corporation. Before we begin, I call your attention to the Safe Harbor language, which can be found toward the end of our earnings release. Today's remarks may contain forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In accordance with the act, I also Your attention to the management's discussion and analysis section and the risk factors discussed in our annual report on Form 10 ks for the year ended December 31, 2011 and in other SEC filings made by the company, which are available on our website and on the Securities and Exchange Commission's website.
These together with the Safe Harbor statement set forth important factors that could cause actual results to differ materially from those contained in any such forward looking statements. I would also like to point out that members of the media may be on the call this morning in a listen only mode. I'll now turn the call over to Ray McDaniel.
Thank you, Sally. Good morning and thank you to everyone for joining today's call. I'll begin by summarizing Moody's 4th quarter and full year 2012 results. Linda will follow with additional financial detail and operating highlights. I will then speak to recent regulatory and legal developments and finish with comments on our outlook for 2013.
After our prepared remarks, we'll be happy to respond to your questions. 3rd quarter revenue of $754,000,000 increased 33% over the Q4 of 2011. We benefited from double digit revenue growth in most lines of business, driven by robust corporate finance ratings activity at Moody's Investor Service and continued strong growth across Moody's Analytics. Operating expenses for the Q4 were $494,000,000 a 25% increase from the Q4 of 2011 and included a non tax deductible goodwill impairment charge of $12,000,000 or an EPS impact of about $0.06 related to our training and certification business. Operating income for the Q4 was $260,000,000 a 51% increase from the prior year period.
Adjusted operating income for the Q4 was $296,000,000 up 54% from the same period last this year. Diluted earnings per share of $0.70 for the 4th quarter increased 63% from the prior year period. For full year 2012, Moody's revenue of $2,700,000,000 increased 20% from full year 2011. Revenue at Moody's Investor Service was $1,900,000,000 an increase of 20% from last year. Moody's Analytics revenue of $844,000,000 was 19% higher than the prior year period.
Approximately half of Moody's Analytics 2012 revenue growth was organic. Operating expenses for the full year 2012 were $1,700,000,000 up 19% from 2011. Operating income of $1,100,000,000 increased 21 percent from $888,000,000 in 20.11. Full year 2012 adjusted operating income of $1,200,000,000 increased 22% from the prior year period. Diluted earnings per share of $3.05 for 20.12, which included a $0.06 legacy tax benefit in the 3rd quarter, increased 22% from the prior year period.
Excluding legacy tax benefits in both years, diluted earnings per share of $2.99 The full year 2012 also grew 22% year over year. I'll now turn the call over to Linda to provide further commentary on our financial results and other updates. Thanks, Ray. I'll begin with revenue at
the company level. As Ray mentioned, Moody's total revenue for the quarter increased 33% to $754,000,000 Foreign currency translation for the quarter was negligible. U. S. 4th quarter revenue increased 40% to $401,000,000 while revenue outside the U.
S. Grew 26 percent to $353,000,000 and represented 47% of Moody's Total revenue, down slightly from 50% in the year ago period. Recurring revenue grew 10% to $351,000,000 and represented 46% of total revenue, down from 56% in the prior year period. This was primarily the result of faster Growing transaction revenue driven by robust investment grade and speculative grade issuance. Looking now at each of our businesses, Moody's Investor Service revenue for the quarter was $519,000,000 up 42% from the prior year period.
Foreign currency translation for the quarter unfavorably impacted MIS Revenue outside the U. S. Of $213,000,000 increased 32% and represented 41% of total ratings revenue. Within MIS, global corporate finance revenue in the 4th quarter increased 73% from the year ago period to $245,000,000 primarily driven by record issuance in both investment grade and speculative grade markets globally as corporations continued to take advantage of historically low interest rates. Revenue was up 72% year over year in the U.
S. And up 76% outside of the U. S. Global structured finance revenue for the Q4 was $103,000,000 18% above the prior year period. In the U.
