Good day, and welcome ladies and gentlemen to the Moody's Corporation Third Quarter 2015 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 lines for question-and-answers foll0wing the presentation. I would now turn the conference over to Salli Schwartz, Global Head of Investor Relations. Please go ahead.

Thank you. Good morning, everyone, and thanks for joining us on this teleconference to discuss Moody's third quarter results for 2015, as well as our updated outlook for full-year 2015. I am Salli Schwartz, Global Head of Investor Relations. This morning Moody's released its results for the third quarter of 2015, as well as our updated outlook for full-year 2015. The earnings press release and a 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 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 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, 2014 and in other SEC filings made by the company, which are available on our website and on the Securities and Exchange Commission's websites. These, together with the Safe Harbor statement, 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 will begin by summarizing Moody's third quarter and year-to-date 2015 results. Linda will follow with additional financial detail and operating highlights. After our remarks, we’ll be happy to respond to your questions. In the third quarter, despite uneven capital market activity and foreign exchange headwinds, Moody's achieved revenue of $835 million, a year-over-year increase of 2%. On a constant currency basis, Moody's revenue grew 7%. Operating expense for the third quarter was $485 million, up 4% from the third quarter of 2014. Foreign currency translation favorably impacted expense by 4%. Operating income was $350 million, flat versus the prior-year period, but an increase of 5% on a constant currency basis. Adjusted operating income, defined as operating income less depreciation and amortization, was $378 million, an increase of 1% compared to the same period last year. Operating margin for the third quarter of 2015 was 41.9%. Adjusted operating margin was 45.3%. Both GAAP and non-GAAP EPS increased 14% from the prior year period to a $1.14 and $1.11, respectively. Non-GAAP EPS excludes a $0.03 benefit from a legacy tax matter in the third quarters of both 2014 and 2015. Turning to the year-to-date performance, Moody’s revenue for the first nine months of 2015 was $2.6 billion, an increase of 7% from the first nine months of 2014 or 11% on a constant currency basis. Revenue of Moody's Investor Service or MIS was $1.8 billion, an increase of 5% from 2014 or 10% on a constant currency basis. Moody's Analytics or MA, revenue of $829 million was 10% higher than the prior year period or 15% on a constant currency basis. Operating expense for the first nine months of 2015 was $1.5 billion, up 9% from 2014.…

Thanks Ray. I'll begin with revenue at the company level. As Ray mentioned, Moody's total revenue for the third quarter increased 2% to $835 million, and was up 7% on a constant currency basis. U.S. revenue of $482 million was up 7% from the third quarter of 2014. Non-U.S. revenue of $353 million was down 4% and represented 42% of Moody’s total revenue. Recurring revenue of $447 million represented 54% of total revenue. Looking now at each of our businesses starting with Moody's Investor Service. Total MIS revenue for the quarter was $548 million, flat to the prior year period, but up 5% on a constant currency basis. U.S. revenue increased 7% to $353 million. Non-U.S. revenue declined by 10% to $196 million and represented 36% of total MIS revenue. Moving now to the lines of business for MIS. First, global Corporate Finance revenue of $248 million in the third quarter was down 5% from the prior-year period. On a constant currency basis revenue declined 1%. These result reflected lower levels of global speculative-grade issuance, partially offset by strong U.S. investment grade issuance, primarily from increased M&A activity. U.S. Corporate Finance revenue increased 5%, while non-U.S. Corporate Finance revenue decreased 22%. Second, global Structured Finance revenue for the third quarter was $113 million, up 10% from the prior-year period, or 15% on a constant currency basis. Growth was primarily the result of strength in U.S. commercial real estate finance as well as an increase in structured credit monitoring revenue. Additionally, we saw increased Structured Finance issuance in EMEA, primarily in RMBS and structured credit. U.S. revenue was up 12% and non-U.S. revenue was up 6%. Third, global Financial Institutions revenue of $90 million, decreased 3% compared to the prior year period, primarily given unfavorable foreign currency translation on a weaker…

