Good morning, and welcome to S&P Global's second quarter 2016 earnings conference call. I'd like to inform you that this call is being recorded for broadcast. All participants are in a listen-only mode. We will open the conference to questions and answers after the presentation, and instructions will follow at that time. To access the webcast and slides, go to investor.spglobal.com. That is investor.spglobal.com, click on the link for the quarterly earnings webcast. If you need any additional technical assistance, please press star zero and we'll assist you momentarily. I would now like to introduce Mr. Chip Merritt, Vice President of Investor Relations at S&P Global. Sir, you may begin.
Thank you. Good morning, thanks for joining us for S&P Global's earnings call. Presenting on this morning's call are Doug Peterson, President and Chief Executive Officer, and Jack Callahan, Chief Financial Officer. This morning, we issued a news release with our second quarter 2016 results. If you need a copy of this release and financial schedules, they can be downloaded at investor.spglobal.com. In today's earnings release and during the conference call, we're providing adjusted financial information. This information is provided to enable investors to make meaningful comparisons of the corporation's operating performance between periods and to view the corporation's business from the same perspective as management's. The earnings release contains exhibits that reconcile the difference between the non-GAAP measures and the comparable financial measures calculated in accordance with US GAAP. Before we begin, I need to make certain cautionary remarks about forward-looking statements.
Except for historical information, the matters discussed in the teleconference may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including projections, estimates, and descriptions of future events. Any such statements are based on current expectations and current economic conditions and are subject to risks and uncertainties that may cause actual results to differ materially from results anticipated in these forward-looking statements. In this regard, we direct listeners to the cautionary statements contained in our Forms 10-Ks, 10-Qs, and other periodic reports filed with the U.S. Securities Exchange Commission. I would also like to call your attention to a European regulation. Any investor who has or expects to obtain ownership of 5% or more of S&P Global should give me a call to better understand the impact of this legislation on the investor and potentially the company.
We're aware that we do have some media representatives with us on the call. However, this call is intended for investors would ask the questions from the media be directed to Jason Feuchtwanger in our New York office at 212-438-1247 subsequent to this call. At this time, I would like to turn the call over to Doug Peterson. Doug?
Thank you, Chip. Good morning, everyone, and welcome to the call. This morning, Jack Callahan and I will review our second quarter results. We are very pleased with the progress the company is making creating growth in a macroeconomic environment that has challenged many of our customers. Let me begin with the highlights of the second quarter. Every segment delivered revenue growth. This is a testament to the quality of our products and the creativity and execution of the employees who develop and deliver them. In addition to creating growth, driving performance is a key theme in managing the company, and margin improvement is an important yardstick by which our progress is measured. This quarter, the company delivered a 210 basis point expansion in the adjusted operating profit margin. A top priority for 2016 is the integration of SNL.
We continue to make progress on SNL integration and synergy targets, and I will share a few examples with you in a few moments. Financial performance was excellent, with an increase in adjusted diluted EPS of 17% over the most difficult quarter comparison in 2015. As a result of our share repurchases, we reduced average diluted shares outstanding by 3% year-over-year. Last week, we received final regulatory approvals for the sale of J.D. Power. Our year-to-date free cash flow was $513 million, and we increased the adjusted diluted EPS guidance range, reflecting strong second quarter results. Before I get to the results in more detail, I want to take a moment to discuss the British exit from the European Union. First and foremost, Brexit has no immediate implications for European operations. It is business as usual for S&P Global.
While the media has reported that a number of companies plan on moving operations out of London, we have no such plans. We expect that because of the uncertainty it creates, however, Brexit could hamper issuance, particularly in Europe. So far, the impact has been muted, but markets never like uncertainty and will take time to resolve all of the various regulatory changes that companies and markets will face. For our company, we will seek to work with the relevant U.K. and EU legal and regulatory authorities to navigate the path forward, a process that will likely take years. S&P Global Ratings has written extensively on the impact that Brexit will have on the markets, and our views can be found on the S&P Global Ratings website at the URL listed on this slide. Let us take a closer look at the second quarter results.
While reported revenue grew 10%, organic revenue on a constant currency basis increased 5%. In most recent quarters, the company's revenue has been hit by Forex with little impact to operating profit. Primarily due to the weak British pound, however, this quarter was different. In the second quarter, forex had a negligible impact on revenue, yet contributed approximately three percentage points to adjusted operating profit and approximately 100 basis points to the adjusted operating profit margin. Most of this benefit was realized in S&P Global Ratings. Overall, the company delivered 210 basis points of adjusted operating profit margin improvement as a result of forex, S&P Global Ratings margin improvement, and the progress made on SNL integration synergy targets. Together, revenue growth, margin improvement and share repurchases combined led to a 17% increase in adjusted diluted EPS.
In the second quarter, every division recorded top-line growth and improvement in adjusted operating profit. The two standout performers were S&P Global Ratings and S&P Global Market Intelligence, with adjusted operating profit margin gains of 400 and 370 basis points respectively. Let me turn to the business, and I'll start with S&P Global Ratings. During the quarter, revenue increased 4% with a negligible impact from forex. Adjusted operating profit increased 12%, and the adjusted operating margin increased 400 basis points to 54.1%. Improved market conditions after a weak 2016 start resulted in a modest year-over-year issuance increase. For the first time in six quarters, international revenue outperformed domestic. Forex had a favorable impact of three percentage points on adjusted operating profit and approximately 150 basis points on the adjusted operating profit margin, due primarily to the weakness in the British pound.
