Please stand by. We're about to begin. Good day, and welcome, ladies and gentlemen, to the Moody's Corporation Investor Update Call. At this time, I would like to inform you that this call is being recorded and that all participants are in a listen-only mode. At the request of the company, we will open the call up for questions and answers to the analysts and investors following the presentation. I will now turn the call over to Shivani Kak, Head of Investor Relations. Please go ahead.
Thank you. Good morning, everyone, and thanks for joining us on this investor update teleconference. I'm Shivani Kak, Head of Investor Relations. In light of escalating public health concerns related to the transmission of the coronavirus, we made the difficult decision last week to postpone our 2020 Investor Day event and offer stockholders a more topical agenda via webcast presentation and conference call in response to the feedback we had received. This decision was made with regard for the health and safety of our employees, investors, customers, and the overall community. Our remarks will also orient more towards the implications of current events than would customarily be featured in an Investor Day presentation. That said, we will be happy to address any questions you might have during the question-and-answer session. This morning, Moody's released its updated outlook for full-year 2020.
The press release and the presentation to accompany this teleconference are both available on our website at ir.moodys.com. During this call, we will also be presenting non-GAAP or adjusted figures. Please refer to the tables at the end of the press release for a reconciliation between all adjusted measures mentioned during this call and GAAP. Before we begin, I call your attention to the safe harbor language, which can be found toward the end of our press release. Today's remarks may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
In accordance with the act, I also direct your attention to the Management's Discussion and Analysis section and the risk factors discussed in our annual report on Form 10-K for the year ended 31st December 2019, and in other SEC filings made by the company, which are available on our website and on the SEC'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.
Thanks, Shivani. Good morning. Thank you, everyone, for joining today's call. While we are disappointed that we were not able to meet in person, I'm confident that you will find this virtual format informative. We will begin today with a fireside chat hosted by Investor Relations, where I will be joined by members of the executive management team to provide an update around several topical items, including the credit and economic impacts of coronavirus. This will be followed by a 45 minutes question-and-answer period open to both investors and analysts. In due course, we will update you on our plans to host an in-person and more customary Investor Day.
Joining me this morning are Rob Fauber, Moody's Chief Operating Officer; Michael West, the President of Moody's Investors Service; Stephen Tulenko, the President of Moody's Analytics; Mark Kaye, our Chief Financial Officer; and Anne Van Praagh, the Managing Director of Global Credit Strategy and Research at MIS. Shivani, let's begin.
Thank you, Ray. I'm going to start with you and also Rob. What is the impact of coronavirus on Moody's business?
I'll kick it off and then turn this over to Rob. Shivani, as you noted, our main concern with regard to operations is for the health and safety of employees, investors, customers, and the community. While Moody's offices around the world are open or have reopened, employees in most locations are following our recommendation to work from home, especially in areas where the virus has had a meaningful impact. Our goal is to balance the well-being of our employees with the needs of our customers and our business during this period. Our management team is engaged in regular business continuity and contingency planning. This involves measures to provide for the continued operation of our critical business functions globally, including widespread use of remote access so that staff can work from home or from non-office locations in the event their primary workplace is disrupted or inaccessible.
Thanks to this planning and the geographic diversity of our business, we are currently able to maintain normal business operations. We remain confident in our performance in the near term while acknowledging some uncertainty over the medium term. We expect the lost revenue due to delayed issuance will reduce MIS's top-line growth in 2020 below where we guided to in February. We have revised our full-year 2020 MIS revenue guidance from mid-single-digit growth to the low single-digit percent range. With the exception of MIS revenue, we have also announced today that we are reaffirming all other full-year 2020 guidance metrics. We are now expecting to be at the lower end of our adjusted diluted EPS range of $9.10-$9.30. Our guidance assumes year-over-year adjusted operating margin growth of 60- 160 basis points to the 48%-49% range.
As demonstrated in the past, the company has been able to grow during times of market disruption. Over the years, Moody's has intentionally diversified its revenue and income between MIS and MA. The diversity of the businesses, plus the active management of our cost base, allow for Moody's to not just react but also be proactive amidst adverse developments such as what we're experiencing now. Let me turn this to Rob briefly for some additional color on what we're doing on coronavirus with our business.
Yeah. Thanks, Ray. One of the things that you're going to hear today is that it's in uncertain times like these, when the markets are keenly focused on trying to measure and manage risk, that we can support our customers in the market most effectively with our insights and analytics. In late January, we created a dedicated website on moodys.com that included content from both MIS and MA focused on both the economic and the credit impacts of coronavirus. In just over a month, this page has been visited over four times as much as similar important topic pages like Brexit. A lot of traffic to that page.
As part of our efforts to serve the markets more broadly, we've provided access to that site and the coronavirus-related research free of charge, and that's at moodys.com/coronavirus to anyone who registers on the website, and we're actively expanding the available content beyond just the written research to include videos, podcasts, infographics, again across MIS and MA over the coming days and weeks.
Thank you, Ray. Thank you, Rob. Turning to Anne, Mike, and Steve, can you provide more detail on Moody's expectations for the impact of coronavirus?
Yes. Thanks, Shivani. As part of our efforts to achieve ratings quality and consistency, the rating agency develops a global macroeconomic forecast to provide a common set of assumptions that in turn help anchor our ratings across sectors and regions. We recently revised down our economic forecast to reflect the global spread of the virus and slower economic activity, particularly in the first half of this year. Our new base case growth forecast for the G20 economies was lowered 30 basis points to 2.1% in 2020. The full extent of the economic cost will be unclear for quite some time. The spread of the virus has already resulted in significant economic fallout, with channels to credit affecting a range of sectors. The fear of contagion has dampened travel and tourism and will dampen consumer and business activity and disrupt supply chains.
It also takes a toll on healthcare systems, with higher demand for healthcare services and products. The fallen oil prices and other commodities now exacerbated by decisions by OPEC, Russia, and other producers create new uncertainties for oil and gas companies and related sectors. Several sectors, including airlines, shipping, bricks and mortar retail, hotels and cruise lines are already facing direct effects to their revenue, costs, and finances. In addition, the impact of lower growth has hit oil and commodity prices, while supply chain disruptions are hurting manufacturing companies, including those in the auto sector. There are some positive impacts. For example, remote communication, online retail, vaccine developers, and others. With this slower economic growth outlook, we also raised our default forecast.
Our global speculative-grade default rate projection will rise from 3.1%- 3.7% a year from now amid risks to growth, commodity prices, and financial markets. Some issuers will face tighter financing conditions, particularly if the coronavirus duration and severity is greater than we currently expect. In a more pessimistic scenario with wider spreads, the speculative grade default rate rises to 9.7%, comparable to the peak in 2002. A key input to our default forecast is the rating distribution. Many companies have taken advantage of easy market access in a stable credit environment in recent years, pushing up corporate leverage and bringing many smaller and medium-sized companies into the capital markets. About 40% of 2019 first-time corporate issuers in North America had B3 ratings. That's twice the percentage during the last recession.
