Good day and welcome ladies and gentlemen to the Moody's Corporation Second Quarter 2017 Earnings Conference Call. At this time, I would like to inform you that this conference is being recorded and that all participants are in a listen-only mode. At the request of the Company, we will open the conference up for questions-and-answers following the presentation. I will now turn the conference over to Salli Schwartz, Global Head of Investor Relations and Communications. Please go ahead.

Thank you. Good morning, everyone, and thanks for joining us on this teleconference to discuss Moody's second quarter 2017 results as well as our current outlook for full year 2017. I am Salli Schwartz, Global Head of Investor Relations and Communications. This morning, Moody's released its results for the second quarter of 2017 as well as our current outlook for full year 2017. The earnings press release and a presentation to accompany this teleconference are both available on our Web-site at ir.moodys.com. Ray McDaniel, Moody's President and Chief Executive Officer, will lead this morning's conference call. Also making prepared remarks on the call this morning is Linda Huber, Moody's Executive Vice President and Chief Financial Officer. Before we begin, I call your attention to the Safe Harbor language, which can be found towards the end of our earnings release. Today's remarks may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In accordance with the Act, I also direct your attention to the Management's Discussion and Analysis section and the Risk Factors discussed in our annual report on Form 10-K for the year ended December 31, 2016 and in other SEC filings made by the Company, which are available on our Web-site and on the Securities and Exchange Commission's Web-site. These, together with the Safe Harbor statements, set forth important factors that could cause actual results to differ materially from those contained in any such forward-looking statements. I would also like to point out that members of the media may be on the call this morning in a listen-only mode. I'll now turn the call over to Ray McDaniel.

Thank you, Salli. Good morning and thank you to everyone for joining today's call. I'll begin by summarizing Moody's second quarter and first half 2017 financial results. Linda will follow with additional second quarter financial details and operating highlights. I will then conclude with comments on our current outlook for 2017. And after our prepared remarks, we'll be happy to respond to your questions. Before addressing our financial results, I want to begin by saying that we still anticipate completing our proposed acquisition of Bureau Van Dijk in the third quarter. Beginning with our next earnings call, we should be able to discuss our financial results and guidance including the operations of Bureau Van Dijk. For this call however, we will limit our remarks to what we have disclosed in our earnings release this morning. In the second quarter, Moody's achieved a record $1 billion in quarterly revenue, up 8% from the second quarter of 2016. Operating expense in the second quarter was $543 million, up 5%. Operating income was $458 million, up 12%, and adjusted operating income of $497 million was up 13%. We are defining adjusted operating income as operating income before depreciation, amortization and Bureau Van Dijk acquisition related expenses. The operating margin was 45.7%, up from 44.2% in the second quarter of 2016. The adjusted operating margin was 49.7%, up from 47.5%. Moody's diluted EPS for the quarter was $1.61 per share, up 24% from the second quarter of 2016. Adjusted diluted EPS for the quarter was $1.51, up 16%. Second quarter 2017 adjusted diluted EPS excludes the $41 million or $0.13 per share unrealized gain from a euro-denominated purchase price hedge relating to the pending Bureau Van Dijk acquisition as well as $7 million or $0.03 per share of acquisition related expenses. Turning to the…

Thanks Ray. I'll begin with revenue at the Company level. As Ray mentioned, Moody's total revenue for the second quarter was a record $1 billion, up 8%. U.S. revenue of $568 million was up 4%. Non-U.S. revenue of $433 million was up 13% and represented 43% of Moody's total revenue. The impact of foreign currency translation on Moody's revenue was negligible. Recurring revenue of $489 million was up 6% and represented 49% of total revenue. Looking now to each of our businesses, starting with Moody's Investors Service, total MIS revenue for the quarter was $687 million, up 10%. U.S. revenue increased 3% to $412 million. Non-U.S. revenue of $274 million was up 21% and represented 40% of total MIS revenue. The impact of foreign currency translation on MIS revenue was negligible. Moving now to the lines of business for MIS; first, corporate finance revenue for the second quarter was $356 million, up 17%. This result reflected a favorable mix within each of U.S. leveraged finance and EMEA investment grade issuance as well as strong growth in EMEA bank loan and Asian bond issuance. U.S. and non-U.S. corporate finance revenues were up 6% and 40% respectively. Second, structured finance revenue totaled $119 million, up 7%, primarily driven by the continued strength of U.S. CLO issuance. U.S. structured finance revenue was up 12% while non-U.S. revenue was down 3%. Third, financial institutions revenue of $102 million was up 14%. This result was largely driven by an increase in issuance from infrequent issuers in EMEA. U.S. and non-U.S. financial institutions revenue were up 8% and 20% respectively. Fourth, public, project and infrastructure finance revenue of $105 million was down 7%. This result was primarily driven by a decline in U.S. issuance and a change in mix of European infrastructure issuance. The revenue decline…

