Moody’s: Legg Mason view to negative

Moody's Investors Service said it confirmed the Baa1 senior unsecured ratings of Legg Mason, Inc. and revised the outlook to negative.

This action concludes the review initiated on Jan. 25. The review followed Legg Mason's Jan. 22 announcement that it would undertake three acquisitions, which could require up to $1.4 billion of new financing in a series of transactions.

On March 4, the company announced in a filing with the Securities and Exchange Commission that it intends to raise about $1.2 billion, $200 million less than initially proposed, and that after the completion of the financing transactions, it intends to focus on de-levering over time.

Moody's said it believes that with less debt outstanding at the completion of the acquisitions, and with the prospect of a deleveraged balance sheet, Legg Mason will regain more financial flexibility, supporting the rating at the current Baa1 level.

However, the agency said that a negative outlook is justified at this time, given the debt-funded nature of the acquisition and resulting high initial leverage, the risks attendant on the acquisition and integration of several businesses simultaneously, and the competing objectives of deleveraging while resuming a share buyback program. The uncertainty about the firm's ability to successfully accelerate its growth of revenue and EBITDA required to decrease its leverage while returning capital to shareholders, is a key negative credit consideration.

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