Private equity-owned companies dominate low speculative-grade issuance, and ratings on highly leveraged companies are deliberately positioned at single B, reflecting the higher default risk. These companies are the most vulnerable companies to bouts of market volatility and economic slowdown, and our ratings reflect that. We're actively monitoring sector and issuer-specific shocks, and we'll update our sector views ratings and overall default forecast as the situation evolves. I'll turn it over to Mike to speak about the internal MIS view.
Thank you, Anne. With this backdrop, we do expect a modest impact to MIS revenues due to some issuers that will postpone their activity in the wake of recent spread widening and market volatility. We feel it is prudent to lower our guidance for the low single-digit percentage range, even recognizing that postponed issuance could revive quickly. While there's still a lot of uncertainty in exactly how this current scenario will play out, we do believe that this is a story of near-term turbulence versus long-term opportunity.
In our experience, if the long-term economic growth story remains intact, it is not a matter of if issuers come back to the market, but it's when. You can actually see this play out in the historical data on slide 11, which shows global issuance over the last decade where we had market shocks, and those are indicated by the gray bars. While there is often a temporary impact from a shock, issuance typically rebounds within a couple of quarters. In this current situation, overall issuance volumes have been pretty healthy over January and February until the last week of March. Based on what we know today, we expect the impact of the coronavirus shock to be relatively short-term and for global debt issuance to recover in the second quarter.
Key drivers that we will be focused on and will influence the full-year revenue performance include the overall impact on GDP and the offsetting measures taken by the authorities. How quickly commodity prices will stabilize in light of the escalating tensions between Russia and OPEC. When the market opens, the mix of issuers that will come to market, including first-time issuers. There's overall M&A activity that as we previously outlined, we'd already assumed a lower level of M&A activity than in 2019. Once the situation abates, we anticipate that spreads will narrow again, and issuers will come back to the market as supply is being pent up while issuers wait on the sidelines. Indeed, we saw two Baa credits access the market yesterday, one for 10 year paper and one that had multi tranches, including a 30 years.
Notably, the 30-year was six times oversubscribed, and we've also noted over the last couple of days a number of Chinese deals coming back to market. With that, I'll just pass it over to Steve to talk about the impact on MA.
Thank you very much, Mike. Fundamentally, Moody's Analytics provides ballast and stability to the corporation through a significant base of recurring revenue. At the end of 2019, our recurring revenue base represented approximately 89% of total revenue for MA. Moody's Analytics revenue is also highly predictable, as you can see on the slide. We expect approximately 50% of revenue in 2020 to come from sales that were closed prior to the beginning of the year, and 40% more to come from renewals scheduled during 2020. Our products play an integral role in supporting our customers' decisions, and that in turn drives very high retention rates. When the markets and economy are growing, we do well. We also do relatively well in uncertain times like these, as demand for our products and services actually intensifies. You often hear how Moody's can help measure, understand, and manage risks.
That might be a matter of directing customers to the research that Rob referred to before on the coronavirus, just as a matter of good customer service. It might also be an update to one of our analytic tools that performs calculations specifically conditioned with a coronavirus scenario. Perhaps I can just take a minute to give you a good example of what I mean there. Right now finance and accounting officers are grappling with their CECL estimates for the first time, and they need to think specifically about how they're going to account for the coronavirus as well. Chief financial officers and chief accounting officers are refreshing their loss projections and their credit allowance provisions under the new CECL standard today. To support that work, we're actively updating our economic scenarios to forecast the expected credit impact of the virus.
Through our Impairment Studio product, Moody's is uniquely able to integrate data, economic forecasting information, analytics, and software to help customers make better decisions in times like these. We're helping them understand the impact of the virus situation on their P&L, and we're giving them the ability to explain the factors that are driving their estimates to their stakeholders. While I think our products will be very valuable in situations like the one we're in right now, it's probably too soon to fully understand the magnitude of the impact of the coronavirus. That said, our experience in Asia suggests that the coronavirus may cause delays in our sales cycles. The current impediments to travel are definitely affecting us. Many sales cycles have already begun, but new business development activities that require face-to-face meetings will likely be curtailed over the next several weeks.
These dynamics will likely impact a portion of the revenue that we expect to get from new sales production in 2020. Given that our sales cycles range from six to 12 months, the impact of the virus may also affect somewhat the business development activities related to sales in 2021.
Thank you, everyone. If I could just focus now, Mike and Steve, looking beyond current events, how do you feel about the underlying drivers of MIS and MA?
Okay, Shivani. Well, let me just start by reiterating my earlier point that while there is still a lot of uncertainty in exactly how the current situation will play out, we do believe that this is a story of near-term turbulence versus long-term opportunity. We are confident in our agency of choice strategy because it's being tested and continually refined based on lessons learned from prior shocks. In many ways, it was designed to withstand situations like this. Given our depth of expertise and reputation as a trusted source, we know that market participants rely on us even more at times like this. It's about getting the ratings right, providing thought leadership through high-quality research, and engaging program support. It's these three capabilities that underpin our core value proposition.
To further enhance them, we have been continually investing in new technologies which enable us to improve our operating efficiencies and deliver additional value to the market through improved content and service. I would like to think that we are there when the market needs us, which is why we strive to create best-in-class research and insights. This is what drives the value for our customers, and it's what has made us a market leader. If I could just elaborate, our goal is to be relevant and demonstrate rigor in any market circumstance. Over the longer term, we continue to expect issuance growth alongside GDP growth and from disintermediation, a trend that we expect to continue. Our outlook now calls for 800- 850 new ratings mandates in 2020, and this builds on our expanded global footprint of 4,000 new relationships in the last five years.
It's these relationships that represent future revenue opportunities through refinancing activity. As you can see on the right, we expect over $3 trillion of corporate refunding needs over the next four years. We believe that it's these trends that will continue to support the future growth of MIS and our ratings business. Steve.
I refer to the chart on the left-hand side of this slide just to provide some historical performance for Moody's Analytics. I should note that we removed, for comparison purposes, any impact from the MAKS unit over that period of time. What you see here is growth in every year since Moody's Analytics was formed, every year, 44 quarters in a row. It's important to point out that during each of those prior shocks that Mike referred to, we grew, including the 2008- 2010 era. We expect demand to be strong for Moody's Analytics products. On the right-hand side of the slide, you can see why we say that. We work with some of the most important companies in the world across multiple segments. We've done an excellent job of meeting customer needs through our product development and our product enhancements over the years.
In ERS, the shift to subscriptions and SaaS solutions continues, led by the CreditLens product, which is dedicated to the credit decisioning needs of lenders around the globe, as well as our accounting solutions that are helpful to the banking and insurance sectors. For the RD&A segment, our core research and data feed products continue to produce consistent growth and provide a solid foundation for this operating segment's performance. The flagship product from our BvD unit called Orbis has produced very strong growth across multiple use cases. Last year, the most important contribution was made in the KYC or Know Your Customer segment. Now that we're joining together with RDC, we expect our compliance and KYC solutions to continue to perform well in 2020 and beyond.
In summary, we expect that the market dynamics, the growth drivers, and strategies that have generated MA's results over the years will continue to drive robust performance in the future.
Thank you. Moving slightly to a different topic. Mark, what are the puts and takes in reaffirming Moody's full-year adjusted diluted EPS guidance?
