Moody's: Block outlook negative

Moody's Investors Service said it affirmed the Baa1 senior unsecured ratings and Prime-2 short-term rating of Block Financial LLC and changed the outlook to negative from stable. Block Financial, a wholly owned subsidiary of H&R Block, Inc., is the issuer of all of H&R Block's corporate public debt.

The agency said the key rating factors driving the negative outlook are lower-than-expected tax return preparation volumes by H&R Block in fiscal 2010 and Moody's expectation of flat to low single-digit volume declines in H&R Block's retail network during fiscal 2011.

Moody's said the ratings are constrained by significant turnover in H&R Block's top management, moderately weak financial strength metrics for the rating category and the potential for increased regulation of financial settlement products.

Key factors supporting the Baa1 rating are the company's leading market position in the bricks-and-mortar tax return preparation business and solid operating margins, the agency said.

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