Good day, and welcome ladies and gentlemen, to the Moody's Corporation Third Quarter 2018 Earnings Conference Call. At this time, I would like to inform you that this conference is being recorded. [Operator Instructions]. I will now turn the conference over to Steve Maire, 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' third quarter 2018 results, as well as our current outlook for full year 2018. I am Steve Maire, Global Head of Investor Relations and Communications. This morning, Moody's released its results for the third quarter of 2018, as well as our current outlook for full year 2018. The earnings press release and the presentation to accompany this teleconference are both available on our website 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 Mark Kaye, Moody's Senior Vice President and Chief Financial Officer. During this call, we will also be presenting non-GAAP or adjusted figures. Please refer to the table at the end of our earnings press release that was filed this morning for a reconciliation of GAAP to all adjusted and organic measures mentioned during this call. And before we begin, I call your attention to the safe harbor language, which can be found toward 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, 2017, and in other SEC filings made by the company, which are available on our website and on the SEC's website. 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 will now turn the call over to Ray McDaniel.

Thank you, Steve. Good morning and thank you to everyone for joining today's call. Before we begin, I am pleased to welcome Mark Kaye to his first earnings call. Mark joined Moody's on August 20 as Senior Vice President and Chief Financial Officer. I'll begin by summarizing Moody's third quarter and year-to-date 2018 financial results. Mark Kaye will then follow with additional third quarter financial details and operating highlights. I will conclude with comments on our current outlook for 2018. After our prepared remarks, we'll be happy to respond to your questions. In the third quarter, Moody's revenue of $1.1 billion was up 2% from the third quarter of 2017. This result reflected strong growth for Moody's Analytics, partially offset by a decline at Moody's Investors Service as non-financial corporate debt issuance slowed versus the record level in the prior year period. Operating expenses for the third quarter of 2018 totaled $614 million, approximately flat to the prior year period. Operating income was $467 million, up 4% from the third quarter of 2017. Adjusted operating income of $514 million was up 3%. Foreign currency translation had an immaterial impact on operating income and adjusted operating income. The operating margin was 43.2% and the adjusted operating margin was 47.6%. Moody's diluted EPS for the quarter was $1.59 per share, down 2% from the third quarter of 2017. Adjusted diluted EPS for the quarter was $1.69, up 11%, and excluded $0.10 per share related to amortization of acquired intangible assets. Third quarter 2017 adjusted diluted EPS excluded a $0.23 per share foreign currency hedge gain and $0.12 per share related to amortization of acquired intangible assets and acquisition-related expenses associated with the Bureau van Dijk acquisition. Turning to the year-to-date performance. Moody's revenue for the first nine months of 2018 was a…

Thanks, Ray. I'll begin by reviewing third quarter 2018 revenue at the company level. As Ray mentioned, Moody's total revenue for the third quarter was $1.1 billion, up 2%. U.S. revenue of $560 million was down 5%. Non-U.S. revenue of $521 million was up 10% and represented 48% of Moody's total revenue. Recurring revenue of $619 million was up 16% and represented 57% of total revenue. The impact of foreign currency translation on Moody's revenue was negligible. Looking now at each of our businesses, starting with Moody's Investors Service. Total MIS revenue for the quarter was $645 million, down 7%. U.S. revenue decreased 10% to $385 million. Non-U.S. revenue of $260 million was down 2% and represented 40% of total MIS revenue. The impact of foreign currency translation on MIS revenue was negligible. Moving to the lines of business for MIS. First, corporate finance revenue for the third quarter was $296 million, down 15%. This result primarily reflected the decline in U.S. investment grade and global high-yield bond issuance activity. U.S. and non-U.S. corporate finance revenues were down 21% and 4%, respectively. Second, structured finance revenue totaled $125 million, down 2%. This result reflected lower U.S. CMBS rated issuance, partially offset by new CLO formation in EMEA and the U.S. U.S. structured finance revenue was down 9% while non-U.S. revenue was up 13%. Third, financial institutions revenue of $120 million was up 17%, driven by strong issuance activity, primarily from M&A-related financing in the U.S. insurance sector. U.S. financial institutions revenue was up 48% while non-U.S. revenue was down 3%. Fourth, public, project and infrastructure finance revenue of $99 million was down 9%, and primarily reflected a decline in global infrastructure and project finance issuance. U.S. and non-U.S. public, project and infrastructure finance revenues were down 7% and 13%, respectively.…