Excluding forex, adjusted expenses decreased three percentage points, mainly due to reduced outside services. Another highlight of the quarter was the purchase of a 49% stake in TRIS Rating. This increased commitment to TRIS in an exciting step forward in our long-standing relationship. By working together more closely, we'll be in a better position to serve our customers and investors in Thailand and other ASEAN markets. Non-transaction revenue increased 3% from growth in surveillance, CRISIL, commercial paper activity, and royalties from Risk Services. Transaction revenue increased 5% as a result of improved contract terms, increased bank loan ratings, and growth in debt issuance in Asia. If we look more closely at the largest markets, second quarter issuance in the U.S. was down 11%, with investment grade decreasing six, high yield down nine, public finance up four, and structured finance declining 37% with drops in every class.
In Europe, investment grade was unchanged, high yield was down 5%, while structured finance increased 4% with strength in RMBS and CLOs. In Asia, investment grade issuance surged 60% and structured finance increased 20% due to ABS and RMBS. Let's take a further look at issuance. The 3% increase in global issuance breaks a four-quarter streak of year-on-year declining global issuance that had pressured S&P Global Ratings revenue. During the quarter, only Asia reported an increase in issuance with a 55% gain. Excluding domestic Chinese issuance, which we don't rate, issuance in Asia still increased 35%. One factor driving this growth was offshore Chinese issuance. During the quarter, investment grade issuers generally had unfettered access to debt capital markets, while spec grade issuers had very limited access, with windows of opportunity that opened for short periods and then were disrupted by external events.
Despite the year-over-year declines in the U.S. and Europe, there were periods of extreme strength during the quarter. In fact, May set a monthly record for U.S. investment grade issuance. June started out with a very strong issuance, but then came to a standstill in the week leading up to the Brexit vote. Last week, S&P Global Ratings released its latest global issuance forecast. We now expect global issuance to decline 3.8% in 2016. This compares to the April forecast, which anticipated decline of approximately 2%. The biggest differences are in corporate and structured issuance, which have been lower due to Brexit, and international public issuance, which has been increased as first half issuance already exceeds all of 2015. Let me turn to S&P Global Market Intelligence. In the second quarter, revenue increased 29%, primarily due to the addition of SNL. Excluding SNL, organic growth was 8%.
Adjusted operating profit increased 48%. The adjusted operating margin advanced 370 basis points to 28.4%. The adjusted segment operating margin includes a benefit from forex of approximately 100 basis points. Excluding forex, this figure is comparable to the first quarter adjusted segment operating margin. Forex had a favorable impact of five percentage points on adjusted operating profit, primarily due to weakness in the Indian rupee and British pound. In 2016, successful integration of SNL is a top priority for the company. We made a substantial investment with the acquisition of SLN, and we recognize we must achieve our integration synergy targets in order to deliver return on that investment. We are well on our way to achieving cross-sell synergy targets for 2016. Last quarter, we reviewed some of the organizational changes that took place.
Today, in order to help you get a better sense of our efforts, I'm going to share several examples of integration synergies progress during the quarter. We reconfigure our Risk Services scorecard product for analyzing commercial banks to include SNL bank data and received great feedback and early sales success from the market. We integrated our equity ownership and earnings estimate data onto the SNL platform. We made tremendous progress on integrating SNL sector-specific fundamental data into our Xpressfeed delivery platform. Now in beta testing, SNL content will be available this fall, enabling more seamless cross-selling to our existing feed clients. We completed significant design work on our next-generation consolidated product platform that will encompass mobile, web, and Excel delivery. We reduced cost by replacing third-party data with an internal solution. We completed our office consolidations in Denver, New York, and Singapore, with other cities still in the works.
We've been making great progress. Let me add a bit more color on second quarter revenue growth in S&P Global Market Intelligence, which delivered double-digit user growth in both S&P Capital IQ Desktop and SNL. In financial data and analytics, S&P Capital IQ Desktop and Enterprise Solutions revenue increased 8%, with high single-digit growth in both products. SNL revenue reported a 9% increase compared to the second quarter of 2015. Prior to our acquisition of SNL, however, excluding a purchase accounting deferred revenue adjustment, revenue grew 10%. With the progress that we continue to make integrating SNL into S&P Global Market Intelligence, it will become increasingly difficult to separate SNL results from the total. This is likely the last quarter we'll provide separate revenue figures for SNL. Risk Services revenue increased 10%, led by double-digit RatingsXpress growth.
In the smallest category, research and advisory, revenue decreased 12% due to declines in equity research services. Let's turn to S&P Dow Jones Indices. Revenue increased 4%, adjusted operating profit increased 4%, and adjusted operating margin improved slightly to 66%. Market volatility has created large swings in AUM from month to month, as well as volatility in the number of exchange traded derivative contracts traded each month. During the second quarter, revenue increased primarily due to steady data license growth, strength in exchange traded derivative activity due to market volatility, and ETF-related revenue was up slightly. If we turn to the 3 types of revenue, transaction revenue from exchange traded derivatives increased primarily due to a 24% increase in average daily volume of products based on S&P DJI's indices. In particular, E-mini S&P 500 futures, CBOE Volatility Index, VIX, and CME equity complex contracts all increased more than 20%.
asset-linked fees revenue, mostly from exchange-traded funds, was up slightly. The exchange-traded products industry recorded inflows of $46 billion in the second quarter, with fixed income products receiving the largest inflows. Average AUM associated with our indices increased 3% year-over-year, with inflows of 7% offset by asset value declines of 4%. The quarter ended on a high note, with quarter-ending ETF AUM associated with our indices reaching a new record of $855 billion as U.S. equity markets rebounded. This creates a great starting point for the third quarter. Subscription revenue, which consists primarily of data subscriptions and custom indices, increased due to continued steady growth in data subscription revenue. During the quarter, the company launched 90 new indices, our partners launched 18 new ETFs based on our indices. We added two in the environmental social governance space that I'd like to highlight.