Thanks, Shivani. Our philosophy in setting guidance and the accompanying ranges is really to use our best estimate of future performance at that point in time which we're providing guidance. We think about the concept of best estimates as being the outcome that is most likely to occur based on our underlying assumption set. During the fourth quarter 2019 earnings call, we provided the principal drivers of our guidance projections as of February the 12th. It might be helpful for investors if we revisit some of those drivers this morning with the intention of highlighting assumption changes that we took into account in providing today's updated guidance set for 2020. As Steve noted earlier, MA's high retention rates, highly recurring revenue base, and business-critical products do provide a degree of insulation from the emerging impacts of the coronavirus.
My comments focus more on the underlying drivers for MIS revenue and the levers around Moody's expenses. The three primary MIS assumptions underpinning our original 2020 revenue guidance included stable GDP growth, relatively tight credit spreads, and approximately flat year-over-year global issuance. The coronavirus has negatively impacted all three drivers, our current base case expects that those impacts will be transitory in nature and primarily relevant to the market environment over the next several months. Our intentional orientation towards more transaction-based revenue in MIS implies that we have some exposure to short-term volatility in the capital markets. We project capital conditions to improve towards the end of the second quarter, which in turn will lead to an increase in issuance volume as issuers return to the market.
Should events unfold as we expect, the full year impact from the coronavirus will be relatively modest, though just large enough that we anticipate it will lower our expected MIS revenue growth range from mid-single digits to low single-digit percent growth. While we are reaffirming our adjusted diluted EPS guidance range of $9.10- $9.30, we now expect it coming towards the lower end of that range. We're also comfortably affirming due to our annual internal planning process. We prepare for a range of scenarios and contingencies that enable management to act nimbly and effectively in controlling expenses. For example, we realize incremental expense savings from coronavirus-related travel restrictions and from the design of our incentive compensation structure. The situation does remain fluid, and we will continue to monitor and proactively manage our response as we work to meet our stakeholder expectations.
I'll also spend a minute just on the 2020 adjusted operating margin drivers. Starting on the left-hand side, we expect to realize a total of 175-285 basis points of margin improvement from operating leverage and efficiencies. This includes operating leverage from scalable revenue growth and a benefit from the reset of incentive compensation accruals, as well as savings from restructuring, increased automation, utilization of lower-cost locations, procurement efficiencies, and real estate densification. Moving to the right, you can see the impact of organic investments, acquisitions, and divestitures, as well as the impact of business mix. While investments in M&A may have a dilutive effect on the short-term margin, they are critically important in driving incremental long-term top-line growth and margin improvement and reflect our approach and focus around managing for the long term.
Finally, the 50 basis point headwind of business mix simply reflects the mathematical consequence of the MA segment growing faster than the MIS segment and of having a lower relative margin. Taken as a whole, 2020 exemplifies our approach to margin expansion, which is to continue to drive consistent, ongoing improvements, in this case, 60 to 160 basis points, while making the necessary investments to support future sustainable growth.
Thank you, Mark. Rob, Ray, turning it back to you. Could you tell us about the growth opportunities that Moody's is pursuing?
Sure, Shivani. Maybe let's start with Bureau van Dijk. We're really pleased with how BvD has performed as part of Moody's since we acquired it back in 2017. Just to revisit the rationale at the time, we bought it because we believed that data on private companies, in addition to the deep information we had on public companies across Moody's, was going to be increasingly valuable to the risk market as well as a broader range of organizations over time. That hypothesis has really played out as we've seen very strong demand for the Orbis product that Steve mentioned. That's the Bureau van Dijk product that provides that very valuable curated content on over 365 million companies around the world, including these ownership trees that you've heard us talk about in the past.
Orbis has become one of Moody's fundamental data assets, and we're leveraging it to support a number of important use cases for corporations, financial institutions, governments, and other organizations around the world. Under our ownership, we've been able to accelerate sales and integrate the content into our risk offerings. You can see that in the performance on this slide, both before and after we bought the company. Bureau van Dijk was a very good business before we acquired it. It was growing top line at almost 10% a year with an adjusted operating margin of 44%. Since the acquisition, the revenue growth has been about 16% with an adjusted operating margin of approximately 52%. We're on track to achieve the $80 million in synergies by the end of 2021 that we've talked to you about.
That has allowed us to exceed all of our acquisition criteria, meaning that this has been a very good investment for our stockholders. An important part of what's driving the very good growth at the BvD business are the compliance use cases. On this slide, you can see a variety of different use cases for that data. That includes things like bank credit risk and corporate finance and M&A, sales and marketing, tax and transfer pricing, data management, trade credit, and different kinds of corporate research. As you can see here, the products that support those use cases are growing very nicely, on average, about 12%. It's that compliance use case that is growing the fastest at almost 40%, and that's mostly to support the Know Your Customer, KYC work at financial institutions to meet regulatory requirements.
Those regulatory requirements do not go away amidst the coronavirus situation. The KYC market represents over $900 million in annual spend with vendors and multiples of that in terms of the cost of resources to perform all of that work at banks. To do that work, institutions need data on both the entities that they're lending to, including ownership information, but also data on the people that are associated with any of the entities in that ownership chain. That work, as you could imagine, is very labor-intensive, but it's also critically important because if you get it wrong, the penalties and reputational risk can be enormous. We acquired RDC because they've got a world-leading curated proprietary database on over 11 million individual profiles and a pretty sophisticated AI-driven decisioning platform.
You combine that with the 365 million companies in Orbis, that gives us what we think is really the most compelling end-to-end KYC solution for customers in the market. As we said on the earnings call last month, between Bureau van Dijk and RDC, together, we generated about sales of $150 million or so on KYC-related products in full year 2019, we think that that's going to double by 2023. We're really excited about having developed what we believe is one of the leading global players in the KYC market. As I said, that's a market that's almost a billion dollars and growing at close to 20% and has some very strong growth drivers for the foreseeable future. Ray, maybe over to you. Another important opportunity that we talk with investors about frequently is China. Maybe you could comment on that for us.
Yeah. Sure. Thanks, Rob. As many of you listening know, the development of the domestic Chinese market we believe is a very important driver of our long-term growth opportunity. We're obviously pleased that China is taking important steps to further open its market to financial services firms, including credit rating agencies, with the signing of the U.S./China Phase One Trade Agreement. Moody's views the trade deal as positive for both Chinese and the U.S. growth. We currently have strong optionality in China. One option that we're currently evaluating includes changing our ownership position in our joint venture in CCXI. As I've said before, we are pleased with the position that we have in CCXI, as it has been a very successful business to date.
I think the greatest likelihood is that we will want to continue with our joint venture and see what our partner would like to do as far as our combined future. That being said, since the trade deal was signed, we've been unable to travel to China to meet with either policy officials or our joint venture partners at CCXI. Nevertheless, we've been in communication with both and have expressed our interest and willingness to meet and continue our discussions in person once the travel restrictions are lifted. The current situation impacting the Chinese economy, in fact, the global economy, highlights the importance of sound risk analysis and robust assessments, services that Moody's can provide to support the market's policy goals. Moody's will continue to contribute our knowledge, experience and skills in credit analysis, risk assessment, and ESG areas to help enhance CCXI's analytical capabilities.