S, revenue increased 50% year over year due to strong issuance of commercial mortgage backed securities and collateralized loan obligations. International structured finance revenue was down 9% against the prior year period, primarily reflecting weaker issuance in residential mortgage backed securities in Europe. Global Financial Institutions revenue of $86,000,000 increased 29% from the same quarter of 2011, primarily reflecting increased banking issuance activity from issuers taking advantage of improving market conditions. U. S.
Revenue was up 39% and non U. S. Revenue was up 23% as compared to the Q4 of 2011. Global revenue for the Public Project and Infrastructure Finance business rose 19% year over year to $85,000,000 Revenue was up 9% in the U. S, primarily due to gains in project finance, while non U.
S. Revenue increased 36%, reflecting growth in European infrastructure finance as issuers increasingly sought financing from the bond markets as compared to PEC. And turning now to Moody's Analytics. Global revenue from Moody's Analytics of $235,000,000 was up 17% from the Q4 of 2011. Approximately 2 thirds of MA's growth in the 4th quarter was organic.
Excluding the impact of foreign currency translation, revenue grew 18%. U. S. Revenue grew by 16% year over year to $94,000,000 Non U. S.
Revenue increased 18 percent to $141,000,000 and represented 60% of the total Moody's Analytics revenue. Globally, revenue from research data and analytics of $126,000,000 increased 9% from the prior year period and represented 54% Total MA revenue. We continue to see good demand for credit research via our credit review offering as well as strong customer retention rates in the mid-ninety percent range. U. S.
Revenue was up 11% and non U. S. Revenue was up 7% as compared to the Q4 of 2011. Revenue from Enterprise Risk Solutions of $79,000,000 grew 31% from last year, reflecting strong growth of products and services that support bank regulatory and compliance activities as well as the December 2011 acquisition of Berry and Hibbert. Revenue was up 19% in the U.
S. And non U. S. Revenue was up 36% against the prior year period. Organic subscription revenue, which includes MA's Research, Data and Analytics segment, plus certain products within MA's Enterprise Risk Solutions segment, was up 10% for the Q4 of 2012.
Professional services revenue grew 21% to $30,000,000 reflecting the acquisition of a majority stake in Copel Partners in November 2011. U. S. Revenue nearly tripled, while non U. S.
Revenue increased 11% year over year. And turning now to expenses. Moody's 4th quarter expenses were $494,000,000 an increase of 25% compared to Q4 2011. Incremental compensation expense, which accounted for slightly less than half of the year on year expense growth, was primarily driven by higher accruals for incentive compensation and Moody's profit sharing. This reflected the stronger full year results as well as increased headcount from our growth in our existing businesses and from acquisitions in late 2011.
4th quarter expense growth also reflected an accrual to cover future estimated legal defense costs for our upcoming Abu Dhabi and Rhine Bridge trials. Expenses also included the previously mentioned non tax deductible goodwill impairment charge of $12,000,000 Excluding growth from incentive compensation and profit sharing as well as legal and impairment costs, expenses for the Q4 were 10% higher than the prior year period. The impact of foreign currency translation on operating expenses for the quarter was negligible. Despite increased costs, Moody's reported operating margin expanded 4 20 points year over year from 30.3% in the Q4 of 2011, 30.4.5% for the current quarter. Adjusted operating margin was 39.3 percent for the quarter, up from 34% from the same period last year.
Moody's effective tax rate for the quarter was 31.5% compared with 37% for the prior year period. The decrease in the effective tax rate was primarily due to Favorable impact of tax planning initiatives related to foreign income in 2012. And now, I'll provide an update on capital allocation. Moody's increased its quarterly dividend on December 11, 2012 by 25% to $0.20 per share of common stock. During the Q4 of 2012, Moody's repurchased 1,500,000 shares at a total cost of $71,000,000 and issued 1,900,000 shares under employee stock based compensation plans.