The JPX/S&P CAPEX & Human Capital Indices, designed to measure performance of Japanese companies that are proactively and effectively making investments in physical and human capital based on various metrics, including the RobecoSAM human capital scores. The S&P ESG Index Series, designed to measure the performance of companies with a weighting scheme based on an ESG factor score derived from RobecoSAM's annual corporate sustainability assessment. This launch brings together, for the first time, smart beta and sustainability into a global index family that treats environmental, social, and governance, or ESG, as a stand-alone performance factor. With the addition of these two indices, we now have 130 ESG indices. This quarter, we celebrated the 120th anniversary of the Dow Jones Industrial Average, launched in 1896 by Charles Dow and Edward Jones. On its first day, May 16th, 1896, the Dow closed at 40.94.
Today, the Dow Jones Industrial Average is the iconic symbol of the U.S. stock market. Now on to S&P Global Platts, which currently includes J.D. Power. Organic revenue increased 4%, adjusted for the NADA Used Car Guide, Petromedia, and RigData acquisitions. Adjusted operating profit increased 7%, adjusted operating margin declined 70 basis points to 38.4%. Platts delivered 7% revenue growth, driven by strength in subscriptions and Global Trading Services. J.D. Power had a decline in organic revenue due to lower consulting revenue in China. With all of the regulatory requirements completed, we continue to expect closing the sale of J.D. Power this quarter. Turning to Platts, Global Trading Services led the growth during the quarter, with double-digit revenue gains, primarily due to the timing of license fees and strong license revenue from the Singapore Exchange and ICE exchanges.
The core subscription business delivered mid-single-digit revenue growth led by the petroleum sector, with particular strength in Asia. Metals, agriculture, and petrochemicals revenue grew at high single digits, primarily due to the strength in Singapore Exchange-listed TSI iron ore contracts and metal market data subscriptions. While rig counts are up since the beginning of May, many of our customers remain under pressure from low oil prices. Therefore, we continue to expect growth to moderate slightly in the remainder of 2016 as these customers continue to face difficulties. Finally, the CME Group introduced a new aluminum A380 Alloy futures contract that settles against our price assessment. There's been growing need for North American aluminum alloy risk management tool. This contract will provide market participants with an effective solution for hedging aluminum alloy price risk. On the business development front, we have several new items.
In June, we acquired RigData, a leading provider of daily information on rig activity for the natural gas and oil markets across North America. We've discussed our desire to add our own supply-demand data offerings, and this extends our energy analytic capabilities in North America natural gas with oil offerings. Founded in 1986, RigData provides over 5,500 customers with daily electronic reports on drilling permits, activity, and rig locations in the U.S., the Gulf of Mexico, and Canada. We launched five domestic oil product assessments in Japan. Platts now assesses prices for important refined oil products for domestic waterborne deliveries in Japan from locations in Tokyo Bay, Chūkyō, and Hanshin. The Japan waterborne assessments reflect prices for gasoline, gas oil, kerosene, low sulfur A fuel oil, and high sulfur A fuel oil. These assessments will follow Platts Market on Close principles.
And finally, we launched the LNG U.S. Gulf Coast marker. The natural gas infrastructure that connects the U.S., Mexico, and Canada is the world's largest and most integrated natural gas market. By 2020, the Americas are expected to be the world's third-largest producer of LNG behind Australia and Qatar. This new price reflects the daily export value of LNG traded free on board from the U.S. Gulf Coast. In summary, all segments delivered revenue growth. Bond issuance recovered from a weak start to the year. Margin improvement continues to be a key focus. Integration of SNL remains a top priority for the company. It's meaningful progress to date. We expect Brexit to have no immediate implications for the company, and we are increasing our adjusted diluted EPS guidance by $0.05 to a range of $5.05 to $5.20.
Our guidance has been updated to now include dilution from the pending sale of J.D. Power. With that, I want to thank you all for joining the call this morning. Before I turn the call over to Jack Callahan, our Chief Financial Officer, I wanted to say a few words about him. As you know, Jack has accepted a new position at Yale. Not only is he an active Yale alumni, he grew up in New Haven, Connecticut, so Jack's going home. We're thankful for the time he spent with us. After joining the company in November of 2010, he was instrumental in engineering the transformation to S&P Global, a faster-growing, more focused, and profitable company. He's also assembled an outstanding organization, and we're grateful for all he's done for the company and shareholders.
Early next month, Jack will begin his role as Senior Vice President of Operations at Yale. We wish Jack and his family all the best. Rob MacKay, our current Senior Vice President and Corporate Controller, has been named Interim CFO as we continue the search process for Jack's replacement. Thank you, Jack, and now I'll turn the call over to you.
Thanks, Doug, and I appreciate those kind words. Good morning to everyone on the call. This morning, I will recap key financial results. I also want to discuss the impact from adjustments to earnings. I'll update you on the balance sheet, free cash flow, and return of capital. Wrapping up, I will provide some color on our updated guidance. Let's start with the consolidated second quarter income statement. There are just a couple items I want to highlight. As you have just heard from Doug, all of our segments delivered top-line growth. Collectively, that led to an increase in reported revenue of 10%, with organic growth of 5%. The difference is largely due to the SNL acquisition. Our adjusted operating margin increased 210 basis points. Approximately 100 basis points was due to Forex.
The balance was primarily due to outstanding profit growth and margin improvement at S&P Global Ratings and S&P Global Market Intelligence. Both businesses have delivered impressive margin improvements year to date. Interest expense was up over $26 million due to our highly successful bond offerings last year, partially in support of the SNL acquisition. This stepped-up level of interest expense will continue to create a difficult year-over-year comparison until the fourth quarter. Share repurchases over the past year have resulted in more than a 3% decline in average diluted shares outstanding. Overall, sustained top-line growth, margin improvement, and share count reduction delivered a 17% increase in adjusted diluted earnings per share over the most profitable quarter in 2015. Now let me turn to adjustments to earnings to help you better assess the underlying performance of the business.