This will be supportive of the People's Bank of China, or the PBOC's financial markets policy goals. The development of a professional and high-quality credit rating industry and help CCXI to develop suitable products and services, including in ESG areas.
Thank you both. Rob, as we bring this to a close, what should investors take away in terms of what supports the overall growth story and investment thesis in Moody's?
Shivani. Obviously, we're in a period of heightened volatility and uncertainty, and that starts with the depth and the length of the coronavirus impact and the knock-on effects to economies, to markets, to customers, and ultimately to our own business. The impact to our business over the near to medium term is going to depend on several things that we've touched on this call. That includes things like the extent of the deceleration of global growth and increasing recessionary risks, the degree of credit stress that we see in the market, and that includes what we see with defaults and spreads and market volatility. The impact of ultra-low rates including here in the U.S. on issuance activity and to what extent we see pull forward in issuance as a result of those low rates.
As Steve mentioned, the impact of reduced in-person customer engagement on MA sales cycles. That said, we remain confident about the long-term prospects because they're underpinned by some very important core strengths that we want to leave you with today. That begins with a trusted brand that is globally recognized, and it's associated with rigor and independence, and it's supported by both our MIS and MA businesses. That brand has got over a century of heritage and risk. Organizations around the world, they want our data, they want our models, they want our ratings, they want our research, they want our software, they want access to our people because they want us to help them measure and manage risk. It's in times like these that we're more relevant to our customers than ever.
It started in credit, but our customers are clearly asking us to help them with domains beyond, in many cases related to, but beyond purely credit. ESG and climate, which we've talked about on prior calls, are the easiest examples of that. We've got a vast amount of proprietary or hard-to-get or curated data, analytics, and insights across economies, entities, securities, properties, and that's very difficult to replicate at the kind of scale that we now have across MIS and MA. You heard us talk about the business-critical products that are integrated and embedded into our customers' investment and lending decision workflows and regulatory and compliance platforms. That makes those products very sticky.
Again, we see that with ratings, we see it with research, we see it with MA's compliance solutions that I talked about, and we also see it with the risk software as a service in the ERS business. Finally, we've got an extensive global customer base. We've got ready access to the world's largest companies, financial institutions, governments, and many others. Yes, we've got some near-term turbulence to deal with as the world works through the coronavirus, but we firmly believe that the long-term foundations for our business are as sound as ever. With that, Ray, I'm going to pass it back to you.
Yeah. Okay. Thank you, Rob. This does conclude our prepared remarks. As we said at the beginning, we'd be very happy to take questions from investors or analysts. Operator, if we can open up the lines.
Thank you. The question and answer session will be conducted electronically. If you would like to ask a question, please Press Star followed by the digit 1. You will hear a voice prompt on your phone when your line has been opened. Please state your name and your company before posing your question. Once again, star one. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. We'll take our first caller. Please go ahead.
Yeah. Hey, good morning. It's Alex Kramm at UBS. You're talking about this as a very much short term delayed environment here. Your own colleagues obviously had a pessimistic case with much higher default rates, et cetera. Can you just outline a little bit how that would change your outlook? Would higher defaults obviously suck some activity permanently out of the market? Maybe just talk a little bit about the different end markets between high yield, IG, levered loans that we should be thinking about as we think about this changing environment on a day-to-day basis.
Thanks, Alex. I'm going to let Mike start off with this, and then he may want to pass this over to Anne as well.
Thanks, Ray. Alex, thank you for your question here. I think first of all, it's difficult to be exactly precise, but what we have seen in past situations like this is that first of all, the market comes back for higher-rated investment-grade credits. It's a flight to quality. Spreads are very important here, as well as the underlying benchmarks, and the flight to quality and the demand for higher rates of paper becomes very important. It's setting those benchmark prices that then allow a stabilization as you come down the rating scale through Baa and into the lower-rated credits, particularly in single B. In times of lowering rates, there tends to be a preference for the bond versus the bank loan. That's an important consideration when thinking about the mix.
As to my earlier remarks, it's a matter of how those spreads start to come in and settle that will impact the refinancing risk. The refinancing risk that is out there for spec grade is modest. We put some papers out at the end of last year. That was about $39 billion. Obviously, there's been good market access between that date in November and now. Some of those numbers would have come in. I'll pass back to Anne if we want to just mention a little bit about the default forecast, Anne, that you put that out and some of the underlying drivers that we're thinking about.
Okay. Thanks, Mike.
I did mention the pessimistic case that we have in the default study. That assumes that spreads widen significantly to around 1,200 basis points. It assumes unemployment rates are basically triple where they are today from a very low rate, but quite a bit higher. We think that's quite a negative, low probability scenario at this point. However, we do see that recession risks are rising, and so we are thinking about what does that mean. When we think about impacts across different sectors and countries, we typically think about several channels, as I mentioned. The first is consumers start to get worried. This becomes not only a public health issue, but also becomes a demand issue. They don't always behave in the same ways that they typically would. They don't spend money. They don't go out into the economy, and so then businesses can suffer.
That can really have compounding effects for particularly small and medium-sized businesses. The second channel that we think about is how governments and companies are going to respond. Again, companies and countries are trying to keep their employees and their citizens safe. They're taking measures to ultimately reduce economic activity. That can be a drag on economic activity. The third channel, of course, is the financial channel. If this virus is spreading far and wide at the same time, markets don't have the certainty as to how widespread it will be, and that's leading to a lot of volatility in the markets, and that feeds into business and consumer confidence. Those three channels are problematic, and the more uncertainty and volatility, the more recessionary dynamics we could get. Again, that's not our base case at this point.
Okay. Thank you. Just a quick one as a follow-up. On the Analytics side, thanks for the incremental disclosures here on how the revenue breaks down between new sales, et cetera, and renewals. On the 40% renewals, I think historically, your business Analytics was very bank-heavy, enterprise license. As long as companies weren't going out of business, we wouldn't worry too much. I guess with BvD and some of the other acquisitions in the mix, has that changed? What could change to bring those renewal rates down to some degree as BvD has lots more customers, maybe some customers go away. Is that something we should be thinking about, or are you pretty confident in your renewal rates remaining even in a recession here?
Yeah, Steve. Sure. Thanks, Alex. I would say you might see a little bit of a difference in terms of the unit counts because BvD has many customers, and they've extended into large new segments for us. The dollar-based renewal rates, we think should track in a way that's consistent with what we've seen in other periods. The larger accounts, you can see on that one slide we showed before, we have very good customers. They tend to be bigger and larger financial institutions. There are some other large customers in other new segments that BvD brought to the table for us. We expect the large customers are going to be able to weather the storm and retention rates will be strong, maybe even reinforced by demand for help in times like this. You might see some marginal players that might experience some troubles, I suppose.
Retention rates in general, at least dollar-based retention rates, should be very solid.
That's helpful. Thanks. I'll let other people ask questions. Thanks.
We'll move to our next caller. Please go ahead.