Thanks, Mark. I'd like to provide some highlights on our progress with Bureau van Dijk integration and synergy activities. We are just over a year into the Bureau van Dijk acquisition, and the business continues to perform well. The revenue growth is on track to meet our 2018 forecast, while the direct adjusted operating margin for the third quarter and year-to-date was in line with historical business performance at 49% and 44.3%, respectively. We are particularly pleased with Bureau van Dijk's very strong sales results. On an FX-neutral basis, sales were up 14% year-to-date, with 21% growth in the third quarter. This acceleration reflects strong demand for Bureau van Dijk's product and the synergies that we're realizing as we drive distribution of Bureau van Dijk data to more customers and more markets. Importantly, our success in this area positions us for better revenue growth as we move into 2019. I'll now discuss certain components of our full year guidance for 2018. A complete list of Moody's guidance is included on Table 13 of our third quarter 2018 earnings press release, which can be found at Moody's Investor Relations website at ir.moodys.com. Moody's outlook for 2018 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 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 £1; and for the euro, of $1.16 to €1. Moody's now expects full year 2018 diluted EPS to be $6.95 to $7.10,…

[Operator Instructions]. Our first question comes from Vincent Hung with Autonomous.

Can you hear me?

Yes.

On the $30 million to $40 million of cost savings, where is it coming from and what's the timing around that?

Vince, thank you for the question. We have undertaken a careful review of our expense infrastructure to identify opportunities for efficiency. The cost management activities will primarily come from 2 separate and distinct areas. First, reducing, exiting, and/or subleasing certain real estate property; and second, a targeted reduction in headcount with an emphasis on streamlining our operations, eliminating redundancies, and meeting regulatory expectations. We anticipate that the restructuring charge of $30 million to $40 million in the fourth quarter of 2018 and the additional $10 million to $15 million in the first half of 2019 will result in an annualized pretax benefit of $30 million to $40 million once complete, and that the net pretax benefit for 2019 on a standalone basis is estimated between $20 million and $25 million.

Got it. And just to follow up, when we think about expenses, long term is there anything else you can do beyond that?

Yes. The business is actually undertaking a number of initiatives at the moment with respect to automation and technology to address costs. As we said before, we are first focusing on having the right people doing the right jobs in the right location. And since 2015, over half of our headcount adds have been at our support center in India. We have now opened our hub in Costa Rica and working with other locations, specifically related to the MIS business. We are also investing in major programs, specifically in MIS, around the workflow system and analytics system that we believe can provide simplification around the MTN ratings process and add additional efficiency gains to our staff.

And we'll take our next question from Manav Patnaik with Barclays.

Ray, Just I think in your comments, you talked about the slowdown that you expect in the fourth quarter to be temporary. And I was hoping you and maybe Rob could just elaborate on that a bit and just explain why you are confident that it's only temporary and not maybe the start of something?

Sure. And I'll invite Rob to offer his thoughts as well. I don't think I said temporary, but we are looking at a number of headwinds and tailwinds. And so determining which of those are going to be stronger going into 2019 and beyond is a little difficult to predict. But obviously, we are experiencing a rising rate environment to the extent that the rising rate environment is associated with strong economic growth. That, as I've said before, encourages business expansion, business investment spending, merger and acquisition activity. The overall condition of the market, we think, is probably more important than the rates themselves. Rising rates with maintenance of tight spreads because again, we're in a strong economy, is not a bad news story. What would be a bad news story as we talked about again before, is more of a stagflation environment. If for some reason, we were -- we in the marketplace was experiencing a rise, especially a short rise in interest rates, but unrelated to underlying core business strength. I don't think that, that's just going to be the situation. That doesn't look like the central case at this point, which is why you might interpret my comments as relating to a temporary slowdown. Rob, I don't know if there's anything else to add to that, but please.

No, I think that covers it, Ray.

And Mark, welcome to the call, but just in terms of the cost actions, how much of this was driven by, obviously, the slowdown you expect in the fourth quarter versus how much of it was a fresh set of eyes from your end, and thinking that there's more room to be taken out here?

Manav, thank you, and certainly, very pleased to be a part of the Moody's management team. I think the restructuring program was really driven by a combination of factors, and I can really think of the three primary ones. First is the expected continuation of the relatively soft issuance environment through year end. Secondly is an opportunity to rationalize our real estate footprint, specifically to include synergies from some of our recent acquisitions. And then third, let's say, it allows us to give a continued focus on optimizing our global sourcing operations for greater efficiency, including some of the geographic rebalancing that I spoke about earlier.