Pre-tax adjustments to earnings totaled to a gain of $22 million in the quarter. The first item is a net gain from insurance recoveries. The second item includes net disposition costs, primarily related to the pending sale of J.D. Power to the XIO Group and our SPSE and CMA pricing businesses to ICE. The last item is a restructuring charge in S&P Global Ratings as the business continues to focus on sustained productivity. As we discussed last quarter, our adjusted results now exclude deal-related amortization of $23 million. All adjustments are detailed on Exhibit 5 of today's earnings release. Now let's turn to the balance sheet. At the end of the quarter, we had $1.6 billion of cash and cash equivalents, of which approximately 95% was held outside of the United States.
We also had $3.5 billion of long-term debt and $309 million of short-term debt in commercial paper and from a drawdown on our credit facility. Since the end of the first quarter, we have reduced short-term debt by $163 million. Going forward, our level of short-term debt will likely fluctuate a bit as we periodically tap into the short-term debt market to fund our share repurchase program and meet other corporate needs. Our first half free cash flow was $478 million. However, to get a better sense of our underlying cash generation from operations, it is important to exclude the after-tax impact of legal and regulatory settlements and related insurance recoveries. On that basis, first half free cash flow was $513 million and is on track to reach our 2016 guidance of approximately $1.3 billion. Now I want to review our return of capital.
During the quarter, the company bought approximately 1.4 million shares. These purchases, combined with our dividend, total to approximately $242 million of cash returned to shareholders just in this quarter. Year-to-date, the company has returned $538 million to shareholders. The volume-weighted average price for the shares repurchased so far this year is approximately $98. The share repurchase program remains an important component of the company's overall capital allocation. In addition, we anticipate stepping up share repurchases to help mitigate some of the dilution from the pending sale of J.D. Power, subject to market conditions. Let me provide some additional perspective on our 2016 guidance. There are three items that have been updated. Our previous guidance included the results of J.D. Power for the full year. We now assume that the sale of J.D. Power will be completed during the third quarter and have removed J.D.
Power results for the balance of the year. This will have an impact on revenue, and our guidance moves from mid to high single digit to new guidance of mid-single-digit growth. Year-to-date margins have benefited by approximately 100 basis points from Forex. Therefore, we have increased our adjusted operating profit margin improvement from approximately 50 basis points to a new guidance of approximately 150 basis points. Despite the inherent dilution from removing several months of J.D. Power results, we are increasing our 2016 adjusted diluted earnings per share guidance by $0.05 due to the strong first half results and our outlook for the remainder of the year. The new range is $5.05-$5.20. We are keeping a wide range as there remains considerable macroeconomic uncertainty that could impact the markets and our customers. In summary, the second quarter was a strong quarter for the company.
Each of our segments is performing well, and we are well-positioned to continue to provide the essential benchmarks, data, and analytics that our customers require. As Doug mentioned earlier, today is my last earnings conference call. It has been a pleasure and an honor to be the Chief Financial Officer of initially the McGraw-Hill Companies, then McGraw Hill Financial, and now S&P Global. I want to thank our shareholders and the analyst community for your interest and support as we have transformed the company. Finally, I want to thank the over 20,000 S&P Global associates for your hard work and commitment in building a stronger organization for the future. I wish you all well and I remain optimistic on the continued success of S&P Global going forward. Let me turn the call back over to Chip for your questions.
Thanks, Jack. Just a couple instructions for our phone participants. Please press star one to indicate that you wish to enter the queue to ask a question. To cancel or withdraw your question, simply press star two. I would kindly ask that you limit yourself to two questions, that's two questions each, in order to allow time for all callers during today's Q&A session. If you've been listening through a speakerphone but would now like to ask a question, we ask that you lift your handset prior to pressing star one and remain on the handset until your question has been answered. This will ensure better sound quality. Operator, we will now take our first question.
Thank you. This question comes from Ashley Serrao, Credit Suisse. You may now ask your question.
Good morning.
I guess first question just on market intelligence. Can you please give us an update on the selling environment? I was specifically curious on how efforts to broaden SNL's geographic presence into Europe are faring, and also how pricing conversations are going so far as you integrate SNL and Capital IQ.
Thank you and welcome. Welcome to the call. I think this is your first time on our call.
Yes.
First of all, the Market Intelligence business is advancing quite well, as you heard from some of the statistics that I provided and some of the examples. Related specifically to your question about the selling environment, I'll just be clear that we continue to progress faster on cost synergies than we do on sales synergies. We are finding some early wins. We're finding more wins in Asia right now than we are necessarily in Europe. This is where we're able to either sell SNL products into Asia, customers who before didn't use them using the former Cap IQ sales force, or we're finding opportunities where we've integrated the services together between Cap IQ and SNL and also delivering them into Asia. The selling environment is mixed.
As you know, there still are a lot of financial institutions that is one large part of our customer base that are reducing headcount. They're reducing some of their specifically trading and front office people. On the other hand, on the back office in areas like compliance, control, risk management, and also some more traditional consumer banking and commercial banking activities, there are continuing to be increase in headcount. The environment is mixed, with some consolidation and shrinking happening, and on the other hand, increase in demand for risk management, for other sorts of tools. We're seeing a mixed market, but we are continuing to have a very strong sales effort. Our sales team has integrated excellent in a way that's very well integrated, and they've got a new commercial approach of reaching out to clients in a much more consolidated, organized way.
We're starting to see top-line growth coming out of the synergies as well.