For the full year 2012, Moody's repurchased 4,800,000 shares at a total cost of $197,000,000 for an average price of $40.58 per share and issued 6,000,000 shares under employee stock based compensation plans. Shares outstanding as of December 31, 2012, totaled $223,000,000 essentially flat from the year earlier. As of year end, Moody's had 677,000,000 shares $1,000,000 excuse me of share repurchase authority remaining under its current program. Moody's is currently in the market repurchasing shares under our systematic repurchase program. As of December 31, 2012, Moody's had $1,700,000,000 of outstanding debt and $1,000,000,000 of outstanding debt capacity available under our revolving credit Cash and cash equivalents were $1,800,000,000 as of December 31, 2012, an increase of 995 due in part to Moody's August 12th bond offering of $550,000,000 of unsecured notes.
As of December 1st, 2012 approximately 50% of our cash holdings were maintained outside the U. S. Free cash flow for 2012 was $778,000,000 an increase of $43,000,000 from a year ago. We remain committed to using our strong cash flow to create value for shareholders while maintaining sufficient liquidity. And with that, I'll turn the call back over to Ray.
Thanks, Linda. I'll continue with an update on regulatory and legal developments. In the U. S, in December 2012, the SEC published and delivered its report under Dodd Frank on matters relating to assigning credit ratings Finance Products, which is commonly referred to as the Franken Amendment Study. After an analysis of the benefits and concerns of the various business models, SEC staff identified potential courses of action, but noted that any changes through commission rulemaking would require additional study of relevant information.
In this respect, commission staff recommended that a roundtable be convened at which proponents and critics would be invited to discuss the study and its findings. The timing of this roundtable has not yet been announced. The remainder of the SEC's rulemaking under Dodd Frank is expected later this year. Turning to Europe. As discussed on previous calls, the European Commission proposed in November 2011 to expand regulatory oversight of credit rating agencies operating in the EU and to address issues such as reliance on ratings and regulation, accountability, competition, transparency and managing conflicts of interest.
After a year of dialogue among political institutions, regulatory authorities and market participants, last month, the European Parliament voted on and adopted a 3rd round of legislation related to credit rating agencies known as CRA 3. A few additional steps remain in the legislative process before CRA 3 is finalized. We expect that CRA 3 will come into effect sometime in the second half of twenty thirteen. Moody's is presently taking the necessary steps of the new regulations. As always, we will continue to advocate for globally consistent approaches that align with the G20 statements and directives.
Finally, we have received a number of questions from shareholders and analysts about the U. S. Department of Justice's civil complaint filed this week against McGraw Hill and S and P. As we have been disclosing in our 10 Q and 10 ks filings, Moody's, like other financial services firms, has been subject to heightened scrutiny, increased regulation, ongoing investigation and civil litigation. As such, Moody's routinely receives inquiries in responds to requests for information as well as hosts inspections and reviews by authorities and jurisdictions worldwide.
Where we believe specific matters are material, We communicate those matters in our filings and other disclosures to the market. Moody's has not been named as a party in the Department of Justice's complaint against McGraw Hill and S and P, We have no basis to comment on that matter. I'll conclude this morning's prepared remarks by discussing our full year guidance for 2013. Moody's outlook for 2013 is based on assumptions about many macroeconomic and capital market factors, including interest rates, corporate profitability, Business investment spending, merger and acquisition activity, consumer borrowing and securitization and the amount of debt issued. There's an important degree of uncertainty surrounding these assumptions and if actual conditions differ, Moody's results for the year may differ materially from the current outlook.
Our guidance assumes foreign currency translation at end of quarter exchange rates. Despite ongoing economic We anticipate generally favorable market conditions will remain in place in 2013. As a result, we expect growth across all areas of our business this year. For Moody's overall, the company expects full year 2013 revenue to grow in the high single digit percent range. Full year 2013 operating Expenses are projected to increase in the low single digit percent range.
Full year 2013 operating margin is projected to be between 42% 43% And adjusted operating margin for the year is expected to be between 46% 47%. The effective tax rate is expected to be approximately 32%. The company expects diluted earnings per share for the full year 2013 in the range of $3.45 to $3.55 We expect full year 2013 share repurchases of approximately $500,000,000 subject to available cash, market conditions and other ongoing capital allocation decisions. These repurchases are meant to substantially offset the impact of employee stock based compensation plans. As you are aware, we strive to strike a balance between share repurchases and dividends, which have increased in line with earnings.