Yes. And I'd just add that, while it's always great to get a fresh set of eyes on the company's operations, this -- the timing was also importantly related to the completion of two recent acquisitions and some of the geographic rebalancing that we are doing, in part in response to regulatory expectations.

And we'll take our next question from Alex Kramm with UBS.

So just, okay I guess following up on Manav's first question, in terms of the environment in the 2019 outlook, I know this is not a guidance call for next year, but your competitor, S&P, as they laid out their initial issuance outlook, calling for kind of 1% of growth overall, corporates fell down 4%. So curious if you could comment on that a little bit in terms of your own outlook or anything that you're seeing that may be different. In particular, these guys called out the repatriation is still being something that is going to weigh on the outlook. So maybe some color there would be really helpful, how much of that will be an impact for your business.

Sure. I'll let Rob comment on this, and you're right, we're not going to be offering a full outlook for 2019 on this call. But I know Rob does have some thoughts and perspectives on the environment.

Yes, right. Thanks, Ray. So we'd like to get to the end of the year where we can see where issuance ends up and then be able to triangulate both our bottom up forecast with what we're also seeing from the Street. But that's to give you a little feel for how we're looking at it. I mean overall, we still have economic growth, we saw today the U.S. GDP trend for the third quarter. At 3.5%, expectations for U.S. GDP growth of close to 3% next year and the major economies in Europe in the 1.5% to 2% range. So continuing to see economic growth. And Ray always talks about that, that's a key driver to issuance. I'd say modest geopolitical risks, we've got, I think, continued healthy investor demand, and we're seeing that now with pretty constructive market conditions albeit with some volatility and gradual rate increases. And again, that's the key here, is that they are gradual and well telegraphed. And we think also a strong M&A outlook going into next year. We've got a lot of LBO-driven M&A activity now in the market, and you can see that in the bank loan space. We think that's going to continue as well as some of the jumbo M&A. We've also -- expect default rates, particularly spec-grade default rates to remain low next year, that should contain spreads and then we balance that against, I would acknowledge that we're seeing both a combination of rates moving and I'd say in some cases relatively, liquid issuers, which I do think is waived on some opportunistic supply and we've seen that in the third quarter. We're going to have to look at the sustainability of the bank loan supply if spreads are not further tightening. And I think all in all, that translates into a corporate issuance outlook that's roughly in line with 2018, and we may see a modest rebound in U.S. high yield after a pretty sharp decline. And then maybe just touching on securitization. I think the trend there remains favorable or steady. It's a highly competitive market, but we do expect to see some growth on the back of again, economic growth and consumer sentiment that will be supporting securitization markets. Maybe just in terms of first-time mandates, I think, in our view is that, that's going to continue to provide some support for revenues going forward. So a lot of health warnings on that, we will tighten that up and be able to talk more about it on the next call.

That's great color. And just one more, quickly I think, on the same topic. As you're thinking to the remainder of the year, if I look at your updated guidance for the, I guess, implied guidance for the fourth quarter, if I'm correct for the corporate side, I think you're assuming a pretty big ramp in the fourth quarter, maybe something like 15% or so. It will be a very big ramp by historical standards, and I know the third quarter was soft. But I think some people called your guidance this morning still fairly aggressive in that area. So maybe just commenting on that real quick in terms of the more near-term assumptions, what could still go wrong here?

Yes.

Yes, I'm going to ask Rob to comment because it's certainly on the MIS side where you would potentially expect more volatility.

Yes. So you can see where we are in terms of year-to-date growth. I would say that we are expecting 4Q to show some sequential growth, certainly from 3Q '18, and that's the resumption of that more typical sawtooth pattern that we have typically seen except for last year. This year we saw that typical summer slowdown. Last year, you remember, every quarter saw sequential growth. So we think we're back to that sawtooth pattern. And think that 4Q '18 will be up on 3Q '18. We've got again, the technical issuance backdrop is good. I think our pipelines look generally healthy, the loan market is active, M&A inquiries are active. But we will need to see some degree of improvement and opportunistic issuance in 4Q versus 3Q to hit our outlook. And I would also note that we're not looking for the same levels of opportunistic issuance in 4Q that we saw in the first half of 2018, but certainly, a pick up from the third quarter. And the last thing I want to point out is, 4Q is going to be a tough comp, 4Q '18, tough comp to 4Q '17. You might remember we benefited from some of that pull forward in U.S. PMG, we saw some late jumbo investment-grade issuance and we put up something close to 20% revenue growth. So an acceleration, a pick up of revenue from 3Q into 4Q, but a deceleration of that kind of year-to-date growth rate, and that's how we got to our guide.