Great. Maybe a question for Jack. On the pending sale of the pricing business to ICE, curious if you could, A, give us the EPS contribution this quarter and also any sense of the timeline for the sale.
In terms of its contribution, it's $0.02 per quarter. We're still waiting on the final approvals to close that transaction. Our current assumption is that we look for a close towards the end of the year. Our current estimate assumes sometime in the fourth quarter. We believe the net dilution impact within 2016 is going to be quite minimal.
Okay. Thank you for taking my questions. Jack, I wish you well.
Thank you.
Thank you. Our next question comes from Alex Kramm, UBS. Your line is open.
Hey, good morning, everyone. First of all, let me echo what Doug said. Thanks for all the help, Jack, over the years. Obviously all the best in the new endeavors here. With that, maybe on the ratings business, not sure how easy this is to answer. As you know, your primary competitors already reported a few days ago, and what certainly stood out is your much better growth year-over-year, in particular on the transactional side. From what you can tell, would be helpful if you could maybe decipher where you might be winning, what businesses you might have done a little bit better or what in the mix contributed to that outperformance.
This is Doug. Thanks for the comments. To start off with, as you know, we've been engaging in a commercial approach to running our business with the hiring of Chris Heusler last year to lead our commercial activities. We've approached our clients in a way that gives us a broad relationship-oriented approach where we're looking at ways to broaden our coverage, including products like loan ratings, RES, et cetera. We're looking across that as well as looking at our contract terms. One of the areas where we also had very strong growth in this quarter was in Asia. Just to give you a color on the issuance in Asia, it was up across the board in every category. In fact, total issuance in Asia this quarter was greater than total issuance in the U.S. if you include sovereign issuers.
Sovereign issuers are not necessarily an area that there's a lot of profitability on. Even so, the total issuance in Asia for the first time outgrew the total issuance in the U.S. In the U.S., as you know, the issuance was down overall in the corporates at 7%, financial institutions was down, while in Asia, the corporates were up 32% and financial institutions were up 84%. It was a combination of our sales approach, our relationship management approach, more penetration and looking at how we're working on contracts, and very importantly, the volume in Asia.
All right. Great. Maybe just for Jack on the GMI margin. Hopefully, my numbers are correct here, but it looks like the margin actually came down a little bit quarter-over-quarter. I think last quarter you had said expect kind of like a flattish for the remainder of the year. I know this can be bouncing around, but just given that you're taking cost out, and I think folks are hoping for that margin to actually trickle higher. Just maybe some commentary of what you expect for the remainder of the year and why that maybe was down a little bit quarter-over-quarter, despite the effects benefit. Thanks.
Yeah, let me give a little bit more detail building. I think Doug had some comments on it earlier. The primary difference between the first and second quarter is the Forex benefit. There was just relatively more Forex benefit in Q1 than there was in Q2. There was about two points of benefit in Q1 and less than one in this quarter. Once you equivalize for that, you're pretty much in that same range around 28%. We're quite pleased with that step up versus a year ago. We do think this is an opportunity where we can continue to get some steady improvement over time.
Very good. Thanks.
Thank you.
Thank you. Our next question comes from Manav Patnaik of Barclays. Your line is open.
Thank you. Good morning, gentlemen. Firstly, congratulations, Jack, as well. Thank you for all your help. My first question on the Ratings business, if you could just elaborate on, I guess you had it in your press release, you just mentioned in terms of the commentary around improved contract terms. Can you just help understand, is this some of those pricing initiatives you guys had talked about or we've been talking about for the last year or so, or what specifically are you referring with that language?
Yeah, that language refers to the types of engagements that we have with our customers. We have many different pricing approaches across the globe, where one of the biggest themes you're going to hear from us, from our Ratings business over and over is this term simplify. We have projects to simplify our workflow. We've been investing in technology to simplify our workflow. That also brings with a combination of better control, better process management, then also, in many cases, lower expenses. On that side, we're having a lot of focus. On the top line, we're also looking at ways to simplify our pricing model, to revisit our contracts that we've had with customers for a very long time that provided relationship pricing that we want to recalibrate to markets where there's much larger issuance. It's a combination of factors.
The top-line growth, some of that has been driven by approach to how we look at our pricing. Even though we're simplifying it has had some benefits and also going up.
Got it. Then just bigger picture, obviously, a lot of things are going good for the company, you've done a lot of tuck-ins here and there. Just thinking about the appetite for M&A going forward. Obviously, there seems to be some assets up for sale on the Indices side of things in fixed income. Just curious on how we should think about your plans in that area.
I guess what I'd say, first of all, our number one and number two priorities are, number one is to continue with the integration of SNL. That is something that's critical for us. As you know, we made a very large investment in that, and even though we're off to a great start, doesn't mean we're going to take our eye off the ball on that one. Number two is to smoothly complete the exit of J.D. Power, which has been going well, but we want to make sure that we complete in a way that's very organized and executed well, everything that we started. Putting those two aside, though you mentioned the word tuck-ins. We continue to look at opportunities. We're not going to shut things out.
If we believe that there would be opportunities that might have incremental value to our company by adding capabilities or products or sales or operations or geographies that might enhance our ability to create value, we might look at those. We're always going to look at those in combination with what the financial returns are and how that looks for the long run. Then also, do we have the capacity and management skills and capabilities to absorb and take over those businesses as well? We have our eyes open, and you know our normal philosophy about our capital waterfall. We do look at things, but nothing to report on.
Okay. Thanks a lot, guys.
Thank you. Next question comes from Toni Kaplan, Morgan Stanley. You may ask your question.
Hi, good morning. You mentioned that SNL grew about 10% in the quarter, while I think last year it might have been closer to about 13%. Is there anything to call out there, and are you still looking for low to mid-teens for that business longer term?