Yes. Hi, it's Craig Huber at Huber Research. I got a couple of questions. Maybe first, if I could. I guess, what gives you confidence that the debt market for issuance will open back up by the end of the second quarter? If you look back at prior times of so-called crises out there, late 2015, early 2016, and 2008, 2009, it was certainly longer than roughly, say, four months. My first question.
Yeah. Craig, I'll start. It's Ray. We're looking at I think a likely different situation than we saw back in 2008, 2009. This is very acute. We've already seen the situation stabilize in parts of Asia Pacific, including China, and they're let's say six weeks ahead of us in terms of dealing with this issue. We've seen activity in the capital markets, large Chinese entities going into the debt markets just this week. If we're using that as one barometer, I think there's reason to be encouraged that this is an issue that we're going to be dealing with for some months as opposed to some years. Would be less likely to have structural changes to the economy and the financial markets as we saw in 2008, 2009, with changes in legislation, changes in regulation.
I would also expect we're going to see aggressive policy responses to stimulate economic activity. Mike, I don't know if there's anything you want to add to that.
Just one point, Ray. I would say that when you reflect back to 2008, it was a much steeper decline of the issuance that prevailed. Likewise, even if you add to fourth quarter 2018, that also gives us confidence with regard to the shorter-term recovery.
My follow-on question, please. With oil prices down to $30, $35, obviously it could cause a lot of impact in the high yield market. As you guys know, in late 2015, early 2016, you had three or four quarters there of down transaction revenues. I realize there were some issues over in China as well at the time. You layer that on top of what's going on now with this virus seems a lot more acute, if you will, than what was going on back then. This oil issue, how much of that you think will weigh on your high yield bank loan revenues here in the coming months and stuff? Historically, I think it's about 15% of your revenues in those areas. Can you maybe
Yeah, Mike?
Yeah. Thanks, Craig. If I could just put this into context, compared to perhaps 2015, 2016. This time around, what we've got with the oil companies is that they've significantly reduced their operating and overhead costs compared to that period. In many of the firms, they've improved their technologies and reduced their service costs. What they've also done during the period since then is that they've adjusted their capital spending to be more efficient and adjusted many of their capital structures. That being said, we have a large portion of the oil and gas names in spec grade and some rated, only a very few that are in the Baa range. That again, will come back to the point of whether in fact they can refinance in 2020.
The last quick thing is 15% the right number for the percentage of the high yield revenues coming from oil and energy, please?
Yeah, that's approximately correct, Craig. I don't have the specific number in front of me, but that's in the neighborhood.
Great. Thank you.
We'll move on to our next caller. Please go ahead.
Hi, it's Jeffrey Silber with BMO Capital Markets. If the environment does get worse, and let's hope it doesn't, but I'm just curious what you as a company can do internally, what levers you can pull to minimize the damage.
Yeah. Mark, why don't you
Morning, Jeff. I think it's notable that we are indeed now guiding towards the lower end of that $9.10-$9.30 adjusted diluted EPS range. I'll add a couple more comments around that, and that will allow you to have some color around actions that we as a management team are able to take. The growth figure behind the original MIS revenue forecast was on the lower end of that mid-single digit range. Remember, we also called for flat issuance at that time, it didn't necessarily require a material revision to get us to that low single-digit MIS revenue growth number. It's worth noting that MA has become an increasingly important component of MCO's top line performance. It was roughly 40% in 2019, it's something based on growth rates, a figure that we expect will increase this year.
Steve spoke about it a little bit ago, MA's revenues themselves are highly recurring, we reiterated sort of that high single digit revenue guidance given the ongoing sales to revenue conversion dynamics. With that and with that context, we feel comfortable that we have flexibility around our expense management as there are natural offsets inherent in that, either through lower incentive compensation or through savings related to travel costs due to coronavirus-related restrictions. We are also very active in reviewing specific plans around hiring, acceleration of transition to lower cost locations, real estate densification, and certainly M&A integration projects. There are certainly actions that management has, that ties back to my prepared remarks or my prepared comments around scenario planning and thinking thereof.
All right. Appreciate that. My follow-up, just around your own balance sheet, or maybe more of a capital allocation issue. One, is there anything preventing you from repurchasing your shares right now? Two, are you looking at refinancing your own debt? Thanks.
Sure. I would maybe fairly say our capital allocation priorities haven't changed. We are clearly committed to investing in the business to drive future growth while ensuring that we are efficiently allocating capital and returning that excess capital back to shareholders.
I will make the point that over the last five years, we have returned over 80% of Moody's free cash flow to shareholders through dividends and share repurchases. On the debt side itself, we are committed to leverage remaining anchored around that BBB+ rating. We do have very well-laddered maturity. We don't have any significant debt maturities that come due until 2021. Subject, of course, to ongoing capital needs, we feel comfortable maintaining the guidance that we released this morning related to share repurchases of approximately $1.3 billion for 2020.
Okay, great. Thank you again for doing this call. It's really appreciated.
Next, we'll move to our next caller. Please go ahead.
Thank you. Toni Kaplan from Morgan Stanley. Just to clarify on the guidance, issuance has slowed a bit since your expectation that it recovers by the end of 2Q, I guess, how far do you expect issuance to go down before that time? What's embedded in the guidance?
Yeah. Mike?
The assumption that we have here is issuance down 0%-3%.
For the year.
For the year.
Got it. Okay. I was hoping you could also give an update on your technology initiatives. Some of your competitors have been investing in automation and the like, and just hoping you could give some sense of what your most exciting initiatives are on that side and how much investment you're expecting from investing in tech.
Yeah, I think, Toni, you can really think of this in three buckets, and I'll invite Steve and Mike to comment because two of those buckets relate to technology in business lines, Moody's Analytics and Moody's Investors Service. We also have technology enablement going on in our shared services functions, and we can touch on that quickly. I think you're probably focused on the operating businesses. Steve, maybe you can kick it off.
Maybe the first thing to say is that customers are looking for us to help them with digitization and transformation. Simple, maybe somewhat obvious things like moving our products to the cloud and building them for the cloud are fundamental parts of the strategy, and we have been working at that now for a few years to try and convert what used to be maybe installed software, making that same kind of thing available to customers through their cloud facilities, our cloud facilities, whichever makes sense in the customer's case. There's fundamental changes in terms of the way we do engineering, the way we do product development, and they're driven mostly by the customers themselves. There are other initiatives we have, especially, and we've noted this group before. We created a group called the Accelerator maybe three or four years ago now.
That's a place where we intentionally invest in new technologies with an eye toward innovating with a purpose, specifically leverage technologies that we think are going to help customers directly and maybe also help us internally as well. A good example that we've maybe used before would be a product we developed to help people understand and analyze financial statements where we take financial statements and using a machine learning capability pull data out of and pull financial information out of documents and make it available in machine-readable form so that people can process that in a much more enterprise-like way. That's an example of using machine learning to do an innovation with a purpose, the purpose being help me spread these financials more quickly. We've got examples like that all over.
Okay. Thanks, Steve. If I could just build on the back of that, within MIS, investment in the technologies is about driving the efficiencies, but also bringing value to the customer. When we talk to our customers, it's about rating precision, speed to market, improved data and analytics, and overall enhancing the digital capabilities and the interactivity for market participants. The way we think about that is to bring it back into the operations and think about how we produce what we produce, our surveillance, our distribution, and our overall interactivity inside the firm to enable our analysts and make them more efficient.
