OREANDA-NEWS. Fitch Ratings has re-assigned Ascential Holdings Limited's Issuer Default Rating (IDR) of 'B' to Ascential plc and upgraded it to 'BB-'. This follows the reorganisation of the company in conjunction with the completion of its initial public offering (IPO). The Outlook on the IDR is Stable.

At the same time Fitch has withdrawn the instrument ratings on the company's recently repaid bank debt. A full list of rating actions is available at the end of this commentary.

The upgrade takes into account the materially improved capital structure of the group following the recent IPO and refinancing of the company's bank debt facilities. Fitch is treating the reduced level of debt in the group structure as a permanent realignment of its intended financial policy.

The company benefits from a well-defined portfolio of events and information services businesses, which enjoy high renewal rates and high subscription revenues. A portfolio focus on high margin must-attend events or must-have data-analytics is likely to provide a degree of resilience through economic cycles, although Fitch believes revenue and margin compression would still be felt in a downturn. Scalable cost structures, the solid albeit somewhat niche market position of its businesses and consistent underlying cash flow performance, moderate cyclical risks.

The much reduced leverage profile and strong performance track record position the company at the lower end of the 'BB' category. Further ratings upside is somewhat limited by the company's overall scale.

KEY RATING DRIVERS
IPO A Material Deleveraging Event
A public float of 35% raised GBP280m in gross IPO proceeds. The existing shareholders received GBP80m in a partial exit, with roughly GBP183m retained in the business and used largely to reduce debt. A more typical corporate and ownership structure, accompanied by funds from operations (FFO) lease adjusted net leverage in the region of 2.5x by end-2016, is consistent with a 'BB-' rating given the company's operating profile.

Although immediate peers are limited, Fitch considers that Ascential exhibits some characteristics similar to larger events and professional publishing businesses such as UBM and DMGT (BBB-/Stable).

New Capital Structure, Financial Policy
Through its intention-to-float statement and IPO prospectus, Ascential has outlined a financial policy that includes net debt/EBITDA of around 2.5x and a targeted dividend pay-out ratio of 30%. These are Fitch's initial forecasting assumptions in terms of how the new capital structure and distributions will impact free cash flow (FCF) performance. Our forecasts envisage Ascential generating solid (high-single to low double digit) FCF margins over the medium-term, with FFO lease adjusted net leverage of 2.5x at end-2016 and improving in the following two years.

Business Portfolio, Defined Strategy
Ascential has built a solid portfolio of events and information services businesses. Focus has been to develop and consolidate businesses with leading market positions, examples of which include Lions, the advertising industry's global awards event and WGSN, its data analytics tool for the fashion and design industries. Fitch considers that management understands the importance of establishing must-have type content and exhibits and has been effective in developing lateral or regional derivatives of established franchises. Its portfolio approach to the business is likely to lead to some M&A risk, as does limited restrictions in its bank documentation.

The ratings take into account the potential for bolt-on acquisitions within the context of the company's stated financial policy and rating headroom. The size of the company's revolving credit facility and FCF generation provide scope for more sizeable acquisitions, which Fitch would treat as event risk.

Scale and Some Cyclicality
Ascential's scale and the somewhat niche complexion of its businesses limit the upside in its ratings. Fitch considers strategy execution has been effective and the business profile comfortably supports a rating in the 'BB' rating category.

High levels of renewal and subscription rates lead to solid revenue and cash flow visibility. Some cyclicality is evident in the two core sectors in which the company operates and is likely to lead to top-line volatility and margin compression in times of severe downturn. Performance through the 2009 recession suggests some margin resilience. Limited scale and cyclicality are likely to constrain the rating to the 'BB' category, regardless of leverage.

KEY ASSUMPTIONS
Fitch's key assumptions within the rating case for Ascential include:-
-Mid-single digit revenue growth in the events division but past performance has been stronger; 3% growth in information services but lower than historical performance.
-EBITDA margin expanding from just below 28% currently, reaching around 30% by 2018; Ascential's operations are generally high-margin and scale businesses; revenue growth is therefore expected by Fitch to lead to margin expansion.
-Cash interest forecast based on initial matrix pricing under the new bank facility and reflecting the reduced level of gross debt.
-Neutral to positive working capital cash flows.
-Dividends in line with the 30% pay-out ratio and weighting of half yearly payments as outlined in the ITF statement.
-Acquisitions only reflect expected earn-outs of around GBP10m per year in 2016-18. No other M&A activity have been assumed, even though there is some headroom for some bolt-on acquisitions.

RATING SENSITIVITIES
Future developments that may, individually or collectively, lead to positive rating action include:
-FFO adjusted net leverage expected to be consistently equal to or below 2.25x,
-FFO fixed charge cover expected to be consistently greater than 4.0x
-Continued solid FCF
-Sustained market position and operating environment.

Future developments that may, individually or collectively, lead to negative rating action include:
-FFO adjusted net leverage expected to be consistently greater than 3.5x,
-FFO fixed charge cover expected to be consistently below 3.0x
-Significant deterioration in FCF
-Significant and sustained deterioration in EBITDA and cash flow margin in the event of a severe market downturn; some margin compression would be expected but operational gearing and scalable costs are expected to moderate impact on profitability.

LIQUIDITY
Liquidity is healthy and provided by balance sheet cash, the company's recently signed and undrawn GBP95m revolving credit facility. Underlying cash flow is strong and expected to continue to support a solid liquidity position.

FULL LIST OF RATING ACTIONS
Ascential plc
-Ascential Holdings Limited's IDR of 'B' reassigned to Ascential plc; upgraded to 'BB-'; Stable Outlook

Eden Bidco Limited
-EUR300m term loan B due 2022; 'B+'/'RR3' withdrawn

Eden Financing S.a.r.l / TRG Financing LLC
-USD323m term loan B; 'B+'/'RR3' withdrawn