Capital expenditures are projected to be approximately $50,000,000 We expect approximately $100,000,000 in depreciation and amortization expense. Incremental compliance and regulatory expense is projected to be in the $10,000,000 to $15,000,000 range. For the global MIS business, Revenue for full year 2013 is expected to increase in the high single digit percent range. Within the U. S, MIS revenue is expected to increase in the high single digit percent range, while non U.
S. Revenue is expected to increase in the mid single digit percent range. Corporate finance revenue is projected to grow in the high single digit percent range. Revenue from structured finance is expected to grow in the mid single digit percent range, While revenue from financial institutions is expected to grow in the low single digit range, public project and infrastructure finance revenue is expected to increase in the low double digit percent range. For Moody's Analytics, full year 2013 revenue is expected to increase in the high single digit percent range.
Within the U. S, MA revenue is expected to increase in the high single digit percent range. Non U. S. Revenue is expected to increase in the low double digit percent range.
Revenue from research data and analytics is projected to grow in the high single digit percent range, while revenue for enterprise risk solutions and professional services are each projected to grow in the low double digit percent range. This concludes our prepared remarks and joining us for the question and answer session is Michel Madeline, President and Chief Operating Officer of Moody's Investor Service and Mark Almeida, the President of Moody's Analytics. We'd be pleased to take any questions you may have.
Thank you. We'll take our first question from William Byrd with Lazard.
Good morning. Thank you. Ray, given what your stock is doing, are you likely to front load stock buybacks this year?
I think we're going to have to look at how the stock performs over a bit longer period of time. Our Thinking had been to be fairly balanced in our share repurchase throughout the year and we haven't made any different decision at
Also, I guess at a higher level, you touched on recent I was wondering if you could just give kind of your perspective just on How one gets comfortable with recent legal developments?
Well, I think the A matter that I mentioned in our prepared remarks as far as the Department of Justice's complaint is Really all I can say is that we are not a party to that. And so we are not really able Comment because we don't have any information other than what is publicly available. I would add that we don't have any knowledge of any impending complaint By the Department of Justice raising similar claims against Moody's. Thank you.
We'll take our next Question from Phil Warmington with Raymond James.
Good morning, everyone.
Good morning.
First question for you is, there was some news this morning that the European Central Bank So banks will be repaying €5,000,000,000 of It's emergency 3 year loan over the next week. Just wanted to ask about sorry, that's €5,000,000,000 About US6.7 billion dollars How about that as a driver of the financial institution issuance in Europe in 20
13? Sure. I guess it's probably worth reminding everyone that in In the financial institutions area in particular, our business is more heavily weighted towards recurring revenue and annual pricing agreement. So we are not as susceptible either on the positive or negative side To changes in issuance volumes. That being said, The indications any indications of repaying loans would be an indication of Potential market stability and some improved economic activity and we would have to look at that as a positive.
At the same time, we do expect that deleveraging in the banking sector, particularly in Europe, is going to continue and that's a positive. Okay.
And then on the share repurchases, just wanted to ask if the intent there is to Said dilution or to create a net reduction. And in that sense, I wanted to ask your thoughts on what The fully diluted shares exiting 2013 are that are built into the 3.45
Sure, Bill. It's Linda. Our intent with doing $500,000,000 of share repurchase in 2013 would be to first Cover dilution from employee issuance plans and then secondly, to hopefully have some reduction in the overall share count. Now that Depends on a lot of things. Little tricky to model because as you may have noticed our share price has been a bit volatile of late.
So at this point, we are modeling a slight reduction, but we're going to have to see how it goes. Very tricky to model at this point.
Got you. And that $12,000,000 amortization charge that you mentioned, does that I just want to confirm that works out to be about $0.05 after tax?