Thanks, Linda. I'll conclude this morning's prepared comments by discussing the changes to our updated full-year guidance for 2015. A full list of Moody's guidance is included in our third quarter 2015 earnings press release, which can be found on Moody's Investor Relations website at ir.moodys.com. Moody's outlook for 2015 is based on assumptions about many 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 some degree of uncertainty and results for the year could differ materially from our current outlook. Our guidance assumes foreign currency translation at end-of-quarter exchange rates. Specifically, our forecast reflects exchange rates for the British pound and the euro of $1.52 to £1 and $1.12 to €1 respectively. As I noted earlier, we are reaffirming our full-year 2015 EPS guidance of $4.55 to $4.65, which now includes as $0.03 benefit from a legacy tax matter. However certain components of our 2015 guidance have been modified to reflect our current view of business conditions. Global MIS revenue for the full-year 2015 is still expected to increase in the mid-single-digit percent range. However, non-U.S. revenue is now expected to decline in the mid-single-digit percent range. Within MIS, Corporate Finance revenue is now expected to be approximately flat, and Public, Project & Infrastructure Finance revenue is now expected to increase in the high-single-digit percent range. Global MA revenue for full-year 2015 is still expected to increase in the mid-single-digit percent range. However, non-U.S. revenue is now expected to be approximately flat. Full-year 2015 capital expenditures are now expected to be approximately $90 million. This concludes our prepared remarks. And joining us for the question-and-answer session is Michel Madelain, President and Chief Operating Officer of Moody's Investor Service; and Mark Almeida, President of Moody's Analytics. We'd be pleased to take any questions you may have.

[Operator Instructions] And we'll take our first question from Manav Patnaik with Barclays.

Yes. Hi. Thank you. I just wanted to clarify just on the organic growth for the quarter and also implied in guidance, so the 7% total, I guess, constant currency. What’s the organic number, and I guess, is that just ICRA and Lewtan, or is there anything else in there, and then just on the guidance, what the contribution assumption is?

Sure. As you noted, that constant currency growth for Moody’s was 7%. And if we look at constant currency growth organic-only, it would be 5%. And that excludes ICRA, Lewtan, and we had the small acquisition earlier this year of Equilibrium.

Got it. Okay. And then, I guess, I just wanted to understand maybe get a little bit of color on how you guys are looking at the environment today? Obviously, I think guidance implies fourth quarter will be another uninspiring issuances environment. And then I just wanted to try and get your initial feelings of what 2016 trends might look like with the context of what you guys have talked about before in terms of heavy maturity and refinancing pipeline coming sort of in the back half of the year. So just trying to get an understanding. Is it going to be tail of two halves? Just any sort of color you can give would be helpful.

Yes, I'll let Linda to start off with this. I know she has some information, and then I'll add some color as appropriate.

Sure, Manav. I'll go through the three sectors that I usually go through, U.S. investment grade bonds, U.S. high yield and U.S. leverage loans, with the reminder again that this is a consensus view from speaking to a number of the investment bank’s trading desks and does not represent Moody’s view but rather again the consensus of these investment banks. This has been a particularly difficult period, which makes our job for the end of the year here a high little bit more difficult to forecast, which is what we’re trying to work through. Now for investment grade bonds, the expectations for October now, is about $126 billion of U.S. issuance in investment grade bonds. It has been very choppy however. Late August and early September had three weeks of zero issuance, and October until this week had been quite light for supply. And only recently, only this week, have we seen issuance pickup. So we are looking at about $38 billion for this week. And yesterday, of course with the Microsoft deal, we did see $19.5 billion in issuance. Now, a lot of this is caused by the spread. Spreads widened out, and in fact now they are 5 basis points higher than their lows in August, and they’ve retraced or come back in 15 basis points from the highs in early October. So it is possible that with spreads coming back in and only being 5 bps up from August, that we could continue to see heavier issuance as we move into November out of the blackout period, and in fact the pipelines look pretty good for next week. So we’re offsetting that against the view with the potential for the December rate hike. The futures currents are now showing 50% possibility of the December rate hike, but…