Okay, thanks Linda. I'll conclude this morning's prepared comments by discussing the changes to our full year guidance for 2017. A complete list of Moody's guidance is included in Table 11 of our second quarter 2017 earnings press release, which can be found on the Moody's Investor Relations Web-site at ir.moodys.com. Moody's outlook for 2017 is based on assumptions about many geopolitical conditions, and macroeconomic and capital market factors, including interest rates, foreign currency exchange rates, corporate profitability and business investment spending, mergers and acquisitions, consumer borrowing and securitization, and the amount of debt issued. These assumptions are subject to uncertainty and the results for the year could differ materially from our current outlook. Our outlook assumes foreign currency translation at end of quarter exchange rates. Specifically, our forecast reflects exchange rates for the British pound of $1.30 to GBP1 and for the euro of $1.14 to EUR1. As I noted previously, this guidance does not include revenue and operating expense estimates related to our pending acquisition of Bureau Van Dijk. Moody's now expects full year 2017 diluted EPS to be $5.69 to $5.84, including the CCXI gain, the purchase price hedge gain, and acquisition related expenses for Bureau Van Dijk. Excluding these items, full-year 2017 adjusted diluted EPS is now expected to be $5.35 to $5.50. Both ranges include an estimated $0.16 per share tax benefit due to the adoption of the new accounting standard for equity compensation as well as an estimated $0.10 per share impact from financing expenses related to the pending acquisition of Bureau Van Dijk, and an estimated $0.04 per share impact related to reduction in share repurchase activity as a consequence of financing the acquisition. The adjusted operating margin is now expected to be approximately 47%. Moody's now expects full year 2017 revenue to…

[Operator Instructions] We'll go first to Toni Kaplan from Morgan Stanley.

Within corporate finance, you had a very strong first half and you've increased guidance for the year. Could you give some additional color on the drivers? Is it just issuance related or is pricing or share gains also playing a factor there? And also, just which regions have been very strong? It looks like the non-U.S. business is where you're really expecting the benefit?

I'll turn this over to Rob to provide some color, but you are correct, we had very strong performance in the leveraged loan and spec rate portions of the market and the non-U.S. growth was very strong as well. So Rob, I don't know if you wanted to provide any color commentary on that.

The first point there in regards to kind of the drivers of revenue growth, there were a few things that played into it for this quarter. First, we had a very favorable mix of issuance. And by this, I mean that we saw very strong issuance from issuers who are typically infrequent issuers rather than issuers on relationship based arrangements with us. As Ray mentioned, U.S. bank loans, we saw a very healthy activity there. And we benefitted from issuance that was a bit more broad-based than last year where we had several kind of super-jumbo transactions included in the volume. So, this broader issuance generally leads to better revenue yield. We had very strong growth in first time mandates also contributing to that favorable mix. And as Ray mentioned, some pockets of very strong issuance growth, particularly outside the United States, EMEA bank loans, Asian corporate finance, Canada, to spotlight three.

Okay, great. And then you raised the MA guidance to high singles from mid and basically because of the RD&A line, and so could you just give us some color on why your confidence has increased in that business segment, and so what's really driving your higher confidence for that for the rest of the year? Thanks.

Sure. This is Mark. We're getting some benefit from the stronger pound and euro, but on a constant dollar basis, growth is pushing up from high single-digits to double-digits and we're seeing good underlying performance in the business with better-than-expected yield from price, new sales production and net upgrades, somewhat offset by higher attrition. So overall, the business is firm across all of the different product areas, and it's just pushing us up slightly from high single to the lower end of double-digits.

Thank you, and we'll go next to Alex Kramm from UBS.

Just maybe stepping back and asking more broadly about the guidance here, obviously a great first half of the year. If I look at typical seasonality, I think the guidance suggests a slowdown that's usually a little bit bigger than what we would expect typically. So maybe just some commentary around what is conservatism or are there actually any particular areas that make you think that some of the current run rates are not sustainable and some of this was more one-time than usual?