Let me start and see if Jack has anything to add. We're still looking for a long term. We have looked at this business. It's a very attractive growth machine for us. We expect it over the long run, it's going to be growing in the low double-digit range. It's something that we're looking for. This last quarter, there were a combination of factors that potentially the growth came down a little bit. Again, it has to do with the overall financial institutions market, with some of the downsizing that firms have done inside of their organizations. We're looking continue to see how we can drive that growth. The main factor over the last quarter just related to the slowdown in some of the headcount in financial institutions.
Okay, great. Then in Platts, it looked like revenue grew nicely, but margins declined a little bit year-over-year. Was that just a result of mix, or what caused that? Can you just remind me of any initiatives you might have going on in terms of Platts margin expansion? Thanks a lot.
I think the impact on the margins in the quarter was largely driven by more J.D. Power than Platts, just from some expense timing at J.D. Power. That was actually a bigger driver than anything really at Platts. In a couple of quarters, J.D. Power will be out of the numbers, and we'll have a clearer view of the quarter-to-quarter performance at Platts.
Got it. Thanks a lot. Good luck, Jack.
Thank you.
Thanks, Toni.
Thank you. Our next question comes from Craig Huber of Huber Research Partners. You may ask your question.
Yes. Good morning. Congratulations as well, Jack. Thanks for all your help. Let's talk margins, if we could, on the market intelligence area here. With margins in the very high 20s right now, including SNL. When you guys think out long term here, do you think it's possible to get these margins into, say, the high 30s, including SNL long term, assuming the market holds together?
Craig, I think from a longer-term point of view, from the benchmarking we've done relative to other similar companies, I think we'd be a little reluctant to put a target of high 30s. I do think, though, with growth, with scale, with realization of incremental synergies that have been identified for 2017 and 2018. We do see a path to margin expansion, but I think from a longer-term point of view, we'd be more in sort of a mid-30s range versus a high 30s.
Okay. Also on the ratings business, you did a great job on costs here again in the first half, down 5% or so. Besides FX, what's driving that? How sustainable is those cost efforts you guys are doing?
Yeah. There's a couple of things driving it. In addition to FX, one of them is, if you recall, about a year and a half ago, we had undertaken a couple of programs to rebalance our sales force as well as rebalance our analytical force globally. We also had some programs where we slowed down some hiring. Some of that's just coming through from straight headcount and straight changes to the way that we are managing the business. Those continue to flow through. One of the major areas, if you recall last year in the first half of the year, we had the final resolution of some of the disputes and lawsuits we had with the U.S. government in 20 states, as well as some private litigation.
There had been some residual expenses related to that, then we'd also been engaged in the full-blown implementation of the Dodd-Frank rules, which kicked in in June 2015. In order to implement that, we had engaged some outside help from some consulting firms and risk management experts, et cetera. Those are the legal fees related to those had tapered off in the second quarter, and then some of those external consulting fees and other advisory fees, those are gone. We think that we're approaching a more sustainable level of expenses going forward. Although I would point out that with some of our programs, we do continue to invest in technology. That's critical for us. As we simplify the business, we will be investing in technology. Here and there, we are going to invest in talent and people.
We do think that some of those extraordinary expenses have been cleaned now, cleared through.
Great. Thank you.
Great.
Thank you. Our next question comes from Peter Appert, Piper Jaffray. You may ask your question.
Peter?
Sorry. Here I am. Sorry for that. Keeping on margins in the Ratings business for a sec, you've made tremendous progress here over the last several years, and I'm wondering if your comments, Doug, are meant to imply that you're thinking that margins have approached the appropriate level or whether you think there's more upside from here.
The way I think about it isn't that there's necessarily an appropriate level. We have a commitment as well as an operating philosophy across the entire company that we're going to always look for continuous improvement and continuous upside. One of the biggest determinants of our margins are going to also be top-line growth. That's one of the reasons that we also have a big focus across the entire company and also in Ratings on commercial activities which are the things I've mentioned before on needs-based selling, relationship approach to selling, deeper penetration, broadening customer product coverage, looking at contracts, pricing, et cetera. It is a combination of how well we do on growing the top line. That is going to have an impact on it. If we can have some of that incremental sales drop to the bottom line, taking advantage of our scale.
I guess a long answer to your question, we continue to be committed to driving growth in our margin through continuous improvement, both from top-line activities as well as finding ways to continue to be more efficient on our cost base as well.
I just want to add one thing, that if you think about the second quarter, if you look at the last three years or so, the second quarter has been our highest margin quarter for the Ratings business because of the larger levels of issuance during the quarter. You can't predict the future, but we would not expect necessarily to have those kind of margins each quarter in the third and fourth quarter.
Sure. Understood. When you talked earlier, Doug, about simplified pricing in the ratings business, does that suggest more transaction-based versus relationship pricing and therefore higher price realizations because of that specifically?
What it implies is that we had some of our contracts had basically become stale or become quite old, we needed to go back and just look at the level of compensation we had been receiving for the type of activities that we were providing and the benefits we were providing for the issuance. I'd also say that another aspect has to do with how do we look at these long-term relationship contracts in the context of the size of issuance that had been undertaken originally when these contracts were put out, versus what kind of issuance we see today. There have been opportunities. This is something that we're going to continue to look at, but it's based off of, generally speaking, though, better coverage and better relationship management. Those go hand in hand. Understood. Thank you. Yeah.
Thank you. Our next question comes from Tim McHugh of William Blair. You may now ask your question.
It's Stephen Sheldon in for Tim. Appreciate you taking my questions. First, wanted to ask what you're seeing on the CMBS side now that you're back in the market. I think you talked last quarter about seeing a strong pipeline of deals. I was wondering if some of those came through in the quarter, and then how the pipeline is looking now, just any detail there.