Yes. Just a little bit more color. I would also note that the pipelines in Structured Finance are good, but the movement through those pipelines is again going to be sensitive to spreads. And so we'll have to see if spreads continue to move in from where they were earlier in October. Secondly, we still think that the non-U.S. business is going to be probably more challenged overall than the U.S. business through to the end of the year. The good news looking ahead to 2016 is it at least where the exchange rates are today, we will not have the same material impact on performance in 2016 that we've had from the movement that we saw about a year ago on the Euro and the Pound as against the Dollar. Obviously that's an assumption that rates stay about where they are now. Now, looking ahead to next year, to the extent that we see an increase in federal funds rates and that's an indication of a belief that we have some sustainable economic growth here in the U.S. I think that's a good news story. We don't expect to see rates move rapidly or dramatically, but we would like to see a signal that the economy looks like it's on a sustainable growth path, and I think that's going to help both the U.S. and non-U.S. businesses. And also looking out into 2016, as we get later in the year, we begin to approach the refinancing walls that had built up in the corporate finance sector in particular. So I would keep an eye out for that looking out over the course of next year.

Okay. Thanks guys. This is super helpful. I'll get back in the queue.

Thanks Manav.

We will now go to Bill Bird with FBR.

Thank you. Ray, I was wondering if you could talk a little bit about Structured Finance. It looks like you had a nice uptick in growth. Do you think that uptick is durable? And then separately, for Linda. How do you think about managing expenses in the context of trends being a little bit slower, and maybe you could give us the incentive comp accrual? Thank you.

Yes. We do think that the growth we've seen in Structured Finance is durable. As I mentioned a couple of minutes ago, it is going to be sensitive to spreads, and so we have to keep an eye on that. We've seen particular strength in commercial real estate and that strength has been really because the transactions that are being brought to market are conduit transactions, which is where we have our strength and there is significant amount of refinancing that has to occur there. We've also seen some good growth in European RMBS. And we are going to look to see how sustainable that is, but it was a good new story in Q3. Overall, again, I think we would expect to see more strength in the U.S. than we will see outside the U.S. for near-term. But see some promising developments with respect to European Structured Finance.

And Bill, on your expense question, very carefully moderating our expenses in light of these conditions and we think we've shown pretty good discipline down the P&L. The fact that 2% revenue growth is 14% EPS growth, we are pretty pleased about that. What we see is that operating expenses in the quarter were up 4% and we've worked hard to make sure we keep the level reasonable. I think we would note first that our headcount is up 4% period-over-period and we are very careful on the hiring front. Most of that hiring has gone to the lines of business that are the revenue producers as opposed to shared services where most of our headcount has been in the lower cost jurisdictions. Secondly, I see that our CapEx, we are looking at about $90 million for this year. That's down a bit from what we had expected when we first did guidance. So we are being very careful about our CapEx and being cautious about what we are doing with our projects. The reasons for that CapEx spending being pulled in is because our projects are actually coming in at a lower cost than we expected, which is remarkable and positive and we are also looking at our performance and our incentive compensation as you noticed. Very important that everyone understands that incentive compensation is the first line of defense to protect the margins. Again the margin was 41.9% in the quarter, which we are pretty pleased about. So we will - reflects the incentive compensation line and given our views on the fourth quarter and what's happened here in the third quarter, last year in fact during this period, we put up almost $47 million of incentive compensation. This year for third quarter, we put up $33 million…

Thank you very much.

Sure.

We will now go to Andre Benjamin with Goldman Sachs.

Thanks. Guess now it’s good afternoon. My first question, we can all observe lot of the macro factors in issuance numbers to come out daily or weekly, but I'm wondering is there anything that you [indiscernible] new in terms of the value proposition that you’re clients and a way of capturing more of the value in the form of prices opposed to just being driven by the volume trends that we should be mindful of the forecast?

We have communicated at a high level the contribution that we expect price to make, and certainly, we are looking at what we can do in terms of the value proposition to support price increases. And this is our research, our communications, the quality of our insights, all of that is a package on the ratings side of the business in order to maximize the value proposition. We are also looking at cost in terms of thinking about pricing, but really the priority is value proposition. That's the same story on the Moody’s Analytics side as well, and that is the amount of information we can deliver, the data that we can deliver, how usable we can make that data and really looking at the overall utility value that we give through the data and service projects that we have on the Moody’s Analytics. So it's both sides of the business.