I think we're thinking it's yes, it's about $0.06 after tax, but it's subject to rounding bills. But yes, dollars 12,000,000 Not to be tax effective.
And then one last question. Are you seeing any evidence on a of a shift in corporate debt issuance motives? It seems up until now the issuance has been very oriented towards refinancing. Are you starting to see any issuance For other purposes, M and A, plant expansion, something like that?
Sure. Let me talk a little bit about issuance. And I'd like to first talk about investment grade And then I'd like to talk about high yield. We've pulled a couple of the banks going into this earnings call. And I think the general comment would be issuance so far in 2013 has been stronger than expected.
January for U. S. High grade, we saw $112,000,000,000 of issuance. That was the 5th largest month on record and the expected volumes for February, pulling 3 different banks and again we talked to Bank of America Merrill Lynch, Citi and Morgan Stanley. We're looking at an average of $67,000,000,000 for the U.
S. For February. If you look at the last 7 years average that was about $61,000,000,000 So that skews a little bit towards the higher end. For the Q1, we're looking at an average of $262,000,000,000 of U. S.
High grade issuance, Again compared to what we might see over the 7 year average that was $234,000,000,000 So again, Q1 in high grade is looking Pretty healthy. What we're seeing so far in terms of use of proceeds, it's mixed. We're seeing some prefunding, some share repo, Some pension funding, some M and A, some refinancing. So, a bit of a mix across the use of proceeds Scale. Overall, the banks are generally viewing that issuance will be down a bit 2013 over 2012.
We're seeing a range sort of ranging from flattish to down 10% -ish. We are modeling revenues down for high grade in sort of The highest single digits. We'd like to comment that every week we've seen positive fund flows for High Grade this year, A total of $7,800,000,000 so incoming fund flows into bond funds are good. Now turning to high yield. Activity in January has been robust And the quote is, it's as good as it's ever been.
Dollars 41,000,000,000 of high grade excuse me, high yield issuance in January And volumes for February about $23,000,000,000 of high yield issuance. Again, we're seeing a call of about 10% reduction in high yield issuance in 2013 versus 2012. And on usage proceeds, Basically, the same things we've seen before refinancing, repricing, M and A, dividends, not a lot of event driven deals yet, But we may see some move in that. And again for high yield, we are modeling revenues down 2013 over 20 12 in sort of the high single digit range. So we would note again fund flows into high yield, bond funds have been positive as well.
So market trends are quite good. Use of proceeds mixing it up a bit and overall the market looks pretty good for the Q1. So hope that Answers everything you had, Bill.
And more. All right. Thank you very much.
Sure. We'll take our next question from Peter Appert with Piper
Thanks. So, Ray, can you talk at all about the situation with the various state attorneys general? I think you guys are Named in a few of these suits. Yes. There are a couple that we have been named in.
They've been around for a while. And as I at least touched on in the prepared remarks, we get Inquiries from regulators and various other authorities including the state attorneys general. We obviously cooperate with those inquiries and we will continue to do so. It's something that is ongoing and we have been as responsive as we can be in trying to cooperate with the State AGs when they make information requests or have inquiries? So my understanding is that they're approaching this a little bit differently than The fraud charges that you've seen from other players, does that change the legal complexion at all from your perspective in terms of the potential risk?
Well, the as you know, there's a very high standard for fraud. That is a higher standard than exists for some other potential claims that could be raised. But again to the extent that these are Information requests and inquiries, it's a matter of us making sure we get the proper information back to the authorities at the proper time. Got it. I'm sorry to dwell on this, Ray, but one last thing on this.
So the situation with New York State, you've got some sort of a Settlement from a few years ago, what kind of protection does that give you from further action by them? Well, the settlement agreement itself is confidential. The New York Attorney General did issue a press release summarizing some of the terms Back in 2,008 and you might want to go back and look at that. We take that agreement very seriously and certainly believe that we are complying with that. And so as for that matter, we think we have done everything that we have been asked to do in reaching the agreement with the AG.
Okay. And Ray or Linda, the accrual for legal costs, I'm not sure if you've done this before. Have you and can you quantify what the number is?