Yeah. The CMBS pipeline has actually been quite weak. CMBS issuance was down over 60% in the second quarter. There were 10 transactions that were completed. We were on one of them, and we continue to claw our way back into that market. The pipeline right now is actually quite weak. It's a trend that started off in the first quarter, I mean, the first and second quarters continued in CMBS. We have hired a great team. We've retooled our approach to the business over the last couple of years, and it's our hope that we get included on more and more deals on the CMBS market over time. We do continue to rate many of the single borrower transactions, but those also have been quite weak during the quarter.
Second, could you talk about the slowdown in Platts' growth in the quarter? The growth rate's still solid overall, given the pressure in that market, but it sounds like core revenue growth decelerated a little bit. Was there anything specific that led to that slowdown?
I'd point to two things. One, compared to Q1 was an abnormally terrific growth quarter for our Global Trading Services. It was up quite considerably in the first quarter. We still had very nice growth in that area. It's only 10% of the mix, but we still had very nice growth in the second quarter, but it just wasn't quite as fast as what we saw in Q1, so it wasn't as accretive as we saw previously. It's still a challenging market out there in terms of the profit pressures on the commodity space. We're still seeing growth, but it may be costing us a growth point or two.
Great. Thanks.
Thank you. Our next question comes from Bill Warmington of Wells Fargo. Your line is open.
Good morning, everyone, and congratulations to Jack on the new position.
Thanks, Bill.
First question for you, to go back to the incremental margins on the ratings business. With revenue up 24% and the adjusted operating income up 39%, it looks like to assume 100% incremental margin would be about $15 million coming from a cost cut. Is that a fair way of looking at that? And what I want to go to on the question is, how should we think about the incremental margin on that business going forward and your minimum revenue growth on an organic basis to achieve that kind of incremental margin?
Well, I assume the way you're asking the question was you're looking at more on a sequential basis from first to second quarter.
Yeah.
Yeah, no. Look, I think some of the expense difference between the first and second in that general range that you mentioned had to do with the drop-off, as what Doug mentioned, in terms of some of the outside professional fees that we were paying either to lawyers or more significantly, some of the work that was underway in the risk and compliance area to ensure tight compliance with some of the Dodd-Frank requirements, which we had to do last year. That money has been spent. We do have that risk and compliance investment now in the run rate. That benefited some of the expenses quarter to quarter. On a go-forward basis, it's not like we expect minimal revenue. To Doug's point, we're trying to be more commercially oriented going forward, we are going to be influenced by what's going on with issuance trends.
I just would say that our forward outlook is not assuming the sort of robust activity that we saw clearly here in the second quarter. Let me just give you a little bit. Nobody's asked this question yet. Since I'm prepared for it, I'll tell you a couple of factors you haven't asked yet. Related to the overall issuance markets going forward, as you know from what we just gave you, we do see that there's going to be a reduction in the overall issuance for 2016. If you look forward further, when you look at the 2016 looking out forward to 2020 or so, there's two factors we're looking at. One of them is total debt markets, including bank loans, which we don't necessarily rate. The market is large. We think it's going to grow by $trillions.
In fact, it could expand over the next five years to a $73 trillion market, including a large increase in China. We do think that there is a increase in the combination of refinancing as well as new financing going into that. We are targeting through all of our businesses in Market Intelligence, a couple of businesses there, and then also in Ratings, more penetration of loan markets and through models and things like that. We look at the size of the markets and how they're growing longer term than just the next quarter. Over the rest of the year though, we do think that there is a large amount of debt maturing between now and 2021. The issuance, the maturities over the rest of the year are actually not that strong. That's why we see the full year down about 3.8%.
Okay.
We're concerned about the Brexit, what kind of impact that might have on issuance. U.S. interest rates and global interest rate outlooks have been quite volatile and they're changing all the time. In the short run, we usually expect possible volatility, as you've seen, as you track this business. Quarterly issuance can go up and down. But with a very long run five-year view, we see some very large numbers of $73 trillion overall corporate debt market. Which includes bank loans, and then through 2021, $10.3 trillion in debt maturing, that's actually publicly issued debt. We do see that there's a lot of activity. We're trying to build our business around this and trying to expand it beyond just being a single ratings approach to the market, looking at bank loan ratings, RES, different types of loan evaluation services, et cetera.
This is a big area for us to focus our strategy going forward.
Excellent. If I could on Platts. I just wanted to ask what has to happen on the client side for us to anniversary the slower growth and to see a return to the double-digit growth? Not that I'm complaining about 7% organic in that market. I think that's very strong. Traditionally, it's been more on the double-digit side. In terms of the timing and whether it's operating expense or on the client side or capital expense or rig count or what you think would be the leading indicator of that for us.
I think the leading indicator should be higher oil prices. I'm giving you an unscientific answer, but if I were going to look at what's one of the most important correlations to overall volume as well as activity, it has to do with the price of oil. As you know, as we dropped into a very low oil price early this year, even though it's recovered somewhat, there were a lot of people that exited the industry. You had a large increase in defaults and bankruptcies in the U.S. in particular, in different types of oil businesses. Probably getting a higher price of oil would be the largest factor that could bump up growth to the double-digit range, if that was still possible.
We have still been growing quite steadily in the mid to high single-digit range despite this, because there's still such a demand for information and for our prices to be embedded in different kinds of contracts. Double-digit range would require a lot of work from us, but in particular for the price of oil to be a lot higher.
The only thing I'd add to that is just keep in mind, we're trying to grow off an ever-increasing base. Double digits off $700 million is a little bit different than double digits off half a billion. The reality is the business is working hard to expand its product line. We have been investing to expand out the product line beyond oil. That now represents a third of the business. We're also looking to do more than just price assessments, and we're investing to do more in the area of supply-demand analytics. I think we also, from a longer-term point of view, need to build out the product line and increase our offering.