Yes, Andre, it’s Linda. I would note that in terms of the research we are putting out, we know specifically very high interest in our comments specifically on Volkswagen, Glencore, the City of Chicago, Commonwealth of Puerto Rico, also the pieces we've been putting out on the banking systems and also China and India. So our research effort has really been beefed-up and we feel it's very helpful to the investors. We had commented on at Investor Day, 3% to 4% price increases. Again, we are very thoughtful about how we handle that. We would note there is good pricing power in Moody’s Analytics as well as Moody's Investor Service. But again, we do feel that getting a rating provides 25 to 50 basis points of better spreads for issuers as we hear from various capital markets desks. But we do believe that ratings provide real value for issuers in the marketplace. So hope that helps you.

And are you seeing the change in the Structured Finance competitive environment? I know one of your main competitors that has some settlements in there is investing to improve and there may be some other smaller players out there that are looking to go after this business as well. So are you seeing any changes out there?

That's true and that's not a change. It has always been a business that's been an area of interest for our competitors not surprisingly, but it's also a business that is very interested in the quality of opinion and insight, especially in more distressed markets, and that works to Moody's benefit. So we certainly want to maximize the value of our commentary and the predicted content of our ratings in that area, and ironically we do benefit from some of the stress in the market because that’s when Moody’s ratings matter most.

Thank you.

We'll now go to Alex Kramm with UBS.

Hi, good morning or good afternoon rather. Just want to come back to the earlier questions around the environment and issuance trend. I appreciate all the color. I guess, the comment and question I would make is obviously we’ve seen that movie several times over the last two, three years that issuance dries up, credit spreads slow out and then things stabilize and everything is good again. So I guess - and also as the highlight I think flows into bond funds has been increasing as though it seems like we might be on that normalization base again, but just wondering that when you're talking to DCM desks and others, is there anything that they highlight that might be changed or different this time around that gives you a little bit more concern about maybe not the swing back that we've seen over the last year several times or nothing new?

Alex, I think this is - as you pointed out, these are ebbs and flows in the marketplace that we are quite used to. And I think we would say generally we feel we’re observing somewhat better information regarding investment grade as I said earlier, and high yields with spreads having retraced 100 basis points, things could break to the positive side somewhat less so with leverage loans. And obviously the short answer is, it all depends. If we get to markets stability, that would be terrific, and this week has been more stable than October to-date, but first three weeks of October were very, very choppy. So this could go either way and that makes forecasting a little bit more difficult than it usually is particularly at this late point in the year. But I'll let Ray comment a little bit further on what he thinks.

No, I've - really just echoing Linda’s comments. There has not been any new - and I would characterize, distressing news. The market uncertainties that built in the late summer, early fall, with volatility in Chinese equity markets with uncertainty about the Feds improvement on interest rates clearly transmitted through the bond market in terms of volatility and spread widening and now that is beginning to settle. I would anticipate it’s going to continue to settle absent new and unexpected news. So we just have to see. The Fed I think has tried to provide clarity. The ECB has provided clarity, and broadly speaking, I think those are the kinds of things that are going to help market issuance activity going forward. It’s just late in the year now. So we'll have to see how much of a difference it makes.

Alex, one other quick note on the investment grade side. You're probably aware, the big banks report first as we move through the reporting cycle, and as a result of that, they were first to market in October. So for the first three weeks of the month, 50% of supply came from the big issuers and many of those are larger, some of them are frequent issuer pricing programs. So that has caused October to be very backend-loaded for us and the corporates would probably people can issue now as they come through the blackout period. So again we could see a very heavy November like anything over a $100 billion in issuance we view in the U.S. investment grade market as a very good month. But we've got to see how issuance stacks up against how much more here we have left and we'll see how that goes.

Thanks for that additional color, but then, I guess switching gears - I guess, one other things, you’ve - I think Paul [ph] talked about it as well, there is obviously different reasons why people issue, and I think a lot of us always focused on the refinancing bond and things like that, but this year I think M&A has been a much bigger component than in past years, and everybody can make assumptions about the M&A pipeline, but it looks like there is a deal every day and that's certainly different than what we've seen over the last few years. So just curious, in terms of the money you make on some of these deals, can you just like broadly speaking - I know it's very detail, but broadly speaking, any difference between normal issuance from risk financing, CapEx, things like that, normal growth versus M&A, may be the deals are larger or maybe it's more levered to IG. But just generally speaking, do you like one better than the other or no difference?