And our next question comes from Toni Kaplan with Morgan Stanley.

Also I wanted to ask on MIS. In terms of just the recent weakness in issuance, I know that you could attribute part of it to rates. But do you also attribute part of it to tax reform? And when you do think about, if so, when you do think about tax reform's impact on issuance, do you see it as more of an ongoing phenomena since companies would be paying less tax and have more cash on the balance sheet? Or would you think about it as, this is a short-term impact because of the repatriation aspect, so there's less of an issue right now, and so therefore, maybe it's a little bit more temporarily. So I just wanted to talk about what you think is driving the recent weakness in addition to rates.

Yes. I think I would place more weight on the repatriation, especially coming out of the tech sector. And that -- we discussed that earlier in the year as being a known headwind. But a somewhat concentrated headwind in that it was really the repatriation, the large dollars of repatriation were associated with large technology companies. And that, a large part of the corporate debt market, certainly in terms of our business, coming out of speculative-grade sector, is not an area where corporations have large amounts of offshore cash. So I think what we've seen in terms of a slowdown in spec grade bonds relates more to the rising rate environment and bank loans being favored over spec rate bonds rather than anything having to do with tax reform. That being said, the companies that have large amounts of overseas cash to be repatriated will have cash that can be repatriated again in 2019. So I don't expect that to be a very temporary or one-off phenomenon associated only with 2018.

Great. And just despite the top line weakness in ratings, the margins and MIS held up well. I guess, what were some of the levers you able to pull in the quarter? I assume incentive comp was probably one of them. So it'd be helpful to hear what that was during the quarter. And also, I think that last quarter, wouldn't have the incentive comp number for 2Q. So if you could give 3Q and 2Q incentive comp, that'd be helpful.

Morning, Toni. The second quarter 2018 incentive comp number was $51.3 million. The third quarter number is $43.3 million. In terms of the MIS margins, quarter-over-quarter, the increase is approximately 140 basis points, and we do however, like to look at margins on a trailing 12 months basis. And there you'll see the increase is approximately 40 basis points. The difference is really due to the normalization of the incentive compensation and ongoing cost control measures within MIS.

And our next question comes from Joseph Foresi with Cantor Fitzgerald.

I was wondering what would be the company's response to prolonged issuance slowdown. Do you expect to protect profitability in that scenario? And how much flexibility do you think you have there?

In terms of what protects the business model and business performance in a negative environment, there's a number of things to look at. On the revenue side, look to the steady growth in recurring revenue versus transaction revenue at MIS. Pricing opportunities where we are providing particular value. The going forward benefit of new rating mandates that we have picked up in 2018, 2017, which translate into maintenance and monitoring fees on a going-forward basis. And of course, Moody's Analytics, which is not a capital market sensitive business and has a very heavy waiting to recurring revenue. As far as expenses are concerned, there is the formulaic flex in our incentive compensation that responds to what's happening with revenue and operating income. We can also modulate the pace of investments, and those are a variety of different investments whether they're technology-related or otherwise. But I would underscore that we think there are some very important opportunities for the company that we do want to put investment against. And so for short-term cyclical variations in market conditions, we're going to continue to invest even as we pull on these other levers to make sure that the business model is resilient.

And we'll take our next question from Peter Appert with Piper Jaffray.

So a question for Mark Almeida. Number one, the BvD momentum, very impressive here in terms of the acceleration in quarterly revenue growth. So I was hoping you just give us more color on what's driving that and the sustainability of that. And then I'll get my follow-up, and in advance, on the ERS business, just any color in terms of progress in improving profitability there.