Sure, Peter. It relates to our insurance accounting and let's be Very clear about what's going on here. Because of that insurance accounting, we were able to take a look at our most fulsome estimate of what's going on with the upcoming trial expenses, which will take place in 2013 and take that expense in 2012. So we have taken The provision in 2012 for the 2013 expenses. The amount that we think that comprises in the quarter over quarter view would be $21,500,000
Okay.
Thank you. And then Linda, the structured finance business in the current quarter was quite robust. Where is the strength coming from? And How do you think about the sustainability of that specifically?
Sure, Peter. Appreciate the questions about the business. The Structured Finance business had a very strong 4th quarter. We're seeing the strength as we mentioned in the script coming from CMBS issuance And also from CLO issuance, which has been very heavy. And we would expect both of those to continue.
If we look at the breakdown in the structured finance business for the Q4, a total of $102,900,000 which is the best number we've seen in quite some time. 27% came from ABS, 19% came from RMBS, 28% of that came from commercial real estate and 25
Strength is really coming out of the U. S. Market, as opposed to the European market. So, we will be keeping an eye on the European side, in particular to see whether there's going to be a pickup there in 2013. Got it.
And Ray, I'm sorry one last thing on the Regulatory front, the SEC rulemaking, what any thoughts in terms of what might come out of that? We think that most of the thinking around this has been completed and we have been engaged Really over the last year or so in implementing compliance and transparency process changes that we think are going to be aligned with the final rules. So our expectation is that the communications that have come out of The SEC to date are going to be very consistent with the final rulemaking. Got it. Thank you.
We'll take our next question from Craig Huber with Huber Research Partners.
Yes, good morning. I have
some more questions on fundamentals as well here. Linda, would you be so kind to break out some more segment detail here, high yield bank Loan, investment grade, etcetera for each of the 4 segments, just the percentage of revenues for each?
Sure. Craig, with the notes that I already did structured, So we'll consider that one already in the transcript. Let's go to corporate. So total corporate Issuance total corporate revenue excuse me for the Q4 2012 was $244,900,000 and investment grade comprised 23% of that high yield comprised 24% of it bank loans 20% and other accounts which is MTNs and other things 34% of it. So what we're seeing is that high yield is running quite strong and investment grade is running strong as well.
We went through structures for a previous inquiry. So we'll go through FEG. Total issuance of 86 $200,000 in the quarter banking was 73 percent of the revenue insurance 22% of the revenue and managed investments 5% of the revenue. And again, that's relatively similar to what we've seen. FIG does not move around all that much.
And then lastly, public project and infrastructure was $85,400,000 for the 4th quarter in revenue. PFG and Sovereign comprised 47% of that revenue, muni 6% and project and infrastructure 47%. And compared to a year ago, a little bit heavier on the projects and infrastructure and a little bit lighter on the PFG and sovereigns, but Also that area is running pretty strongly for us right now. Do you want me to do Moody's Analytics as well Craig?
Sure.
Okay. $234,800,000 for the quarter, 54% from research data and analytics, 34% from enterprise risk solutions And 13% from professional services. And from a year ago running a little bit heavier on enterprise risk solutions last year was 29% of Moody's Analytics total and this year 34%. I think that covers it all.
And then also on the cost front in the quarter, can you tell us please what the incentive compensation accrual was in the Q4 here?
Sure. Incentive compensation for the Q4 was $60,100,000 which is up from $31,900,000 in the same quarter last year. Obviously, we had an historically strong Performance in the Q4, so incentive compensation moved up. Profit sharing, which we cover in a different line Craig, Was also higher as well for the 4th quarter.
How much was that one off?
That was $2,600,000 last year $4,300,000 for this year.
And then just for the benefit of all, can you maybe give us the incentive comp I appreciate the first three quarters I have it, but it would be helpful for people to see.
Sure. For 2012 is laid out and this is both bonus and profit sharing.