No. Yes, I mean, there is going to be specific instances where we prefer one or the other, but generally speaking, no, we would be indifferent but welcome activity coming from either source of issuance.

Okay. Good afternoon. Thank you.

We will now go to Denny Galindo with Morgan Stanley.

Hi, there. Thanks for taking my questions. It sounds like Europe is driving some of the conservatism on your corporate issuance guidance, and rates are lower there and it would seem like would drive issuance. Are there any particular countries that are just not issuing as much as you think that they usually would, or is there any regional weakness over there that you can talk about?

Let me see if Michel Madelain would like to comment on that. Michel?

Sure. Yes, thanks. Thanks Ray. No, I don't think there is - the trend that’s in Europe are pretty generic across the region. We had investment grade active in the first quarter. Since then, it's been very, rather slow. What we see in high yield also is shared across the board. So there is no - the largest country in terms of issuance seem to be U.K., France, Germany and Italy and the trends are very much across the board.

Okay. And then, just also along those lines in Europe. Can we have an update on disintermediation in terms of like new issuer mandates that sort of thing? Is that still growing year-over-year? You’re still getting new companies to get a new issuer rating or are any change in the trend there?

Yes, it's continuing to grow very nicely. The expectation at this point is we would have probably about 800 new rating mandates, may be a bit more for the full-year 2015. For those of you who followed us closely, you know that’s down from a peak of about 1,000 that we had last year, but it is still very strong compared to the historical new mandate rates. So we are very pleased to see that.

Denny, also I would note that as the global banks go public with their new strategies under new leaders, and there are three of those that I can think of right away, you'll notice - and I'm not going to name them, but certainly those global banks have said that they are stepping back from certain markets and certain areas that they feel are not providing appropriate profitability, particularly where capital requirements are high in certain of those market activities. So we would see that that would be a pretty clear view about what's going on, particularly with this intermediation but we are seeing changes of strategy with a number of the European banks and it's just something that should be watched.

That's a perfect segue into my last question. Professional services, how much exposure do you have to some of these banks that are cutting their employment and professional services, and are you seeing - when they cut employment that they increase your work from professional services or decrease or - because I know that you can make the argument that it's helping them save costs by outsourcing more to your professional services group. But any comments there on how much exposure it has to the big bank layoffs, and also if you're seeing - is that positive or negative for you?

Sure. Denny, it's probably frustrating for you, the answer on professional services and Copal Amba more specifically is it depends. The banks react differently to these sorts of stresses and some are increasing their Copal Amba teams and some are making other decisions. While I’ve got the floor here for a minute, I’ll talk a little bit about professional services. And that business includes basically two things, Mark’s training business and particularly the Canadian Securities Institute business and the Copal Amba business that I'm running. So we've had a few issues in this area. And as you know, we've been thoughtful about what we’re doing with the guidance there. The quarter-over-quarter changes - I'm sorry, the year-over-year changes for the third quarter look at about an $8 million decline 2015 versus 2014. And Mark and I have worked through this, and about a third of this relates to CSI. And mainly that's due to the FX effect of the weak Canadian dollar. About two-thirds of what's going on is Copal Amba. And we thought we should be clear that last year, we had a reversal of a reserve in the third quarter from the prior period, which if you take that out, that makes up about half the difference of what's going on with Copal Amba. So we didn't have any such reserve reversals this year, so that made the comparable tougher. So some of this is just - that’s a one-off and that’s timing. So we're seeing good new sales but there has been some attrition and we are seeing some good opportunities as we said, because banks are laser-focused on costs. But it takes a bit for all that to work through the system. And Copal Amba is being used very energetically within our own company from Moody's Investor Service and particularly Moody’s Analytics and Shared Services. We’re very much growing our own Moody Shared Services India and that is very helpful to us. So we think we are in the right place with Copal Amba, but we've got just a bit of choppiness as the global banks adjust what they are doing. So hope that helps you out, Denny.

Thanks. I'll hop back in the queue.

Thank you.

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

Thanks. Good morning. So the progress on the margin from the Moody’s Analytics has been pretty impressive thus far this year. So basically and something you talk a little bit about the key drivers, I know the revenue performance has been good, and also just confidence in timing and getting to that mid-20% margin target, you’ve laid out [ph].