Sure, Peter. Yes, BvD, as Ray described, BvD is performing very, very well. We're very pleased with what's happening in the business. We're seeing very good demand from a number of sources, and in a number of use cases for the BvD product. We're also building some very solid momentum as we begin to cross sell the BvD product to the traditional Moody's Analytics customer base. So we feel like we're doing quite well and performing very well, particularly on the sales side with Bureau van Dijk. And that strong sales growth will start to manifest itself in very good revenue production in the coming quarters. So things going quite well there. In ERS, we are -- I would say that things are going very much as we've expected and as we've been describing for you. As you know, the business is going through a rather profound transition, and that transition is going pretty much as we'd expect. We had about 7% revenue growth in ERS last year. In the first half of this year, the business has grown 6%. We were flat in this last quarter in ERS. And our full year guidance would imply that our full year guidance of being down a couple of points would imply that the fourth quarter is going to be down for ERS. But the important thing to really look at, to understand where the business is headed, is to pick up on the details that Mark shared a couple of minutes ago. He mentioned that total ERS sales are up 4% on a trailing 12 months basis, and that's important because, in the first two quarters of this year, trailing 12 month sales in ERS were flat. And so I think what that suggests is that we're beginning to make the turn and that the business is evolving from a traditional software licensing and project business to a true Software-as-a-Service business, where we're selling things on subscription. So I think the business performance is moving in the right direction, and that is going to drive much better profitability in ERS. And I think you're starting to see that flow through to the MA margin more generally. We had very good margin expansion in MA this past quarter. We continue to have good margin expansion on a trailing 12 months basis. That's the result of the high-margin BvD business flowing through, but it's also a result of the good work that we're doing in the legacy MA businesses. And that's largely an ERS initiative.

We'll take our next question from Jeff Silber with BMO Capital Markets.

If I look at your MIS business and I look at the types of clients that you develop ratings for, where do you get the most incremental margins? And if you may can rank order them that would be helpful.

Yes. I mean, the new rating mandates are certainly a very attractive source of revenue because they establish new relationships that we would expect would be very stable over time. That being said, that is not the highest margin business. New customers, new rating relationships require additional analytical capacity and analytical support capacity. So I think you can understand that, that where we have an established relationship and that entity decides to reenter the debt markets, that is a profitable opportunity for us because we already have the cost base installed in terms of our workforce that follows the company or the municipality. And we are earning incremental revenue off of the additional issuance. Rob, you want to add anything to that?

Yes. The other thing -- so I think that's right, balance of first-time mandates versus the refi activity, we were already rating these companies. But then when you think about, maybe on a sector basis, I think you might tie it to complexity. So where there's more analytical complexity, we tend to -- that tends to be reflected in the economics, think things like leverage finance, CLOs, CMBS.

Okay, great. And then just a couple of quick numbers questions. If you just let us know the interest expense and share count embedded in your guidance for the full year? And does your guidance include the impact of Reis?

The guidance does include the impact of Reis and Omega. The expectation in terms of an adjusted EPS impact for 2018, that would be $0.02, consistent with the earlier release. And then in terms of the guidance around share repurchase or interest expense, we don't provide that.

Our next question comes from Craig Huber with Huber Research Partners.

A couple of questions. The first one, Ray, as you think out to next year, can you just walk us through sort of preliminary basis, some of the factors that may be more positive next year, less of a headwind next year versus what you're dealing with this year on the debt issuance side of your ratings business. And I have a follow-up.

Yes, sure. I mean, certainly, a gradual and expected change in the interest rate environment would be more beneficial than anything that is unexpected or overly aggressive. Again, as we've said, tying that to GDP growth, we think is important. And also, our expectation for continued low, in fact, decreasing default rates, which will -- should keep spreads tight, is also important. So really, it's I think it's going to be, 2019 is going to be a question of are the policy actions expected? And with that expectation, are we going to have an M&A and business -- investment business expansion environment that is supportive of debt issuance to affect that expansion.

Then maybe one area to add to. We saw, 2017, we saw a lot of issuance out of the greater China region. This year, with some of the volatility we've seen that slow down. But we believe there's a pretty big backlog of issuance out of China. So I think there's some potential upside to see that come back into the market in 2019.

And as I think about it, looking for upside as well, if, in Europe in particular, if some of the things that people are worried about in terms of BREXIT and whether there's a hard BREXIT, the Italian budget situation, if those are resolved in a relatively more benign rather than less benign manner, there's certainly going to help with our confidence and business expansion on the European side.

And then also with China, could you just update us on your thoughts on when you best -- might get your license over there, the rate in the domestic market in China? And sort of how you view this opportunity for long-term?

