Moody's Corp at Redburn CEO Conference (Virtual) Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Russell Quelch - Redburn Atlantic - Analyst : Yes, that's perfect. I mean, tons to interrogate there, Rob. So yes, so this will be an interactive session, so anyone listening, please feel free to submit Q&A to me via the function on the bottom of your screen. I can see quite a few coming in already, so I'll try and reap those in. So Rob, let's jump into some questions, perhaps on MIS. As you said, a fantastic year. How big has the tailwind been from refinancing, both in terms of absolute dollar terms and percentage of issuance? And do you expect a year-on-year drop in refi activity in '25, such that sort of growth in this business, is there more geared to or more reliant on the new issuance side of things, which may be a proxy for M&A?

Question: Russell Quelch - Redburn Atlantic - Analyst : Yes. In terms of -- yes, so in terms of the refi, is it fair to say there is less, as you see it, stock of refi in 2025 relative to what has been refied in '24? But as you said there, spreads remain tight. You're just going to see pull forward from '26 and '27 to top it up. Is that the right way to think about it?

Question: Russell Quelch - Redburn Atlantic - Analyst : Okay. And then if we talk about mix in terms of activity, can you talk to us directly about how mix affects revenues, particularly thinking about how much price you might be able to take in '25? You want to just talk about next year relative to what was taken this year in '24?

Question: Russell Quelch - Redburn Atlantic - Analyst : Perfect. Let's talk about private credit. I think the narrative has flipped here somewhat. It sounds like the narrative has flipped from this being a headwind to growth for MIS to potentially being a tailwind. Can you talk about your thoughts here? How big the growth opportunity is? What Moody's is doing to capture it? To what degree we're likely to see this in 2025? Any thoughts on that would be great.

Question: Russell Quelch - Redburn Atlantic - Analyst : Yes. So it sounds like you are very clear now, in fact, that this is a net tailwind for MIS, yes?

Question: Russell Quelch - Redburn Atlantic - Analyst : Yes, okay. And that's just one area where you've been investing for growth in MIS. There have been a bunch. And although the revenues have returned close to historical highs, the margins haven't. So can you talk about where the margins might be able to go in MIS? Is there a level that naturally caps out where you reach a point where it's just you need to reinvest? Or is there some upside we can look forward to in the near term?

Question: Russell Quelch - Redburn Atlantic - Analyst : Perfect. I'm going to take a couple of the audience questions, Rob, because they've been coming in as we've been talking. Firstly around the private credit opportunity in MIS. Question here is, is it the same group of analysts looking at these companies or is it a separate team to your public credit team?

Question: Russell Quelch - Redburn Atlantic - Analyst : Okay. I think this next question relates to when we were talking on the debate between spec-grade and IG, but take it as you will. The question is, can you elaborate on what the issuance band looks like to be broadly volume-agnostic on margin?

Question: Russell Quelch - Redburn Atlantic - Analyst : Yes. We're talking about what the issuance band looks like to be broadly agnostic on margin between, I think, spec-grade and IG? As in if we saw a big year of spec-grade, would that be positive or negative on margin versus a big year of IG or is there not major in margin?

Question: Russell Quelch - Redburn Atlantic - Analyst : Yes, okay. That makes sense. I think that was the crux of the question. There are a couple of questions in relation to the new administration in the US. I'm going to try and put these together, although I may separate them. But in terms of the impact of the Trump government on the ratings business, how do you think about that from maybe a regulation standpoint or an M&A standpoint? However you want to answer that question, Rob. And just give me a moment to think about that, perhaps sort of interrelated question here is, if Fannie and Freddie are privatized, can you talk through the likely impact on Moody's? The market seems to be assuming the impact if any, will be small. Is that fair? I don't know if that's particularly directed at MIS or maybe just answer that from the broader context for Moody's.

Question: Russell Quelch - Redburn Atlantic - Analyst : Yes, okay. And final question on MIS before we move on to MA around CCXI. So has that played out in the way that maybe you hoped or thought? Are there ongoing barriers to entry for foreign participants in that market that are becoming a frustration for you in terms of your growth or ability to grow that business? And the capital that Moody's has tied up in CCXI, is that the best place to have that capital tied up? Or is it -- could you deploy that capital somewhere for a higher return? Any thoughts on that?

Question: Russell Quelch - Redburn Atlantic - Analyst : Yes. Yes, okay. That's a good answer, Rob. In terms of in the interest of time, let's move on to talk about Moody's Analytics. Great business, no doubt. However, there have been some concerns recently arising over the ability to achieve low to mid-teens revenue growth out of the 2022 Investor Day as a medium-term target. Can you explain why there is a bit of a gap that's opened up between MA revenue growth and MA ARR growth? And in fact, will that close in 2025? And then as a sort of second part to that, are you still confident, I assume you are, in achieving the low to mid-teens revenue growth? And if so, sort of how do we get there?

Question: Russell Quelch - Redburn Atlantic - Analyst : Yes. If we break that down a little bit then, so noted decision solutions growth is low teens. But if we break it down, banking within decision solutions was 3% growth in Q3; research & insights, which is, as I understand it, mainly a banking product, growth there slowed to 4% year-to-date in Q3. Is this indicative of a more normalized level of demand for banks? Obviously, we had the regional banking crisis at that same period in 2023 so there was a pretty tough comp here, but are we down at levels where you'd expect those parts of MA to be growing kind of going forward the bits that more gets the banking sector? Or is that actually kind of a difficult comp, things are going to pick up? Are you expecting an improvement in demand from banks in 2025, potentially kind of a lagged effect based on improvements that we've seen in profitability this year? Is that driven perhaps very much by rates in the macro environment? Just your thinking around the parts of MA are particularly geared to banks as a customer.

Question: Russell Quelch - Redburn Atlantic - Analyst : Yes. Okay. So Rob, two follow-ups on that actually because there was lots in there. So firstly, on -- I'll give you the both that will allow you to answer. And on the gen AI side, have there been hurdles to adoption for some of those customers that potentially will be overcome in 2025, i.e. do you see an acceleration in adoption of those products in 2025? Question one. Question two, in terms of the KYC product, that was an interesting answer because, as you said, much of that is being sold to banks. I did say that there was evidence of structural pressures within banks impacting on your ability to sell. But that is not the case in KYC. KYC grew at 19% in Q3. So what's driving the growth in KYC, because there's not 19% more banks every year? You're not driving 19% pricing. So -- and you're not increasing the number of modules available by 19%. So can you break down exactly why and how KYC is growing at 19%? And flip the other side of the coin, is there a risk that, that moderates sort of going forward if we are in a prolonged period of kind of lower spending by banks?

Question: Russell Quelch - Redburn Atlantic - Analyst : Okay. And then one thing you mentioned earlier was that Moody's has the largest database of private companies in the market. And I was wondering what more you can do with that data. What more can Moody's potentially do? Could you look into front-office use cases for that data in capital markets, for example? You've obviously just given access, as part of a partnership to Moody's, for that data. Intrigued as to what's involved in there. Just how you can monetize that really good data set that others are paying seed money for to get their hands on right now.

Question: Russell Quelch - Redburn Atlantic - Analyst : Yes, perfect. Well, I think we could go for hours here but we are up on time. Can I maybe just hand over to you to make a closing remark as to perhaps what you're most excited about for Moody's as we head particularly into 2025?

Question: Russell Quelch - Redburn Atlantic - Analyst : Yes, perfect. Rob, thank you very much. It's great to have you join us here. I hope you get some time to relax over the festive season. We look forward to hearing from you and talking with you again at the full year results.