Mark, do you want to address that?

Sure. Peter, it's just that we are in taking good progress. As we've noted repeatedly I think, this is a work in progress. It's going to occur gradually over time, but we've had very good performance on the top line this year, which has certainly helped the margin and has illuminated the good work that we're doing on the expense side. So I think you are seeing that in the margin expansions so far. But we will see choppiness in this over time depending upon how the top line performs, which as you know is, variable from quarter-to-quarter. But we are very pleased with where we are and the progress we're making, but this is going to continue to play out over a number of years.

Peter, it's Linda. Mark and I are working together pretty closely. We are starting to see the first inklings, the first positive contributions that the Copal Amba team is able to support some of Mark's efforts in a more cost-effective way, given that those resources are lower cost. So our goal here is for all of us to work together to help Mark with the margins and the ERS business and we are just getting going on this efforts.

Okay, that's helpful. Thanks. And I was wondering, if the mix shift is a significant driver of the margin performance we are seeing this year?

Yes. And it will continue to be a driver of that. Again, we talked about that at Investor Day. It's a very deliberate part of the strategy for us to focus in ERS on emphasizing sales of our higher margin products and our higher margin services and deemphasizing some of the lower margin more commodity-type services that we've been involved in pretty heavily in the recent past. But again that's something that that's not going to happen in a big bang type of fashion. It is going to play out progressively over time.

Is it mainly ERS that's driving the margin upside this year?

Yes.

Okay. And then one last small item. I know China is not a big market for you guys, Ray, on the rating side but can you just talk about what you're seeing there?

Yes. We are involved in China through our joint-venture in the domestic market, and then Moody's is also active with the larger issuers that are under the cross-border markets and get Moody's global ratings. And Moody’s Analytics is also very much involved in that market. That being said, yes, there is certainly been some market volatility in China. It's been primarily focused on the equity markets. We continue to see growth in our joint- venture and in our cross-border business. So that has not - neither one of those legs of our China strategy had been harmed or had a decline in business as a result of the volatility. What we would be more concerned about is it’s some of the areas where there have been concerns about bubbles such as perhaps property sector or municipal debt in China. If those areas become under more acute stress, and that I think would be a more direct - have a more direct impact on our fixed income business over there.

Thank you, Ray.

We will now go to Craig Huber with Huber Research.

Yes. Hi. Thank you. Ray, could you just comment, if you would, on the debt issuance trends that you're seeing in the non-U.S. non-European geographies around the world? Just any general statements you could make there particularly on the Corporate Finance side?

Yes. In the third quarter, we had good growth double-digit growth in Asia Corporate Finance but that was in part supported by our acquisition last year taking majority control of ICRA. So that was a contributor. Because we will have ICRA in the year-on-year numbers in the fourth quarter, I wouldn't expect to see the same kind of growth coming out of Asia. The Americas were soft in the third quarter, and don’t expect a robust recovery in the Americas in the near-term. So overall the international story and the non-Europe international story on the Corporate Finance side is that we are dealing with some headwinds. We are getting the benefit of ICRA but we are dealing with some headwinds.

Okay. And then also, Ray, I want to ask you or Linda, just generally, when you look at the balance sheet in general out there of corporations in the U.S. and Europe and the debt loads that companies are carrying out relative to profits or interest expense or just GDP in general, is there anything that you’re increasingly worried about the debt loads of the various corporations about high yield investment grades, just generally out there?

We have not seen - broadly speaking, I don't think we've seen a big increase in leverage, but we are paying attention obviously to corporate profitability and we will have to continue to do so. As far as the impact on our analytics, I'll see if Michel has any additional color he would like to add to that.

Yes, thanks Ray. I think as we - I think we discussed at Investor Day, we expect some moderate increase in default rates in a year from now. Still have levels that are historically low but overall when we look at the various metrics, we follow and we publish and the number of those. We still view fairly benign clear environment basically in relatively terms. And that's true not in the U.S. but also outside of U.S. There are obviously sectors that are under a lot more - under stress, obviously energy and oil and gas are sectors where we see a much higher level of credit tensions, but more broadly speaking, I think we continue to see a more benign clear environment.

