OREANDA-NEWS. Fitch Ratings has today affirmed AllianceBernstein LP's (AB) long-term and short-term Issuer Default Ratings (IDR) at 'A+' and 'F1', respectively. The Rating Outlook is Stable. A full list of rating actions is at the end of this rating action commentary.

These actions have been taken by Fitch in conjunction with a broader traditional investment manager industry review, which includes seven publicly-rated traditional investment managers. For more commentary on the broader sector review, please see 'Fitch Completes Traditional IM Review; Upgrades AMG and Man; Revises Invesco to Positive', available at 'www.fitchratings.com'

KEY RATING DRIVERS
IDR AND SENIOR UNSECURED DEBT
The affirmation of AB's ratings reflects its strong investment management franchise, particularly in fixed income, low financial leverage, solid interest coverage, and improving operating performance. These strengths are balanced against AB's AUM sensitivity to broader financial markets, middling AUM growth, historically weak, albeit improving, investment performance in equity strategies, and earnings and operating margins which still lag historical and peer levels.

AB has maintained among the lowest leverage ratios (gross debt to adjusted EBITDA) and highest interest coverage ratios (adjusted EBITDA to interest expense) of all the investment managers in Fitch's rated universe, factors that support the current ratings and outlook because they afford AB significant financial and capital flexibility.

Debt, which is comprised of commercial paper (CP), increased from \$373 million at first quarter 2014 (1Q14) to \$501 million at 1Q15, driven in part by increased funding needs from SCB LLC, AB's broker dealer subsidiary. Despite the increase in CP, higher EBITDA limited the impact on the leverage ratio which increased from 0.44x at trailing 12 months (TTM) 1Q14 to 0.55x at TTM 1Q15. Interest coverage, measured as adjusted EBITDA to interest expense, remained strong at 364.9x at TTM 1Q15, reflecting AB's low debt levels and minimal cost of debt issuance.

AB has taken steps to reduce and control its expenses, particularly those related to compensation and occupancy. As a result, operating margin, adjusted for non-cash charges, increased to 24.2% in 2014, up from 24% in 2013 and 18.8% in 2012. Despite these positive results, operating margins have lagged pre-crisis levels of high-20% to low-30%, and industry peer margins. Given the expense initiatives already undertaken, Fitch believes that further margin expansion will be dependent upon AUM growth that translates into top line revenue growth.

Recent growth in fixed income AUM, which has experienced very strong investment performance, has been offset by declines in equity AUM due to weak investment performance, although equity performance has been improving in more recent periods. Though exposure to fixed income products (55% of AUM) may increase investment performance risk in a rising interest rate environment, AB's product and client diversity, and good investment performance in fixed income AUM, should help mitigate some of this pressure. Additionally, the firm has developed and launched several new products in anticipation of the interest rate rise, which should also help manage the effects. New product and strategy launches in addition to positive recent performance (if sustained) could lead to consistent positive equity flow, balancing the firm's AUM.

Fitch notes that AB has kept its seed capital investment portfolio around \$500 million over recent years. Seed capital investments decreased slightly to \$511 million in 1Q15, from \$530 million in 1Q14, and accounted for 62% of AB's tangible equity in 1Q15. AB has strict controls for managing its seed investments - approximately 80% of the exposure is at least partially hedged, and the portfolio is regularly recycled into new funds to make sure balances do not grow materially over time. Still, Fitch considers these investments as having varying levels of liquidity which could result in capital losses and therefore expects this exposure to be conservatively managed.

RATING SENSITIVITIES
SENIOR UNSECURED DEBT
Fitch believes there is limited upside ratings potential given the current high ratings and the sensitivity of AB's AUM, earnings and cash flow to market trends. The Stable Outlook reflects Fitch's expectation that the company will continue to take steps to improve AUM flows, generate consistent investment performance and strengthen operating margins.

Ratings could come under pressure if AUM levels drop below \$375 billion due to client outflows or negative investment performance, leverage increases above 1.0x or seed capital investments increase materially from current levels.

Fitch has affirmed AB's ratings as follows:
AllianceBernstein
--Long-term IDR at 'A+'; Outlook Stable;
--Short-term IDR at 'F1';
--Commercial paper at 'F1'.