Yes. We do it very positively, obviously. We have a license application in process. We also like the optionality that we have from our investment in CCXI, which is a well-established rating agency in the domestic Chinese market. So as we look at China, it's -- the domestic market, it's the Panda bond market for non-Chinese issuers, renminbi, that might attract international capital that's looking for international ratings and it's the traditional cross-border market, as well as the opportunities that come from Moody's Analytics, and what we can do in China, both in terms of the product and services that are offered by MA alongside MIS. So it all comes together in a package, in a very positive way. The challenge is exactly when and it has been a process, in our experience in China, that the Chinese authorities move very deliberately and carefully. And so trying to predict the timing is a little bit difficult.

And we'll take our next question from Bill Warmington with Wells Fargo.

So the first question for you is to ask about how new mandates are doing? And whether they're holding up in 3Q and into 4Q?

Yes. Bill, this is Rob. Let me take that one. So I'd say they decelerated a little bit in the third quarter in tandem with the, kind of slowdown in issuance in leverage finance markets, so that's fairly typical. But we're still, overall on track for a very strong year. I mean, we're over 200 first-time mandates again signed in the third quarter, so yes, that's down from the second quarter of '18, it's actually, it's also down from last year's quarter. But we're now over 800 first-time mandates for the year through September, and we are still expecting to be above that 1,000 first-time mandates March -- for the full year. And you might remember, we were just north of that last year, it's something like 1,040. So a very strong case. I just touched on in my answer to Craig's question, we also have a number of unpublished mandates, particularly in China, so you've got some deals that haven't gotten approval to go-to-market, regulatory approval. Others are waiting on more favorable pricing conditions, given the volatility in the Chinese market, so there's a pretty robust backlog that hasn't gone into the market. The other things that's just worth noting is the first-time mandate growth has been now strongest out of the U.S. for the year. Now you might remember, we had a very mixed growth last year, but we've seen very strong growth out of the United States, and we have a good pipeline there.

And I'd just add, that the numbers that we're seeing in Q3 are as expected, and going into Q4, we did not anticipate. As I think everyone knows from our second quarter outlook, we do not anticipate the third quarter of 2018 behaving like the third quarter of 2017. Just a very unusual quarter, that not only affected issuance, it affected new mandates, et cetera. It just drove an unusual performance profile last year that we've normalized back to typical market performance in 2018.

And then a question for Mark, and that's Mark Kaye. I have to make a distinction now. So more Marks than a German bank, as the saying goes. At breakfast a couple of weeks ago, you talked a lot about your goals of introducing more automation to internal processes at Moody's using AI, machine learning, more data science. How does this play into the restructuring announced today? Does it give you a chance to implement some of that?

Well, I certainly continue on the path of introducing and encouraging the team to implement difference and more automated digital approaches. That's how we think about finance and how finance function interacts with the business itself. We did spend some time with our Board talking about that in our October meeting, and they are supportive of what we're trying to do here. On the restructuring, I do view this as an opportunity for us to create capacity, both to expand margins and to be able to reinvest back into the business. I think, from my perspective, it's important to keep the investment at a level that's sustainable, but also to add value over the long term.

We'll take our next question from Tim McHugh with William Blair.

Just going to ask on ERS. I noticed the description of kind of where the growth came from is more the loan origination side of the products side. I guess, can you talk at all about I guess, the regulatory related solutions and what you're seeing from the client? And has, I guess, where the growth is coming from shifted a lot versus 2 to 3 years ago for ERS?

Yes, Tim. It has shifted a fair amount. I think we've talked about this before, but if you go back 2, 3, 4 years, we had a lot of demand being driven by post crisis regulation, whether it was Basel rules who are stress testing protocols, who were being applied to banks, whether in the U.S. or in Europe. There was quite a bit of regulatory-driven demand. That has been replaced by demand from banks that are looking to bring more efficiency and looking to streamline their processes, so that's where the loan origination product has been doing quite well. Lots of banks trying to compete, trying to make credit decisions and lending decisions faster and more efficiently, particularly in the midsized and small end of the corporate lending market. That's a very competitive business. And to be able to make a decision -- to be able to automate your decision process is becoming increasingly important. And we see a lot of banks investing in that. We've also got demand coming from -- it's not strictly speaking regulated -- regulatory-driven, but we've got these new accounting standards. For a number of years we've been dealing with IFRS 9 outside the United States. That plays very well to our strengths and we've done a lot of business in that space. And now you've got a GAAP variant of IFRS 9 called CECL that is taking effect in 2020. That's driving a lot of demand for our solutions here in the U.S. And again, that's largely -- there we're largely focusing on smaller institutions. And we're doing quite well in that space. So those are the principal things that are driving demand for our ERS solutions at present. The one other area I should note, is again, an accounting-driven issue related to insurance companies. There's a requirement called IFRS 17, which is coming into effect over the next couple of years. That also plays very well to our analytical capabilities, and we've developed a solution for that and are seeing a lot of interest in it. So those are the principal sources of demand for the ERS product, currently.