Some good examples here are some enhancements we've done around the data and advanced analytic tools that our staff use, predictive analytics, natural language processing and generation, and in a more basic way, the robotic process automation to allow a higher value provided by our lead analytical staff. Similar to Steve, innovating with a purpose, but the main point here is delivering value to the market.
Just real quickly, I'd add that automation in our shared services functions is also a priority, that you can see even as we have higher growth coming out of the lower margin Moody's Analytics business, we are still projecting to be able to expand margins for Moody's Corporation as a whole. In large part, that is built off of our ability to continue to automate and find lower cost solutions for the middle and back office work that we have to do.
We'll move on to our next question. Please go ahead.
Hey, it's Manav from Barclays. Just on the BvD side, 9%-16%, that acceleration is pretty impressive. I was just wondering, is there any one-time impacts going on there? Is that the way we should model it? Maybe if you could just help us bridge how that 16 looks like in terms of price, volume, new logos, or however you guys think about that.
Yeah, Manav, I'll start and then I'll kick it over to Steve. First of all, we've managed to grow the database, so there's a lot more content in the database. When we acquired the company, we had something like $220 million companies in the Orbis database, over $360 million today, and that makes that database even more of a standard and even more valuable to our customers. No, there's really not any one time in there. I mean, this is almost exclusively a subscription business with recurring revenue. I guess what I would say is also when we acquired it, Bureau van Dijk was largely a European business.
Moody's Analytics has got a big global footprint, we're able to really focus in on global sales execution and start to look at kind of the low-hanging fruit in terms of integration of that data into some of our product offerings and those kinds of things. We're able to enhance the top line. In addition to the fact that we're just seeing some very nice tailwinds from that KYC and compliance use case. I mean, you saw the growth rates, but I think that's continued to pace since we bought it. Steve.
I think that covers it well. There's virtually no one-time business in here at all. It is good old-fashioned subscription revenues, good old-fashioned product demand, good old-fashioned sales work going on, just like you'd hope it would be.
Got it. My second question, just more, I think you guys referred to it a little bit, but I'm guessing engagement with your clients goes up, like you said, given your macro forecast and those kind of things. You referred to CECL, and I'm wondering if that's an uplift to your revenues, or is it just more as well? I'm not sure. Just hoping you have some comments there.
We're having a little trouble hearing you, Manav, but I think you mentioned CECL there. This is Steve. I think what I'd say is there's another wave of CECL requirements that is going to make its way across the U.S. The first wave is happening now, where the largest institutions need to do their financial reporting with CECL in mind, and there's another wave coming in another year or two. I would say that the value proposition we bring to the table with our integrated capabilities is something that we think compares very well to our competitors. You may see more customers who had perhaps tactical solutions in place look for a strategic answer. You can bet that we're making sure that everyone is aware of how we can help them with something like estimating the impact of the coronavirus on their impairments.
I think it's a force that will help us, but I don't think you'll see tons of new sales coming through until you actually see the next wave of CECL happening.
Yeah. I think, Manav, you touched on ESG as well. Did I hear that in the question or no?
Yeah, I was wondering if this helps with engagement around ESG, the supply chain, you mentioned that stuff. That was more the idea there.
Yeah. Manav, I might wrap that into the question around Bureau van Dijk and what's driving that. I think in general, one of the things we're seeing and hearing from our customers is that they're really trying to get a better understanding, a broader, deeper understanding of the entities that they're investing in, that they're lending to, that they're onboarding, that are in their supply chain. It's gone beyond just kind of pure financial and credit. Am I going to get paid back to wanting to understand the corporate social responsibility profile, the reputational risk, the security of your data? It gets into these kind of ESG and climate kinds of factors. That also goes to why there's so much demand for that Bureau van Dijk data.
As companies are wanting to understand again, across thousands of companies that they're doing business with, that Bureau van Dijk data is very valuable, but so is this kind of extra financial data. It's the company reference data and the extra financial data. All of that we're seeing very good demand from our customers and a lot of engagement with them around that.
Were you done with your question?
Yes.
Thank you. We'll move on to our next caller. Please go ahead.
Hi, this is Joe from Cantor. Just wanted to go back to the virus. You talked about sort of Asia getting past it, and it only taking a couple of months, but at least from what I've been able to gather, they have maybe tighter rules around their citizens and their ability to kind of interact. If it took longer in the U.S. than that timeframe, I'm just wondering, it sounds like your estimates are based on sort of a short-term recovery, let's call it three months. Is that true? If it took longer, what kind of impact could you expect? Have you already taken some precautions on what you're planning if it does go a little bit longer?
Yeah. Certainly, we recognize it could be longer. We just have to build in some base case assumptions. The situation in China is interesting because, as you correctly point out, they have a different approach and some different abilities to control the population and try to contain the outbreak. That being said, I would also point out that they were slow to react initially. The virus did have a pretty good head start before the more extreme or severe controls were imposed. I have to take both of those things into account. I'm certainly not going to sit here and speak like I'm an expert in epidemiology, but we are also moving into the spring, warmer weather. Historically, at least, that has been a harbinger of a decline in the contagion rates of coronaviruses.
Recognize that we are in the early days here, especially in the U.S. It's all of us making assumptions about how quickly early days become late days.
Got it. Just on issuance in general, we've always talked about the correlation between GDP. It's been revised a little bit lower, and I know you've already given an update there, by the way. Interest rates look like they may even be headed into a negative environment. Of course, there's this third factor where people sometimes pause because of the uncertainty in their businesses. I wonder if you could just walk us through your thoughts around sort of the lower GDP, the potential for pause just because of the uncertainty in the general environment, and any thoughts around maybe even a negative interest rate environment and what that would mean for issuance.
I can take that, maybe Anne wants to complement anything that I may say here. When I think about low interest rates, the benchmark, I really think about, particularly in the fixed income market, as both spreads and low benchmark rates. It's the combination, particularly at the times of stress, which we're seeing now, that are particularly important when it comes to fixed income issuance. As I mentioned in my opening remarks, what we expect is that the market will absorb the factors that we're facing at the moment, and spreads will start to come in, and it will be the combined spread and the low interest rate that will be important for issuance to come back. When it comes to our overall scenario, maybe Anne just wants to add a few additional comments.
Yeah. Thanks, Mike. I think the prospect of rates going lower is something that we can't rule out. In fact, in our baseline assumptions as part of our macro outlook, we do expect that monetary policy will ease across most of the major economies, so the G20 economies. Things will level out beginning in 2021. That's for deliberate reasons, right? Monetary loosening will help mitigate liquidity pressures and limit financial tightening. That, together with some fiscal stimulus, should help to stabilize the overall picture. That is part of our overall base case. Of course, lower rates will benefit those stronger borrowers. We could see some highly rated entities, governments, and companies enter the market more opportunistically, and they'll get into the market when they can to take advantage of the conditions when they're right.
I think that's all part of our baseline view at this point.
Okay. Just want to sneak one last one in on capital allocation. On deals that you're working on from an M&A perspective, are you seeing a pause in those deals because of what's going on in the environment? Do you expect them to slow or get delayed? I just wanted to see if there's any changes there. Thanks.