We certainly think that there has been pull-forward into the first half, including the second quarter. How much opportunistic financing is still going to occur in the second half pulling forward from 2018, we'll just have to see, but borrowing conditions do remain good, rates are low, spreads are narrow. So, that's all positive. Also, I would say in terms of the second half, we're cognizant of the fact that we are going to be compared against a strong second half in 2016. And so while we think there's going to be healthy activity, the comparables are more challenging in the second half.

All right, makes sense. And then maybe just shifting gears away from earnings for a second here, I wanted to ask you about BVD. When you had the call and you were pointing out the strong growth that these guys had, I think like 9% CAGR or so plus, I think there was a sense that a lot of that was true growth and very little pricing, and I think there's an expectation that you can do more there down the line. When we do our own channel checks, it actually sounds like pricing has been a fairly healthy component. In some cases, maybe there was even a goal to like, you renew or do you want to have now maybe close to like 10% increases from time to time again. These might be one-off conversations, but the point is, can you just compare and contrast what we may have heard and kind of like the sense that you'll have post the call now that you maybe have spent a little bit more time?

Yes, I mean to answer generally, I think the answer is the same as how we think about pricing for the rest of Moody's Corporation. We are going to be very focused on what kind of additional value can be provided, the synergies that we talked about, and that any pricing that we would seek to increase would be associated with the growth in value of the product and data that we're making available.

Thank you, and we'll take our next question from Manav Patnaik with Barclays.

The first question is just around guidance. I was wondering if you could maybe flesh out the benefit you had from FX both on the top line and EPS.

Sure, Manav. Hang on just one second.

It was not material in the second quarter. It was negligible on revenue and I think it was 1% on expense.

And Manav, to anticipate, if you're wondering about the full 2017 outlook, we're expecting a 2% favorable impact on revenue growth, and as Ray had said, a minimal slightly unfavorable impact on expense growth. Does that help you out?

That's for the full year.

Yes, great. That's what I was looking for. Okay, and then just broadly I guess maybe tying into the typical expense ramp that you usually give us Linda, it sounds like you're generally a little bit [indiscernible] in the second half, understanding that [indiscernible] and so forth, but what is I guess the cost control focus look like now at the Company?

Sure, Manav. In answering the ramp question, looking at the first quarter expense run rate to the fourth quarter, now we're looking at a ramp of $40 million to $50 million, and previously we had said $30 million to $40 million. Some of that is because our projects are stretching out a little bit further into the year and we do expect some hiring in some of the businesses. However, we're keeping very close, very tight handle on hiring around here and we do continue very much to focus on expense controls, focus on T&E, but particularly using caution in hiring particularly in the higher cost areas and looking to substitute where possible in other locations. So, we continue that focus throughout the year.

Thank you, and we'll go next to Tim McHugh from William Blair.

Maybe just to ask on Europe, I think in the past you've had somewhat of a mixed view of the opportunity there given GDP growth versus the secular trend. Obviously trends are very strong lately I guess, found out from one of the earlier questions. Has your view of the importance there or the pace of growth that we could expect to see during the next few years internationally changed at all or improved at all?

No, I think for both Europe and the U.S., we expect growth to be modest, GDP growth, and then debt growth to be modest. But the mix of debt that is in the banking system versus the capital markets, we certainly expect to continue to see this intermediation trend continue. And that is the European story, actually a global story, but it's definitely a European story as well. And given the caution in Europe about the pace at which they might engage in any tapering, I think we're going to continue to see a good market environment, good market tone going forward. And that is a little more optimistic than I had been at certain points in the past.

Tim, it's Linda. Let me just interject here. The issuers we're hearing from, a number of the investment banks that we talk to, and then Rob Fauber may have some more granular color for you, but looking at the European markets, and again this is not a Moody's view but rather what we're hearing from the banks, they are saying they are expecting the second half of 2017 volumes to be in line with first half activity as issuance volumes pick back up after the post-summer slowdown. As Ray had noted, the spreads in rates remained very attractive and we'll see what happens with the tapering. In spec rate in Europe, the leveraged loan market remains robust, but some softness crept into high-yield given where we are in the calendar year, as is typical with the summer issuance weakening a bit. Most of the refinancing expected in 2017 may have already occurred, but fundamentals are improving, economic growth looks reasonable, and there's the overhang of uncertainty from Brexit. Maybe Rob might want to speak a little bit more specifically about what he's seeing in MIS.