Lastly, Linda, just a housekeeping question. If you could just break down the revenues within your four areas in ratings, your high yield investment grade et cetera?

Sure Craig. So we’ll look at MIS. We'll look at Corporate Finance first. So for the third quarter of 2015, total global Corporate Finance revenue was $248 million and what we have is investment grade about $63 million of that 25%, which is up significantly from last year's third quarter of 15%. High yield was up $33 million or 13% of total corporate revenues which is down from last year’s 21%. Bank loans about $48 million, 19% of total Corporate Finance revenues and down from last year's 24%. And others about $105 million, which is 43% of this year's quarter issuance, and that's up from last year's 40%. So the total number is $248 million, which is down 5% from last year's $260 million. Moving onto Structured. Total Structured revenue of $112.5 million, up from last year's $102 million by 10%, again echoing what Ray said, we are pretty pleased and surprised with the progress of Structured Finance, our second largest business. And so asset-backed securities $20.5 million, that's 18% of total structured revenues, down a bit from last year's 23%. Residential mortgage-backed securities at $18.5 million, almost completely flat to last year and 17%. Commercial real estate finance $37.2 million, up very nicely from last year's $26.9 with 38% increase and it's 33% of the structured revenues. So again the commercial real estate line is helping itself quite a bit. Structured credit is at $36 million, up from about $34 million last year and it’s 32% of the total structured line and we have a very small de minimis others in there. So Structured story is really about the strength in commercial real estate. Moving onto FIG. FIG is usually our most consistent business line. It remains though about $90 million for this quarter. Last year was about $92 million in the quarter. Banking at about $58 million, 65% of which the FIG revenues, about flat to last year. Insurance at about $26 million, 29% of FIG revenues, about to flat to last year. Managed investments about $3 million, which is 4% of last year as the quarter total and flat to last year, and others about $2 million and 2%. And lastly Craig, PPIF. Total of $90.6 million for this quarter, up from $88.5 million, last year’s at 2% increase overall. The PFG and sovereign line at $46 million is 51% of PPIF revenues and that's 5% increase from last year 51% of total revenues Project and Infrastructure, $44.5 million, which is just about flat to last year and 49% of total PPIF, and other is de minimis to come to, as I said, almost $91 million. And we talked about MIS Other, which includes the consolidation of ICRA, but I think that's the main story there, Craig.

Great. Thank you.

We would now go to Bill Warmington with Wells Fargo.

Good afternoon, everyone.

Hi Bill.

So a question for you on cash flow. You mentioned year-to-date up 27% and attributed to changes in working capital. The cash flow margin, the trailing free cash flow to revenue has been very strong at 31% top of the group that we cover. And I wanted to ask if there was anything that would keep that metrics from continuing to grow over time, and maybe give us a little thought in terms of what's been making it particularly strong?

Sure, Bill. It's pretty hard one for us to predict. I would tell you that we have invested in our collections area to keep our receivables very strong and to keep them current. And so we have been very careful to make sure that we work hard on our collections. So that would be one focus area. Generally cash flow should probably grow in line with earnings, and that would just be the best indicator that we can give you. We watch our cash flow very careful. I think you can see from the results we’ve put up this morning. We work on every line, up and down the P&L, and we look part at changes in our cash flow, but this is a little bit tricky for us to predict. So as a rule of thumb, just look at it growing in line with earnings. I think that's probably the best measure that we can give you.

Excellent. All right. Well, thank you very much.

Sure.

We will now go out to Tim McHugh with William Blair.

HI. This is actually Sandler [ph] calling in for Tim. Just to build on some of the commentary earlier about disintermediation in Europe with lot of the larger big banks kind of cleaning up their balance sheets and exiting some businesses. Is that something that you’re expecting an uplift from next year, or is that just kind of longer term trend you're kind of aware of?

I think it's really a long-term trend, a secular trend. We do see some cyclicality in terms of the pace of new rating mandates or overall rating relationships that we have. But the disintermediation story has really been a very, very long-term story, and I think will continue to be. Looking at the financial assets, in Europe in particular that are in the banking system versus in the capital markets, there is a lot of runway there. If it’s even going to get near to the allocation of financial asset that we see in the U.S. and it may never get that far but that there are trillions of euros in play that are available to go into the fixed income markets and out of the loan markets. So I would just say it's a long-term story and it will continue to support our business.