I'd be thinking in terms of a capital allocation. To add maybe a little bit to my earlier comments, I think from Moody's own perspective, certainly we need to find that strategic fit or the strategic why there needs to be fundamental and industrial logic. That then quickly filters into sort of the disciplined financial requirements we have around any particular transaction. Clearly, IRR above the cost of capital, cash flow return metrics, both in the three to five year range, and then sort of the cash payback year seven to nine. Discipline is very important to us, and that's what we're fundamentally basing any new potential inorganic use of capital on.
Thank you.
Okay, we'll move to our next caller. Please go ahead.
Hi, good afternoon. This is Michael Cho from JPMorgan. I just have a couple of questions on Moody's Analytics. I guess maybe I'll just touch on BvD again. You gave some great detail today. I guess I was just wondering, can you update us on the geographic presence of BvD today? I guess specifically, have you seen some notable uptake in terms of clients in North America? It would be great to get a flavor of what kind of clients those are.
This is Steve. Thanks. BvD definitely has a relatively large portion of its sales and revenue base coming from outside of the U.S. The distribution channels, the sales reps have historically been located there. We actually thought that was one of the things that was a nice complement to the Moody's sales force, and that you had a very good presence here in the U.S. I would say the proportion is weighted outside of the U.S. to start. There have been some really good stories and some really good growth coming from the United States and from North America because of that distribution channel and because they bring to the table some very interesting products that people are very interested in learning about and purchasing these days. They have a lot of private company information, which in and of itself is quite useful.
They have some fantastic solutions. We've seen some great growth in the know your customer segment, especially in the U.S. We expect that will continue going forward as well.
Yeah, it's Ray. I'd just real quickly add a reminder of something we talked about on the last earnings call, that with the acquisition of RDC, and its integration into Bureau van Dijk, we are taking a very North American-oriented sales force and set of customers and marrying it up with this European-oriented sales force. We get that benefit as well.
Thanks, Ray.
Okay, great. Thanks. I guess just one on CECL. You gave some market sizing on annual spend for KYC and compliance. Maybe you can help us think about the opportunity for CECL as well in Moody's Analytics. I think you said multiple waves of CECL revenue. Can you give a flavor of the magnitude of those waves?
Sure. Yeah, I think the addressable market question's always a little tricky because it depends greatly on what you mean by that. I would say that we think of the market, first of all, as global in that you've got an IFRS 9 variant, which is the same kind of accounting standard that is affecting banks, insurance companies, and companies outside of the United States. You have a CECL variant, both of which are intended to get financial professionals and companies to describe and project what they think their losses will be so that they can take a forward-looking impairment allowance or create an allowance for impairments. There's growth opportunities around the globe.
The CECL wave, the next wave will hit virtually every bank in the United States and every insurance company in the United States, for example, and virtually any company that issues a financial statement. There are thousands more out there that we think that will be good prospects for us going forward.
Okay, great. Thank you.
We'll move on to our next question.
William Warmington here from Wells Fargo. A question on the G20 forecast. You've taken it down modestly 30 basis points to about 2.1% in 2020. Can you give us a sense of the range of growth forecasts that you're considering and what the issuance levels would look like at the extremes?
Yeah, Anne.
Yeah. I'll take the first half of that question, which is that we have actually set out a baseline. That's really to help anchor the ratings and get consistent assumptions across the rating analysts. We've also set out a downside scenario as part of that forecast. There, the narrative is more around an extensive, prolonged slump where you get more significant increases in cases the virus is not contained as quickly, so the duration and severity drag on for some time. Then you get some significant deterioration in sentiment, disruption of supply chains, financial market volatility, healthcare systems overburdened, and so on. There, the scenario, just to play it out, is that the monetary and fiscal stimulus is not as strong.
With those, we do see a more negative picture emerging, and we've outlined sort of the more specific cuts to GDP across the G20 in that publication that we put out last week. The change relative to our baseline across the major economies for advanced economies, it's about a half a percentage point worth. For emerging economies, almost a full percentage point worth. That's a downside scenario we're asking people to think about from a ratings management perspective. I'll pass back to Mike for some comments on issuance.
At this point, we've not gone to that downside case with regard to issuance. It's more of a wait and see as we outlined in the base case and looking for that snapback that we've seen historically.
Got it. You mentioned a few minutes ago that energy was about 15% of MIS revenue. I was just going to ask if you could share with us some of the other major verticals that are suffering, transportation, restaurants, consumer, any other one you think would be important.
Yeah, just I think a quick correction. I may have misspoke or maybe misheard, I don't know which, but when I said 15%, I was referring to the approximate component of the high yield market as opposed to Moody's revenue.
Okay. However it's easiest for you to describe it. I'm just trying to get a sense for industry exposure for MIS revenue. I know if you want to look at high yield would of course be helpful because that's the highest margin piece. Whatever is easiest for you.
Yeah. That's not a way that we actually break that out. Obviously, we have a number of our studies that we have on moodys.com that talk about debt outstanding per sector. We don't break down that from a revenue perspective. You can also see our refinancing studies that also generally give a breakdown of the refinancing component that's coming up by industry.
Thank you very much.
We'll move to our next caller. Please go ahead.
Hi. Thank you. It's Shlomo Rosenbaum from Stifel. Hey, I just thought, just from a tactical perspective, can you just explain to us exactly where your business gets slowed down when you need face-to-face meetings? How much of your business, just think about, say, software installations or anything like that where you can't really transact or perform the work in a remote fashion. I assume the vast majority really can just be done remotely, but can you just walk us through the different areas where it can't?
First of all, that slide we showed before gives you a sense for how solid the recurring base is, that 90% of the revenue is going to come from products that are already installed and in very solid shape. Most of our products can be enabled by creating a password and enabling the password. The installation requirements are actually rather light. There are some that are a little bit more complicated, a little bit more integrated with our customers' operations, and they require a little bit more work. As we move more and more to the cloud, the delivery and customer success is not as dependent on face-to-face activity to make that work.
If you talk about the sales call activity, I think it's fair to say that we tend to see every prospect in person before we actually sell them something most of the time. There are some telephone sales that happen. There's some things that happen where people inquire but most of the time we're going to see them. I would also add, it's not like sales call activity is completely shut down. We have people who are traveling now because there's important meetings happening with customers where the customers are comfortable with us visiting them, and we're conducting business just like you would expect. In places like Asia, where we did see, I would call it a slowdown due to the virus, things are now picking back up. That pattern is giving us some comfort that we'll get back to work in due course here.
If I could just add just an aside from MIS is that over the last number of years, we've spent a lot of time actually going through our continuity plans, and as part of that investing extensively with technologies that allow our analytical teams to be remote from each other and also remote from the customer, and engaging with the customer with regard to ratings processes, dissemination of information. That has proven to be a good underpinning of how we're operating at this point.
What I'm hearing is that there's just not a whole lot of face-to-face absolute requirements so that if this goes on for a little bit longer, just I'm saying in terms of your overall revenue, you can continue to do business almost just regularly business as usual.