It was
$30,800,000 in the 1st quarter, $28,200,000 in the 2nd quarter, dollars 70,700,000 in the 3rd quarter and $64,400,000 in the 4th quarter for a total of $194,000,000 for the year. Now for next year, we're going to normalize back to 100% of bonus targets. So you should see this number come off Craig. And what we think we'd like you to do is model about $30,000,000 a quarter for total incentive compensation if it runs flat across the year. So, 30 ish maybe a little higher Incentive compensation for each of the quarters in 2013 should be $120,000,000 $125,000,000 if we hit our targets at 100%.
Of course, we do better incentive compensation and profit sharing will be higher.
And then
I'll go no, I got
a couple more on mine and one if I could. That's On the pricing front, what's your expectation for pricing for surveillance fees for new fees and also for transaction this year?
Sure. We don't go into the line by line. I think we would say mid single digit price increases across the board. That comprises a variety of complexity, higher in some areas, lower in some areas. It really depends on the region, the product, the geography.
Yes. And I'll just add Craig that again remember it Still does relate to volume of issuance. So, if we have heavier issuance volume, the pricing that relates to transaction Based revenue obviously goes up and if the issuance is lighter, we're going to see less benefit from pricing.
And so the pricing increase this upcoming year is what driving maybe half of this 8% to 9% increase you're talking about for research data analytics for 2013, It's roughly half that pricing?
I don't think it's going to be that much now.
The rest volume that you're saying?
Yes. And mix.
And Craig, as we said in the script, Very high retention business rates in that business, high mid-90s retention, which is great.
Very good. Thank
you. Okay. Thanks.
We'll take our next question from Doug Arthur with Evercore.
Yes. Ray, just So looking at and you've had a few questions on this already on sort of issuance trends. I mean the comps do get Quite tough. As 2012 evolve, I mean, as you go up against 2012 numbers as the year evolves, Particularly in high grade and high yield in the U. S, but it looks like your international And particularly Europe is picking up in a number of your sectors public project finance infrastructure.
We talked about banking and also it looks like the structured market is slowly coming into form. So I guess I'm just curious as to your thoughts on kind of new areas of growth That you're starting to see and what that might mean for 2013?
Sure. Let me ask Michel Madeline if he would like comment on this, particularly on the European side since you raised that.
Yes. I think in Europe, really the If you look by different asset classes, I think in short term finance, as we say, The volumes this year have been disappointing against what we've seen in the U. S. The mix between U. S.
And on U. S. Business has shifted I think the U. S. Is about 60% in terms of revenues versus international and it was a different number last year.
We don't expect next year necessarily Rapid uptick of volume in Software Finance in Europe for a variety of reasons. In terms of CFG, Gee, I think the main driver continues to be disintermediation. That's more than refinancing. I think That's the difference again with what we're seeing here. And in terms of infrastructure, I think there we have Similar trends than the one we're seeing in on the corporate side basically against these intermediation and demand For credit basically, which is up approximately.
And Financial Institutions, the story there is really a question of return to confidence. And I think again With confidence coming return to market access, especially from the less frequent issuers, which are impacting our revenue line.
Okay. Glad. Thank you. Doug,
I just wanted to comment. We've got every quarter up Quarter over quarter for the rating agency this year. We would take your point that the Q4 of 2012 was pretty strong. And so the Q4 may be a little bit softer than the Q4 of Excuse me, 2012, but every other quarter we've got up for rating agency revenue, if that helps you.
Yes. That's great. Thank you.
We'll take our next question from Edward Agerino from Benchmark.
Mine was sort of answered, but With the financing and stock, will interest expense be much different than 2013 from 2012?
Sure. Interest expense Ed looking at non operating expenses, it's pretty simple. The main thing will be We did our bond deal for $500,000,000 back in August. We're carrying slightly higher expenses on borrowings For that, we were running about $16,000,000 a quarter last year, Ed, for that. And this year, we're going to be running About 'twenty one, 'twenty two and that's the main difference in that line.
Nothing much more exciting than that. In
the 80s for the year? Yes.