Excellent. Thank you for the insight. Jack, it's been a great run.
Thank you.
Thank you. Our next question comes from Andre Benjamin of Goldman Sachs. You may ask your question.
Andre, are you muted? Okay, operator, I guess he's not there.
Next question comes from Joseph Foresi of Cantor Fitzgerald. You may ask your question.
Hi. I was wondering, I think you talked in your remarks about keeping the range wide on the guidance side, just to take into account some potential volatility on the macro front. I was wondering, could you just give us some idea of what would put you at the top end of guidance versus the low end at this point?
The primary driver would be, first is the level of overall debt issuance, because that's probably the first and the second most important driver. There could be a little bit of impact from what goes on with fund flow relative to U.S. equity markets that could impact our indices business. Now we have pretty good revenue visibility outside of debt issuance, because so much of our business today is recurring revenue subscription-based.
The only thing I'd add to that is that, as you know, in our indices business, as you know, we've changed the way we characterize our revenue. If AUMs continue on a very steady increase, that would also be a benefit. That revenue tends to drop almost all straight to the bottom line. That could be another factor that would put us up towards the higher end of the range.
That's both a flow issue and overall stock market level.
Yeah, flow and market level.
Right. two things there.
Got it. Okay. The ratings business seems to be a little bit tricky in the sense that you had a very good quarter this quarter, of course Brexit's out there, you have your annual outlook, you have the long-term outlook with obviously the debt levels rising there. How do you handle the staffing or the challenges in that business? Do you prepare for a pickup? Do you change staffing levels at all? I'm just wondering how the resourcing of that business is handled with so many different variables kind of out there.
We have a resource model that takes everything that you just mentioned into account in terms of our forecasting. We are able to manage the staffing level through attrition if we needed to, and we're also able to manage it through our bonus pool, our bonus accruals, if that was something we needed to look at to ensure that we're accruing according to the kind of level of staffing we have as well as level of activity. Those are two of the most important levers. We've built a way that we've got some flexibility as well by having analysts that are spread around the globe. They're not all concentrated in London and New York. Despite the Brexit being a concern for us, we do have significant staffing in other European cities, including Frankfurt and Paris and Madrid. We also get support from our partner, CRISIL in India.
They're part of the overall flow as well as some of the aspects to workflow processes of crunching numbers, et cetera. We have various variables we use to manage that, and that's part of what John Berisford is doing a great job at.
Thanks. Good luck, Jack.
Thank you.
Thank you. Our next question comes from Vincent Hung, Autonomous. Your line is now open.
Hi. On the improvement in contract terms, have you picked all the low-hanging fruit, or is there some left for subsequent quarters?
This is an iterative process that could take a while. There was no low-hanging fruit. It's very important for us to approach this from a relationship point of view, we hope that there is a continuous, steady penetration of more products, more services to our customers, as I mentioned. There is no league table for loan ratings, this is another area that we're trying to do more and more of is we think also around the globe is most markets are more bank markets as opposed to loan markets. We're trying to penetrate with more services in that area as well. This is something that we hope we can see continuous improvement and growth on the top line from many different factors. It's not just the contract terms.
Just lastly, do you get much pushback from customers on this?
We have good relationships with our customers, as you can imagine, any time when you want to renegotiate contract terms, it's not always easy.
Okay, thanks.
Thank you. We will now take our last question from Warren Gardiner of Evercore ISI. You may take your question.
Great, thanks. Just quickly, I was wondering if you guys could just give us a quick update on the fixed income index business. Also sort of as you look out there, how you're thinking about growing that, buy versus build as you move forward. Thanks.
Yeah, that's an area that we've been spending a lot of time on structurally as well as strategically. The industry itself is going through a massive amount of change with Barclays having changed hands, with ICE having bought IDC, with what's happening in Europe with the exchange transaction going on there in the interest of fixed income investments around the world. As well as all of the main asset managers, large global asset managers looking at so much change and volatility in the shape of the fixed income markets, especially with pricing and liquidity concerns creeping in. We think it's an area that it will continue to develop. We think there will be more and more ETF products and target date products, retirement products, et cetera, that are developed over the years. We would like to play in that.
We're off to a good start with our dialogue with asset managers and with ultimate distributors about these types of products and services. We have a core set of indices around the S&P 500 as well as some other fixed income indices. We have about $40 billion right now in AUMs in the fixed income index space. We are looking at all different ways to grow the business, whether it would be continuing to grow and penetrate with what we already have and what we're developing, as well as looking at the different properties that pop up for sale, and whether or not they could be valuable to be added to our portfolio if the price is attractive as well as if the capabilities are being attractive.
continues to be an important potential growth area for us, and we do have dedicated resources to seeing how we can grow in this area.
Great. Thanks a lot.
Okay. Thank you very much, everyone. With that, let me conclude the call. I'm pleased that we had another strong quarter. The financial performance is excellent. Ending up with an EPS growth of 17% and year-to-date cash flow of $513 million, et cetera, is all something that we're very pleased that we've been able to achieve. Let me end the call again by thanking Jack Callahan. He's been a great partner, and he's heading off to Yale University, and they're going to get the benefit of his experience and expertise. Thank you, Jack. We wish you all the best. Thanks, everyone.
That concludes this morning's call. A PDF version of this presenter's slides is available now for downloading from investor.spglobal.com. A replay of this call, including the Q&A session, will be available in about two hours. The replay will be maintained on S&P Global's website for 12 months from today and for one month from today by telephone. On behalf of S&P Global, we thank you for participating and wish you a good day.