The only other thing I would add to that and echo Ray and Linda's comments, we've seen very strong issuance growth there. That continued through the French and U.K. elections. Lots of investor interest, lots of cash to invest there. And we've also seen a pickup in first time mandate activity in EMEA, recent activity about 2x what we have been seeing over the last year or two. So a very good indicator about first-time issuers coming into the market, and as Ray said, that this in the year should trend.

Okay, great. And can I follow-up on RD&A? Mark, I understand kind of the metrics you gave in terms of new sales and pricing, but I guess one part is, can you comment on where you've seen higher attrition? And secondarily, the improved sales that's leading to the higher revenue growth, given there's a bunch of different solutions you provide within RD&A, can you elaborate on what parts I guess of that segment are seeing a stronger demand or stronger growth?

On the attrition point, I would characterize the higher attrition as very idiosyncratic, a couple of selective cases of attrition but not anything systematic, either by product or customer type or geography. On the positive side, this strength in the business, as I said earlier, is really across the board. We're seeing good sales production and pricing power and customer upgrades and new sales production in really all of our product areas. So I really can't pinpoint it to any one thing, but it's just better-than-expected performance along a number of dimensions and across a number of businesses. And just to be clear, we're seeing good solid performance and I wouldn't characterize what we're seeing as a dramatic improvement in the business. We expected the business to do well. It's doing a bit better than we expected, and if I say, that's pushing us into double-digit growth, and again it's no one geography or product area that I can really point to.

Thank you and we'll go next to Jeff Silber from BMO Capital Markets.

Now that it looks like down in D.C. we're moving away from healthcare reform back to tax reform, I'm just wondering if you're hearing any updates about the potential change in the deductibility of corporate interest expense and what the impact might be on your business?

I have not heard anything that is in the public discourse about the tax reform expectations, and really there are just a large number of variables and until we see how the different trade-offs are made and interact with each other, it's going to be difficult to predict.

[Tim] [ph], it's Linda. I just also wanted to reiterate, we've said this before but I just want to make sure you have it handy, if it does happen that corporate tax rates move downward, a 1% change in our estimated tax rate is equal to $0.07 to $0.08 of EPS. So, if you want to play around with potential scenarios, you can do it with that guideline.

Okay, that's helpful. And then actually a couple of numbers questions for you, Linda. What share count is embedded in your guidance for the year and can you give us an update on what your expected interest expense is for the year as well? Thanks so much.

So I'm not going to give you a share count for the year. You can take a look at the share count that we have. We have said that given that we are committed to delevering given the acquisition expense of Bureau Van Dijk, we are reducing the guidance on our share repurchases to approximately $200 million for both 2017 and 2018, and job one for Moody's right now is to delever from the financing cost for Bureau Van Dijk. So you can do some math there, Jeff, and I think you probably could come up with something that looks reasonable. I'm sorry, your second question was?

Was on interest expense.

Sure. So in thinking about interest expense, we have been running at a rate that we had viewed as pretty normal of sort of $35 million a year rate in 2016. Now this year that rate has kicked up because we did do some issuance of $800 million in the first quarter of the year. And then it's pretty important that everyone understands how we've handled the financing of Bureau Van Dijk. So we announced the deal, you'll recall, on May 15th and at that point we had a bridge loan in place. We replaced that bridge loan on June 12 and we returned that bridge loan with public bonds, a long five-year bond and a long 10-year bond. The blended interest rate on those financings is 2.94%. So we are going to pay with sort of a third a third a third in cash those bond proceeds and also we have commercial paper and a term loan facility if we want to use that. So again, you'll see that the financing impact of all of that for the year is about $29 million or $0.10. So, hopefully that will help you out in terms of thinking about what the additional financing cost will be for the year.

Thank you, and we'll go next to Joseph Foresi from Cantor Fitzgerald.

I was wondering if you could give us some idea of how conservative you are on the second-half performance of issuance. It sounded like the environment is good, things are picking up. Outside of comps, is there anything else that we should – that you are concerned about and anything kind of holding you back?

Again, as I had mentioned, the pull forward that we saw into the first half of the year creates some uncertainty for the second half. There is still a sizable amount of debt that can be pulled forward and conditions remain good, but whether that will happen or not, I think a lot of the debt that was maturing late in 2017 has already been refinanced, so we'd be looking into the out years to see what might get pulled forward. Rob, did you want to add to that?