One final question, I don't want to belabor this. There was another story that the New York somebody is going to go poking around. Have you heard from these people? Or is this just a press story?
I'm sorry that who's The New York
Attorney General I think or somebody is going to go poking around. Is this for real or is this just a Story of the news.
Well, as I said, we receive inquiries From authorities including the attorneys general from time to time and So they may very well have information they would like us to make available. And if they do, of course, we are going to be responsive to that.
You haven't received any notices or anything like that? There are
Well, no, there are inquiries, information requests in house on an ongoing basis. And so we continue to make the information requested available and we'll do so. Thanks.
We'll take our next question from Manav Patnaik with Barclays.
Thank you. Good afternoon, everybody. If I can just shift the focus away from Ratings for a minute. On the Moody's Analytics side, can you remind us Just sort of in terms of what the M and A pipeline looks like, there was some press where you guys are probably looking at another one of those outsourced services things. But Just generally, I know we went through some of that at the Investor Day, but if anything has changed in terms of what the pipeline there is?
I'll invite Mark Almeida to add any comments that he would like. But at a high level, I think as we communicated at Investor Day last year, we feel like we have filled out the need to have Components of that business and the business is positioned to grow nicely. That being said, if we do find opportunities for synergistic complementary businesses at Reasonable prices where we would look at that. And Mark, I don't know if there's anything else you want to No. I think that's exactly right.
We're always looking at things either things that we proactively are intrigued by or things that are brought to us. So Beyond that, I can't really say much about the pipeline. It is it looks a lot like what it usually looks at. We have a lot of different things that we're Thinking about it considering, but nothing particularly remarkable to report beyond that.
And Lana, this is kind of Yes. We continue to look at what we term tuck in or bolt on acquisitions of the sort of size we've been doing before. I don't think Any of us are excited about anything transformative. So sort of the same kind of scale as we've been looking at previously.
Okay. And then just 2 more in there. So on the RD and A line item, it seems like that moves somewhat alongside, I guess, how Ratings generally, Giles. I just wanted to know if that's the right way to think about it. And then on the ERS side, clearly you guys, Based on the guidance for this year at least, guiding some good growth, it seems like in that segment though, I guess, where you're helping everyone with the Compliance needs, there's been, if I Google something, I can see a lot of different companies doing a lot of things in that area.
I was just wondering if there was a way Frame competition around that share maybe or how to visualize the opportunity there?
First on our D and A, I don't think looking at revenue trends in the rating agency is going to Particularly helpful there. You'll tend to see I think more volatility in the rating revenue lines either up or down And relatively more stability on the RD and A line just given the fact that it's a subscription business with very high retention rates. So I don't think you can really correlate very well with activity levels in the rating business. On the in the Enterprise Risk Solutions space, we do feel good about that business. That's a business where we've been making a lot Investment, we feel like we're getting very good traction there and expect to continue to grow that at a very good clip.
It is a highly competitive business. There are lots of people that we compete with in that space. Not the least is Internal development that our customers which are typically large banks, they do a lot of their own internal development. So We're up against other providers as well as internal build within our customer organizations. So it's very competitive, but it's a very big and fast growing market.
We've been talking to a number of Market analysis sources about expectations for the size of that market And you get some very big numbers. Anywhere we've had estimates of the size of the risk management software business Anywhere from $5,000,000,000 to $25,000,000,000 So either of those numbers for us are big numbers We think there's a lot more share that we're going to win there. Yes. I would just this is Ray. I would just add to that that Not only do we feel we have strong expertise in the software development area.
But the scope, the breadth and depth of the data that we have available is So, really, we think unparalleled, and that is supportive of that business.
All right. Thanks a lot, guys.
With no further questions in the phone queue, I would like to turn the conference back to Ray McDaniel for any additional or closing remarks.
Thank you. Just want to thank everyone for joining the call today and we'll be speaking with you again in April. Thanks.
This concludes Moody's 4th quarter fiscal year end earnings call. As a reminder, a replay of this call will be available after 4 pm Eastern Time on Moody's website. Thank you.