OREANDA-NEWS. Fitch Ratings has revised the Rating Outlook on Dun & Bradstreet Corporation (DNB) to Negative from Stable and affirmed the Issuer Default Rating (IDR) at 'BBB'. A full list of ratings follows at the end of this release.

Fitch's action follows DNB's announcement that it intends to acquire Dun & Bradstreet Credibility Corporation (DBCC) for approximately \$320 million in cash. The transaction is expected to close during the second quarter of 2015 and is subject to certain regulatory approvals. The Negative Outlook reflects Fitch's expectation that the company's credit metrics will remain elevated and outside the thresholds for a 'BBB' rating longer than anticipated due to the incremental debt that would be issued to fund the DBCC acquisition. Fitch expects pro forma leverage to be at approximately 3.5x by the end of 2015 and leverage to approach 3x by the end of 2016. The DBCC announcement follows the \$125 million acquisition of NetProspex, announced in January 2015, and incremental operating investments which are expected to continue in order to drive top-line growth as part of DNB's long-term sustainable growth strategy.

Fitch believes the acquisitions of DBCC and NetProspex are in line with the company's stated strategy to target acquisitions that can improve DNB's operational capabilities and accelerate revenue growth. Specifically, the acquisitions of DBCC offers DNB access to management expertise and a platform to address the declines experienced within its small business channel.

Fitch continues to believe that DNB can successfully execute its investment strategy and improve its operating performance over the next two to three years. However, Fitch notes there is limited capacity within the current ratings for operational missteps in light of the additional debt and de-levering delays back to Fitch's target leverage of 3x.

Fitch notes that DNB has solid free cash flow (FCF) generation (\$197.6 million after dividends for the year ended December 2014), strong EBITDA margins (above 30%), and levers that provide DNB with the ability to pay down debt. Management is committed to an investment grade rating and Fitch believes DNB will prioritize debt repayments in order to de-lever.

In 2010, Dun & Bradstreet divested their Self-Awareness Solutions business to DBCC, formed by private equity firm Great Hill Partners and senior management, and entered into a data license partnership. As a part of the transaction, DBCC was granted a license to use D&B's brand specifically for the 'credit-on-self' solution (under a royalty arrangement), which allowed small- and medium-sized businesses in North America to manage and build their own credit. DNB retained the core and widely used 'credit-on-others' DNBi business. DBCC has since been able to turn around the operation and successfully grow a customer base of small businesses. The acquisition could potentially remove the drag on DNB's small-business channel. The acquisition also brings the management team at DBCC under DNB.

KEY RATING DRIVERS

--Solid Competitive Position: The ratings are supported by DNB's ability to consistently generate strong FCF, high barriers to entry related to its database, and the company's ability to leverage its database into multiple revenue-generating products.

--Ability to De-lever: While leverage will remain elevated, Fitch believes management will prioritize debt payment in order to de-lever back to 3x leverage. Fitch believes that DNB's FCF generation provides the company with the ability to pay down debt barring materially leveraging transactions including acquisitions and share buybacks.

--Investment Initiatives: Fitch believes that management is focused on returning DNB to low- to mid-single-digit revenue growth, supported by operational investments. The investment in products and services (mostly personnel) will predominately be a recurring addition to operating expenses. In 2014, \$80 million in investment was allocated towards improving content, modernizing delivery, and globalizing the salesforce. The company has initiated cost reduction actions designed to offset about half of these investments. This investment initiative is reflected in Fitch's revenue, EBITDA and FCF expectations.

--Limited Revenue Diversification: More than 60% of total revenue is from DNB's Risk Management Solutions (RMS) division. The ratings incorporate the pressures in North America's RMS, specifically the DNBi Subscription product (approximately 58% of North America's RMS or 33% of total revenues), which reported a 4% decline in 2014 due to a carry-over from lower sales in prior quarters and competition from low-cost alternatives.

--Debt-Funded Share Repurchases: Fitch does not anticipate material debt-funded buybacks in 2015 outside of purchases to counter the dilutive effect of shares issued under the company's stock incentive plans and employee stock purchase, and also until leverage reaches 3x. There is currently a \$100 million share repurchase program in place that can be used for this purpose.

--China Investigation: Ratings reflect the ongoing investigation associated with Shanghai Roadway DNB Marketing Services' (Roadway; which has been shut down) potential violation of the U.S. Foreign Corrupt Practices Act (FCPA). Currently, the timing and potential fines related to these investigations are unknown. Given the relatively nominal size of the operations, Fitch believes any fines would be manageable within the company's consolidated credit profile.

LIQUIDITY PROFILE

DNB has adequate liquidity, supported by approximately \$396 million of availability under its \$1 billion credit facility due 2019 (reduced by \$604.5 million in borrowings) and \$319.4 million in cash (\$312.6 million held outside of the U.S.), as of Dec. 31, 2014. The company's maturity schedule is manageable and consists of \$300 million in senior notes due November 2015, \$450 million in senior notes due 2017, a \$604.5 million revolver balance due 2019, and \$300 million in senior notes due 2022. Fitch expects DNB to have sufficient liquidity and access to the capital markets to meet all debt maturities.

The company's 2014 FCF (after dividends) was \$197.6 million, with a solid FCF?to-debt ratio of 12%. Fitch expects annual FCF (after dividends) to be approximately \$200 million to \$250 million in 2015 and 2016.

DNB's total pension plans were underfunded by \$576.5 million on a pre-tax basis at year-end 2014, under U.S. GAAP calculations. Roughly 70% of the pension obligation is related to the U.S. qualified plan, which is \$262.1 million underfunded on a pre-tax basis at year-end 2014, and which was frozen in 2007. Fitch believes the company will have sufficient liquidity to handle its funding obligations in accordance with the Pension Protection Act, which is reflected in Fitch's FCF expectations.

KEY ASSUMPTIONS
Fitch's key assumptions within the rating case include:

--Mid-single-digit revenue growth in 2015 (includes growth from acquisition) and then improving growth in the low-single digit range.
--Margin pressures in near term due to investment initiatives as well as lower margins from acquired operations.
--Fitch expects pressure on DNBi to persist offset by growth in Other Enterprise Risk Management (subgroup of RMS) and the Sales and Marketing Solutions segment.
--Modeled share buyback activities to address dilution in the short term with prioritization for de-levering.
--Maturing \$300 million in senior notes due 2015 are expected to be refinanced.

RATING SENSITIVITIES

Given the Negative Outlook, Fitch does not expect a positive rating action during the rating horizon. The Outlook could be stabilized as the company demonstrates progress in reducing leverage to 3x by the year end of 2016 along with traction in the company's turnaround of its RMS business (evidenced by improved revenue and EBITDA margin performance).

The ratings may be downgraded if Fitch believes leverage will be sustained above 3x and/or if the company is unable to demonstrate traction in its revenue turnaround. Also, a change in financial policy indicating more aggressive shareholder returns that would drive leverage beyond 3x would pressure the ratings.

Fitch has affirmed the following ratings:

--IDR at 'BBB';
--Short-term IDR at 'F2';
--Bank credit facility at 'BBB';
--Senior unsecured notes at 'BBB'.
--Commercial paper at 'F2'.

The Rating Outlook is revised to Negative from Stable.