Are you retaining, I guess, the legacy regulatory type of subscriptions or licenses? Or do you see clients drop those? Just trying to understand if you're declining on 1 part and growing at the other, or I guess, what the underlying dynamics are?

No. Those regulations, by and large, those regulations still exist and financial institutions still need to comply with those rules, again, whether they're Basel or -- most of the stress-testing work that we have done has been with larger institutions. And those institutions are still subject to those rules, even though they've been relaxed for some of the smaller institutions in the U.S. So we don't see customer attrition or product attrition associated with the change in the volume of regulation. It's really a flow versus a stock question. I guess, the way I'd say it is, the stock of regulation is the same. We're just seeing less flow of new regulation driving new demand.

Okay. And then on BvD, just on the new sales. I'm recognizing since it's a sales number rather than a revenue number that can bounce around, and I guess, you're comparing it to the year-ago quarter when there's maybe some disruption I guess, because of the closing of the merger. Can you, I guess address that? Just how steady has that sales number growth been? And so, just trying to understand how outside the norm a 21% growth rate is for BvD? Or if it's been volatile?

As Ray said, we had 21% sales growth in Q3. But I think the more useful number, frankly, is the 14% year-to-date sales growth number that he cited. And then again, those are, both of those are at constant FX rates, so you don't have any currency noise in there. But the 14% rate, again, I think is a good reflection of the underlying performance of the business. The 21% Q3, frankly, reflected a bit of catch-up that we had from some -- from some operational issues that we talked about in the first quarter. But 14%'s a good number, and that's meaningfully stronger than where the business was performing when we acquired it. So we feel very good about that, and we are optimistic about being able to sustain that.

Our next question comes from Shlomo Rosenbaum with Stifel.

I want to focus a little bit on the RD&A business. It seems like from the guidance that you're expecting something like a $25 million sequential ramp in revenue. Where is that coming from? And if it's coming from the BvD business, it seems that the BvD business, when you gross up for deferred revenue, was actually down over -- just over $1 million sequentially. If you can kind of put that in context?

Yes, sure. I mean first, as we just discussed, there is strong underlying growth in the BvD business, and that acceleration in sales growth that we've talked about, that's going to start flowing through to the P&L, and it'll start hitting the top line. And so that's certainly contributing to a good strong fourth quarter that we expect. I think you've done the math correctly, Shlomo. The other thing you need to keep in mind is, you mentioned it, you've got the haircut going away, there was $22 million of haircut in the fourth quarter last year. We don't have that problem this year in the fourth quarter. And you've also got Reis coming in to the results this next quarter. So you've got those three things, strong underlying growth in BvD, the reversal of the haircut if you want to put it that way, and then Reis coming, in addition to what I would characterize as very solid performance in the rest of the business.

Got it. And then, I just want to ask in terms of the issuance commentary. S&P noted yesterday that they thought that the refi wall would be more meaningful in the second half of '19 as they look towards kind of pacing on the refis. Are you guys seeing that in the numbers that you're looking at as well?

Yes. When we look at the refi walls going out, actually, multiyear, they are increasing each year sequentially through 2022. So in terms of assessing the importance of the refi wall in 2019, because it is growing and the 2020 refinancing in 2021 are obviously, closer to the back half of next year, I think that's a reasonable expectation, that refinancing may tick up later in the year. That being said, a lot of this ends up being, I think, company psychology and the expectations and predictions that Chief Financial Officers and Treasurers are making about where rates are going to go, where spreads are going to go, and that can certainly drive issuance, refinancing issuance to get pulled forward further or to get pushed back further. So there's -- if you look at what has to be refinanced over the next few years, it is a very high wall, predicting exactly what quarter or quarters that may happen is a more difficult challenge.

We'll take our next question from Alex Kramm with UBS.