I think that's a fair statement. I feel like I ought to acknowledge sometimes it's helpful to meet people in person to persuade them to look at maybe one of our products in a different way. Yes, Shlomo, if the demand is there and the customer appreciates the value that we can create, we can do a lot of this remotely. The real thing that I was trying to highlight in that one slide is when we're trying to get someone's attention, it's useful to do that sort of thing in person, and we're really creating pipeline events when we do that.
Got it. Okay. Just as a follow-up, more on the BvD side. D&B, Cannae Holdings reported regarding D&B that they actually have organic growth in the mid-single digits last quarter, which is, they hadn't grown frankly much in the last decade, and they're starting to grow. Is any of that something that's filtering up to your BvD and they're seeing more competitiveness over there? I'm just trying to keep an eye on the competitive environment for your products.
Yeah. I haven't studied their announcement too much. I would say that, in general, the opportunities that BvD sees before us are BvD's, and that we don't compete directly with Dun & Bradstreet on a day-to-day basis. I think some of the company information value propositions that we would offer, people might think of as interesting, and maybe comparable. For the most part, we've had some pretty good experience here demonstrating that our products are different in nature and delivering good growth as a result.
Okay, great.
Next, move to Andrew Nicholas with William Blair.
Hi, thanks. This is actually Trevor Romeo for Andrew. Thanks for doing this call, first of all. I was just wondering, I guess, if you could talk about the impact of a potential economic downturn on the relationship-based revenue for MIS. Obviously, we tend to think about that as kind of less volatile than transactional revenue, but anything that would help us kind of understand the impact on relationship revenue, whether that's pricing, contract changes, et cetera, or whether you wouldn't expect much of an impact.
I think with respect to relationship revenue, the impact would be minimal. Of course, if you have a severe downturn, you're going to have some credits that don't survive. Even during the financial crisis, we found that to be very limited. It had more of an impact on the transactional revenue than the relationship revenue because it tended to be speculative-grade companies who are at the bottom end of the credit continuum. I'd also point out that kind of a downturn, although certainly nobody wants to see that, we've seen historically that it has provided some distress-driven M&A activity, where the stronger credits are scooping up assets that are struggling. It also, on a longer term, it has the effect of clearing out some weaker credits and providing space for new companies to enter the bond markets that might not have been there.
That's not an immediate reaction, but it is a longer-term attribute that we've seen in the past.
Okay, great. Thank you. Just wondering if you could briefly talk about your recent acquisition of RBA International. It seems like a fairly small deal, I was just wondering if you could discuss how it fits in with the rest of your learning and certification business, and if that's maybe an area where you plan to accelerate investments or increase your presence in the future.
Sure. RBA, first of all, you're correct. It is small.
Yeah.
I don't want to exaggerate the materiality of RBA.
I see.
Yeah, I agree. I think of it really as a product acquisition. There's a small group of people that are coming along with it. It's an area that our learning solutions group had been targeting, and they specialize in helping banks with their transformation, especially in their retail branch network, and especially when it comes to training the people that are sort of left in the branch to be better at their jobs, upskilling them so that they can handle small and medium enterprise, small business lending, especially. You can imagine, the banking sector's undergone some change here. Retail branches are not staffed at the same level as they were in the old days. Today there might be one or two people that are working in those branches. They need to be upskilled.
Banks are looking for help to roll out training programs to those branch staff so that they can be better at their jobs and be able to handle more questions on the fly. That's what they're good at. That's what this content brings to the table. It's a set of content we did not have before, and we like the complementary nature of it within that business.
Okay, understood. Thank you very much.
We'll move to our next caller. Please go ahead.
Good afternoon. This is Brian Pirie at Reade Street. Thank you very much for hosting this event. You mentioned that the distribution of issuers with an investment-grade is noticeably different versus the last cycle, and I'm wondering what proportion of investment-grade transaction revenue is attributable to issuers in that lowest band of investment-grade, or is attributable to private equity-backed companies. Basically, I'm trying to understand how much of your investment-grade revenue could be reasonably expected to move in concert with speculative-grade revenue. Thank you.
Well, first of all, thank you for your question. We don't actually break our revenues up in the way that you posed your question. We have provided that detail about the different distribution of our ratings over time, and we've also published extensively about private equity ownership and the growth of private equity ownership down at the bottom end of the rating scale, particularly in the B2, B3 area.
Just to add a little bit of color as well. The investment-grade financial institution sector is heavily relationship revenue based even more so than the corporate sector although both are much more oriented to relationship revenue than the spec-grade credits that we rate. For the investment-grade sector, we don't get the same bump when there's an increase in issuance activity, but we're also cushioned more than we are in spec-grade when there's a decline in issuance activity. Look for more stability in investment-grade and our revenue swings should be more modest up and down than what we see in terms of issuance activity.
That's very helpful. There is potentially a slice of investment grade that does behave like speculative grade, but you would basically have to do our own work to ballpark that. Is that a fair assessment?
Yeah. I'm not sure I got all the question. It is more stable in terms of the revenue impact for us up or down.
Fantastic. Thank you very much.
Okay.
We'll go to our next caller. Please go ahead.
Hi, thanks. Good afternoon. This is George Tong with Goldman Sachs. I wanted to dive into your margins and your cost structure. What proportion of your costs are approximately fixed versus variable in your MIS and MA segments? What kind of margin performance are you incorporating into your updated guidance?
George, Harry, good morning. This is Mark here. I'll think about fixed versus variable maybe in terms of compensation and non-compensation and the depreciation in amortization. You could think about compensation being around 63, 64-ish%, non-comping around that 30% mark, and then depreciation and amortization typically around that 8% mark. In terms of how we're thinking about providing guidance for 2020, you'll note that I did split in the slides we provided this morning guidance for 2020 into operating leverage and efficiencies. I did that because I primarily wanted to call out the difference between the two. Whereas your operating leverage primarily refers to scalable revenue growth as well as the benefit from the reset of the incentive comp accrual.
Efficiencies, which is the primary point of your question, is really savings from restructuring, increased automation, utilization of some of the lower cost locations, procurements, real estate densification, and so on and so forth. I hope that gives you a feel for how we're thinking about modeling it into the 2020 numbers.
Got it. That's helpful. Your updated guidance includes impact from both the Coronavirus and oil prices. How much of the guidance update is related to one versus the other? In other words, if one factor resolves faster than the other, how should we think about sensitivities to financial performance?
Well, I certainly think there is more risk and more opportunity, depending on the pace at which the coronavirus situation is resolved. What's happening in the energy sector, we've seen that before. It will have some impact if the energy sector continues to face heavy price pressures for a longer period of time. I think the much more important driver in our minds right now is resolution of the coronavirus.
Got it. Very helpful. Thank you.
That will conclude the question and answer session. At this time, I would like to turn the call back over to Mr. Ray McDaniel for any closing or additional remarks.
Okay. Thank you very much, everyone, for joining today's call. I very much hope that we look forward to speaking to you in April. We will provide an update with our first quarter performance at that time. Thank you again for joining.
This concludes Moody's Investor Update Call. A replay of this call will be available after 3:30 P.M. Eastern Time on Moody's IR website. Thank you again, and have a great day.