The only thing I would add kind of touching on that is just kind of the sustainability of this bank loan refinancing cycle that we're in. That's a question mark. Another question mark, just an unforeseen event, market volatility, and I think some potential upside if we see a pickup in public finance, U.S. public finance refunding activity.

Let me maybe jump in here, and for the completeness of the record, I'll get the indications that we're hearing from the issuing banks for the year. On investment grade, year-to-date it's been about $720 billion of investment grade issuance, and for the year now the call is for investment-grade issuance to be down 5% to 10%. Rates have moved a bit higher but [indiscernible] stable, overall condition is very constructive. The first half of 2017 was on pace with record 2016 levels, but generally there may be a slowdown in the second half, as Rob had just talked about. The M&A pipeline is a bit lighter than in the previous two years. So that would be another factor that weighs on our thinking about the back half of the year. In high-yields, $150 billion issuance to date, calling for flat to up 5% in high yields. The markets are resilient despite concerns about stressed retailers and a bit of weakness in the energy sector. Underlying demand has continued to be strong. But again, the same comment that the pipeline is a bit lighter given the lack of M&A and many of the refinancings that were scheduled have already been completed. Lastly, leveraged loans in the U.S., $400 billion to date, that is up 30%, and as Rob had said, we have to think about whether that will continue. Spreads have been tighter, very strong loan refinancing and repricing activity. Also note, $55 billion of CLO formation year-to-date and we'll have to watch the pace of that as well. Heavy loan, mutual fund inflows, and very strong investor demand. So, you might want to take all of that into consideration in thinking about your own views for the back half of the year.

Right, thanks. And then just on Analytics, can you update us on how much of the growth this quarter was maybe related to timing or some pent-up demand or regulatory change? It sounded like you think that the business is just pushing forward maybe to higher growth rate. But I just want to see if any of that took place just given all the political changes here in the U.S.? Thanks.

No, I don't think we saw that happening in the first half of the year. You're right to observe that some of the regulatory pressure on financial institutions around the world is lightening up, but the demand for what we do is being driven by other interest and other requirements on the part of the banks. But I don't think we saw any pull forward in activity related to regulation in any way.

Thank you and we'll go next to Peter Appert from Piper Jaffray.

So Linda or Mark, I was hoping you could give us a little bit of commentary on margin trends in the Analytics business. Not to be greedy but I'm wondering why the margin performance isn't a bit better given the strength you're seeing in your higher profit businesses and also the shift in the ERS, why that isn't theoretically showing up in margin performance yet?

Peter, I think it's because we've always said that in any given quarter, the margin isn't going to be that – isn't going to tell you all that much about the business, and I think this quarter is a very good example of that because we had light revenue in ERS due to the project timing issue. So, we were light on the top line, the expenses were what the expenses were, and we did have some additional expense coming through related to the Bureau Van Dijk transaction. So again, I don't think you can gain an awful lot of information from either the operating margin or the adjusted operating margin in the quarter. I think more generally, we're continuing to make good progress on the work we're doing in ERS to drive higher profitability. We've talked about shifting from a business that has grown a lot through delivering these low margin implementation services. We are deemphasizing that work and putting a lot more emphasis on product sales. That is going well and we'll continue on that path. So, we feel like we're on a good trajectory with that and I think we'll continue to see progress over time. But again, any one quarter might not be consistent with the longer-term trend.

And Peter, I probably should help Mark out here a bit. Mark has been pretty successful, and as we've talked about before, as his business is more successful, it does draw a bit more in terms of corporate allocations. So, that's part of the issue as well.

Got it. And then Linda, for you, I'm wondering what your thought is on this concept of potentially moving to an adjusted EPS metric in conjunction with the Bureau Van Dijk transaction, where are you on that?

Peter, we're contemplating that. We can't get the cart in front of the horse here because we don't own Bureau Van Dijk yet. So we have to wait until that closing occurs, which as Ray said, we expect to be on schedule in the third quarter. All of that appears to be going fine. At that point, we'll think about that and it's something we're discussing right now, but we'll have more to say about all that on the third quarter call.

Thank you. We'll go next to Craig Huber from Huber Research Partners.

A couple of questions. Your guidance for structured finance for the rest of the year, I'd be curious as to hear what your underlying thoughts are on some of the categories, RMBS, CMBS, the other asset-backed categories, how you see them maybe playing out here in the second half of the year?

