Equifax Inc. Downgraded To 'BBB' On Rising Leverage And Expenses; Outlook Negative


  • Atlanta-based consumer credit reporting agency Equifax Inc.'s leverage and profit margins continue to be pressured by revenue headwinds, one-time costs, and elevated investment spending related to its 2017 data breach and Equifax 2020 platform transformation.
  • Expenses related to the platform migration combined with lower than anticipated operating performance has resulted in debt leverage rising to 3.2x at year-end 2018, higher than S&P Global Ratings' previous expectation of 2.0x. Additionally, we believe it is unlikely that leverage will decline to below 2x over the 18 months.
  • As a result, we are lowering our ratings on Equifax, including the issuer credit rating, to 'BBB' from 'BBB+'. The outlook is negative.
  • Despite our expectation for modest improvements in operating performance and debt leverage by 2020, the negative outlook reflects the risk that large fines, settlement payments, adverse regulatory actions related to its 2017 data breach, or unexpected operational challenges, limits the pace of deleveraging or profit margin improvement.
NEW YORK (S&P Global Ratings) March 14, 2019--S&P Global Ratings today took 
the rating actions listed above. The downgrade reflects weaker-than-expected 
operating performance and deleveraging (leverage of 3.2x at year-end 2018 vs. 
expectations for 2.0x). We expect Equifax's leverage will remain elevated over 
the next 18 months (above our previous 2x downgraded threshold), kept aloft by 
substantial investments in network, data, and application security 
architecture; in modernizing technology and business platforms; in new product 
development; and in remedying the reputational damage from the breach. 
Investigations into the breach remain underway and the company has not 
indicated any timing for or magnitude of a resolution. As a result of the 
breach, we have seen increased regulatory scrutiny on the industry, including 
recently announced legislation calling for an overhaul of the credit reporting 
system.

The negative outlook reflects ongoing uncertainty surrounding the financial 
impact of the September 2017 data breach and execution risk related to cost 
and timing overruns or customer attrition from the Equifax 2020 initiative. 
Ongoing litigation, an elevated expense and capital spending profile against a 
slowing macroeconomic environment, and additional market share losses could 
preclude leverage from declining below 3x over the next two years. 

We could revise the outlook to stable if Equifax is able to achieve strong 
revenue growth (on par with its peers), improve its margin profile back to the 
mid-30% area, and provide better clarity on the financial, operational and 
regulatory impact of the 2017 data breach.  In this scenario we would expect 
the company to successfully execute its Equifax 2020 initiative and forecast 
leverage to decline and remain comfortably below 3x.

We could lower our ratings if the company incurs greater than expected 
operating costs, customer attrition, breach-related expenses, execution 
missteps, or market share losses preventing leverage from declining below 3x 
over the next 12 to 24 months.
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