I was actually going to ask on the refi wall as well, so that got stolen a little bit. But maybe just digging a little bit deeper, is there anything in the refi wall when you look in more depth that may be different? And when you think about the next few years, that it may not be refi-ing this much, meaning, for example, are there a lot of issuers that may have used that money for synthetic repatriation that may not just refi that money when it comes to? Or anything else? Are you hearing from companies that like, hey, we know this is coming due, but we are now in delevering mode. So anything that will be different from -- that may make the wall look different than in previous years?

I mean, I think an important thing to keep in mind is that when we talk about opportunistic refinancing and the refinancing walls, we are largely talking about the U.S. speculative-grade sector. The investment grade sector refinances on a much more regular basis, steady basis year on year on year. And international companies, both investment grade and speculative-grade, have a history of refinancing on a more regular basis. The opportunistic refinancing comes out of U.S. spec grade, and those aren't companies that have a lot of overseas cash, as we've talked about before. So I don't think that's going to be an important factor. You could certainly have companies deciding that they wish to deleverage. But again, the ability to deleverage across the speculative grade universe and the desire to delever across the speculative-grade universe, I think is reasonably low. So yes, I can think of circumstances where refinancing may decline, but I don't think that's the central case.

All right, great. And the last one, real quick for Mark, Almeida, that is. Follow-up on the BvD question, on the growth there. I think someone decided, quarter-over-quarter, but I think year-over-year, if my numbers are correct, that growth was pretty soft as well. I get to maybe like 3%, 4%, 5%. So is there anything else going on other than the disruption, like any sort of customer loss or anything else that may weigh on that growth even going forward? Or you think we're now through this and some of the sales growth can actually translate into real revenue growth in the high single, low double-digit growth, just to circle back here.

Yes. I guess, the short answer, Alex, is no. We feel the business is performing very well. As I said, better than it was performing pre-acquisition. We're executing on our synergies, we're building momentum in sales production, which will manifest in good, solid revenue growth. So we feel very good about what's going on there. And we view the numbers, all very positive.

And we'll take our next question from Joseph Foresi with Cantor Fitzgerald.

Hi, some phone issues earlier. But how sensitive is BvD and Reis to an economic slowdown? How tied are they discretionary spending in the real estate market?

Well, I'll speak to Bureau van Dijk first. They do not appear to be -- like much of Moody's Analytics, all of Moody's Analytics really. We don't see, we have never seen much correlation between macroeconomic conditions, either on the positive side or the negative side and the performance of our business. It seems to be generally very, very steady growth in the business, irrespective of macro conditions. Except if we're at very extreme situations, such as we had in 2009, for example. And I believe that would be true of Bureau van Dijk as well. If you look at of their performance historically, as we did, of course, when we acquired the company, they performed well, even in the depths of the financial crisis. They performed, not spectacularly, but certainly above average, I would say. So we don't see much sensitivity in the Bureau van Dijk business. The Reis business, I mean, frankly, we're -- we've only owned it for less than two weeks now, so we don't have that much experience with it. But our impressions are that, that is similarly not particularly susceptible to macro conditions, within kind of a normal range of typical cycles.

And I would just add, Joe, for the Reis business in particular, we're looking at a business that is assessing, collecting data and with our analytics, assessing risk in the commercial real estate sector, which actually may be in more demand in a more distressed environment. So we're new to Reis, and we'll need some time to sort through this, but that would be one of the things I would be looking for.

And we'll take our final question from Craig Huber with Huber Research Partners.

I just had a follow-up. Ray or Rob, do you get any sense from any of your clients in the U.S. for example, that are thinking or starting to act on, lock in some of these low rates, or took out all these massive amount of spec rate bank loans in the last few years. Were any of them in waves, here? Just give me a sense of a lock in high-yield bond market here, just kind of think out over the next year. Is that a strategy you think might get deployed more and more here?

Yes. I mean, it's something we are certainly going to be watching for, to see whether a floating rate converts back over to fixed rate. And in looking at that, obviously, we would also be looking at the yield curve itself and how attractive longer-term debt fixed-rate paper is, based on spreads in the yield curve itself. So it's a good area to pay attention to, I agree.

And that does conclude our question-and-answer session. I would now like to hand our conference back over to Ray McDaniel for any additional or closing remarks.

Just wanted to thank everyone for joining the call today, and we look forward to speaking to you again in the New Year. Thanks.