For structured finance, we expect there to be year-over-year growth in the second half. The areas that have been strong, certainly I would point you to the CLO business, and there is still a substantial stock of potential assets to go into CLOs as the loan market has been so robust recently. So that would continue to be a promising area. I'll see if Rob wants to add anything further.

Sure, Ray. So ABS, we've experienced the market a little bit of a slowdown after a very active kind of February through May, but I think issuance will be supported in particular by some of these esoteric sectors like solar and handset. In CMBS, kind of a stronger gen, I'd say an active rate of inquiries, the pipe is I'd say slightly stronger than it is this time last year. I'd note that there is some competition from alternative funding sources in the CMBS market, so banks, life co, et cetera. So it remains to be seen how many of these mortgages actually get put into the securitization market. I do think there's some optimism around the CMBS market there that the second half of 2017 will be a bit stronger as I think the view is that the market has generally worked through some of the risk retention [indiscernible]. CLO, as Ray said, in addition to the refi activity, a healthy pipeline, I think we're starting to see some of the SME type deals also come into that pipeline. RMBS, modestly stronger I'd say than this time last year with again a bit of a mix of different type of assets there. In Europe, it looks like a very healthy pipeline there and I think both in CLO, ABS and RMBS.

And my other main question, you have a comment in your press release where you talk about financial institutions being driven in the quarter by increased issuance from frequent issuer – of infrequent issuers in Europe and Middle East and Africa. Could you just talk about that, what you think it offers for the rest of the year when these banks, seemingly [indiscernible] banks are not taking on a lot more [indiscernible] sit on this balance sheet, [indiscernible] you think?

I'll take a crack at that. So you're right, we typically have a more relationship-based construct with the banks that tends to lead a very steady revenue growth. We saw this quarter some very robust issuances, as you say, from what are typically infrequent issuers. The growth in all regions, so a few different drivers I think at play. In the U.S., we actually saw an increase in bank loan financing activity in the managed investment sector. So that was a bit new with some infrequent issuer activity in the banking and insurance. In Europe, a continuation of the trend that we saw in the first quarter into the second quarter, which I think we may continue to see throughout the rest of the year where banks are building their bail interval capital or bail interval debt to meet those [indiscernible] requirements. We also saw some opportunistic issuance in places like Sweden and the Middle East. So I think we're going to continue to see financing activity coming out of those Middle Eastern financial institutions. And then lastly in Asia, despite the fact that we had lower [fig] [ph] issuance against the prior-year quarter, that revenue grows again supported by infrequent bank and also non-bank financial issuers in China. And again, I think we will continue to see some of that issuance activity.

And Craig, it's Linda. For completeness, Rob might want to talk a little bit more about what he's seeing in new mandates as well. So if you want to go ahead with that, Rob?

Sure. A good story with the first time mandates, healthy leveraged finance markets are very conducive to first time issuers tapping the market. In the second quarter of 2017, we saw over 300 first time mandates. That's up almost 50% from the first quarter and up I think about 70% over 2Q 2016. That growth was in all very strong in all geographies, reflecting again the same comments we had about the leveraged finance markets, positive investor sentiment, tight spreads. In Asia, I would also note a record – reached a record for first time mandates in the second quarter, and I had noted that the EMEA activity was significantly elevated over what we've seen the last couple of years. The only caveat to the Asian first time mandates, a number of those Chinese first time issuers have to get regulatory approval before they can actually issue. So there some of that issuance is still sitting on the sidelines. But overall, we expect to see, I think we could see over 800 first time mandates in 2017, and that's up a bit from the levels we've seen in the last couple of years, which is kind of mid to higher 700s.

If I could just squeeze one in, Linda, your 30% corporate tax rate guidance for the year, is that adjusted for the various one-time items we've seen in the first half, because it looks like you're tracking below that so far?

Yes, but the year isn't over yet and we have to take into account the various things that are going to happen over the course of the year. Also we did have the CCXI situation which was favorable from a tax perspective. So give us a little bit of time as we get through the rest of the year on the tax rate, but for right now we're comfortable there.

Thank you. We'll go next to Anjaneya Singh from Credit Suisse.

I think you guys have touched on this stuff in other answers, but I just wanted to get your thoughts on margins. Clearly a strong quarter in the first half and there's many things contributing to that, but what are your thoughts on the sustainability of these high 40s margins in your guidance as we look ahead, how much of this is just the MIS mix and revenue flow-through that you've talked about versus the discipline and efficiency measures that you're also focused on, just any thoughts there?

Sure. I'll take a start on this and then perhaps Ray might want to add some additional color. Margin is always a happier story for us when we have a strong revenue quarter, because we are pretty thoughtful about our expenses. So if we have a good top line, a lot of that comes down to operating income and helps us on the margin front. For the year, we've guided to approximately 43%. And of course if the revenue line turns out to move more strongly than we think for the back half of the year, there is the potential that we could do better. But given everything that we've set out for the back half of the year, we like this 43% guidance for the rest of the year and we've thought about that pretty considerably. Ray, I don't know if you have anything else you'd like to add.

No, just I mean I think everyone is aware of this, but obviously if the second half of the year slows in a way that is not expected, our incentive comp accruals would flex in response to that. And so, we do have some ability to course-correct depending on what's happening with the top line.

Understood, that's helpful. For second question on Analytics, could you just touch on ERS? The product sales growth continues to be super strong. Any updated views on what's sustainable or what the outlook there could be, how long do you think these double-digit rates can continue? And if you could just remind us what's driving the disparity between the U.S. and non-U.S. growth rates in that segment?

To take the second question first, the distinction between the U.S. and non-U.S. is really a timing phenomenon. The business is – from a sales perspective the business is doing well globally. So it's just what we're seeing on the revenue line, what projects are getting completed and what revenue is getting recognized, is variable by geography, it's not really indicative of anything fundamental about the business itself. So that really – again, I'd just emphasize that the business is performing well inside and outside the U.S. With respect to the strong growth in product sales, that is a function of a couple of things. One, just generally the business is doing well, but also included in that very strong product sales growth on a trailing 12-months basis is the acquired sales from GGY. So you see them coming in and they are additive. So that's having a positive impact on sales growth. But going forward, we would expect product sales to continue to grow at a double-digit rate. I mean that's how we've built the business, that's how we've constructed our product strategy. We see demand to support that and that's how we expect to continue to drive growth in ERS, is through strong sales of product, again as we deemphasize the low margin implementation services business. This has been a big growth driver on the top line in years past but hasn't done much for us on the margin.

Okay, got it. Thanks so much.

Thank you and we'll go next to Bill Warmington from Wells Fargo.

So you had highlighted strength in the Asian high-yield issuance and I was hoping you could give us some color on the opportunity for you to rate Chinese domestic bonds, how that's progressing?

Sure. Rob probably will want to add to my comments, but we did complete the realignment of our CCXI business in domestic China. So that business is now eligible to rate both parts of the Chinese bond market. So we are looking at opportunities with CCXI and we're also looking at how we may be able to provide research and ratings either from onshore or from offshore from Moody's Investors Service really aimed at the foreign investment community as opposed to the domestic Chinese community, which I think really will continue to be served by CCXI.

Okay. And then one housekeeping item that wasn't clear to me. So BVD is on track to close in Q3. Are you planning to update the 2017 guidance when you close the deal or with Q3 earnings?

I think we will get the deal closed. We don't know when that will happen yet. We expect it to be in the third quarter, but we don't know specifically when that will happen. And then we're going to have to get organized around what our outlook is once we're able to really get in and work with the Bureau Van Dijk team. So I would expect it to be the third quarter earnings call.

Got it. All right, thank you very much.

Thank you. We'll go next to Vincent Hung from Autonomous.

Just one question, so can you talk about the mix of frequent issuers in Europe versus U.S., how many more U.S. frequent issuers are there versus Europe?

Europe has a higher percentage of issuers on frequent issuer programs and that's really I would say less a matter of preference in Europe versus the U.S. and more a matter of the relatively larger size of the U.S. speculative grade market which is characterized by infrequent issuers who don't find frequent issuer arrangements as attractive. So, I think that's really the story there.

And at this time, I'd like to turn the call back over to Ray McDaniel.

Okay, thank you. Before we end the call, I want to remind everyone that Moody's will be hosting our next Investor Day in late February of 2018 here in New York City. We'll get more information on the Investor Relations Web-site as we get closer to the event. So, thank you everyone for joining today's call and we look forward to speaking with you in the fall.

And this concludes Moody's second quarter 2017 earnings call. As a reminder, immediately following this call the Company will post the MIS revenue breakdown under the Second Quarter 2017 Earnings section of the Moody's IR Homepage. Additionally, a replay of this call will be available after 3:30 PM Eastern Time on Moody's IR Web-site. Thank you and have a good day.