Okay. Thank you. That's all I had.

We'll now go to Doug Arthur with Huber Research.

Yes, thanks. Two questions. One, number of question and then a big picture question. Linda, what explains in this particular quarter the divergence between operating expense being flat? I know currency was a factor there and SG&A being up 7%, and obviously as you go into the fourth quarter, incentive comp will play into that, but is this trend in SG&A likely to continue? That's the first question.

Sure. I think we are keeping a careful eye on operating expenses, Doug. There is nothing more to it than that. On the sales side, we are investing on that front. Mark and Michelle may have more to add, but as we talked about in our commercial group, we’ve been investing there. And the kind of top like, we are able to put up at 2%. It’s a little bit slower than we would like, but again with the S&P 500 average at four-tenth of 1%, we are running 5x better than other companies and that requires that we continue to look at what's happening on the sales front. Mark has a very nice set of fast growing businesses and that requires that we keep the sales focus going. I guess lastly what I would say before I ask if the others would like to comment, the FX sort of help on the expense line, doesn't help quite as much on SG&A as it does on operating expense, that’s just a peculiarity of the way the expenses way out. I hope that helps you a little bit. And I’d ask Mark or Mitchell if they have anything else to add. Ray?

I think that’s it.

I think that’s about it, Doug.

Okay. And then - it’s very helpful. And then, we’ve kind of attacked this question from a lot of different ways today. But if you step back and look at year-to-date in the ratings business, Europe 14% year-to-date and the U.S. which I think choppiness in the third quarter notwithstanding is still a very good year, you’re down 7% overseas, some of that's currency. But, Ray, it sounds to me like you don't really expect that to change unless the economies, particularly in Europe, start to grow again strongly. Is that fair?

Yes. At the end of the day, the provision of liquidity and quantitative easing may be helpful, but we are really looking for economic growth to drive increased fixed-income activity. There are things that could help catalyze that. The European Central Bank and other central banks around the world had been engaged in to try and encourage growth. But especially at this point in the cycle, I would rather see - frankly I would rather see some increase in interest rates as a result of greater confidence in the global economy. And that is - it looks to be a more likely scenario for the U.S. than it does for some non-U.S. economies going into 2016.

Okay, great. Thank you.

We will now go to Vincent Hung with Autonomous.

Hi. How much were the merit comp increases you put through?

Well, merit comp increases are sort of 3-ish percent, Vincent, maybe a little bit less than that.

Okay. And just last one. When it comes to the M&A-led issuance, how many of those deals did you get extra fees for accelerating the rating if the issuer just wants to get the deal done quickly so they can close?

Vincent, we don't break that out. Sufficed to say that if an issuer is in a great, great hurry, we can potential charge little bit more for that, but that's not in percentage that we want to comment on mostly because it moves up and down so dramatically.

But it’s not prominent.

Not particularly.

Okay. Thanks a lot.

Sure.

And we'll take our last question from Patrick O'Shaughnessy with Raymond James.

Hi Patrick.

Mr. O'Shaughnessy, please check your mute function. We’re not able to hear you.

My apologies. So my first question was with ESMA report that they put out in earlier October talking about concerns about the competitive environment in Europe. What do you make of that and how are your conversations with ESMA going/

I think our relationships with ESMA is very professional and constructive. They are our regulator and they are in doing inspections, making enquiries and we have to respond to those and we do. They also are required to produce certain reports and analysis pursuant to the regulations in Europe and the reports that they have produced this fall along those lines. And they've been asked to comment on among other things, competition. I think it's fair to say that they would encourage competition, but that they also believe that they have the tools necessary to appropriately regulate the market in Europe and are not, at this point, encouraging additional legislation pursuant to the report that they've prepared.

Yes. I appreciate that. And then last one real quickly for me. Your full-year guidance for Enterprise Risk Solutions implies flattish, I think slightly up quarter-over-quarter revenues in the fourth quarter. I know that typically the fourth quarter is very seasonally strong for that business, and last year probably a little bit more so because there was pull forward. Are you expecting a little bit less seasonality in the Enterprise Risk Solutions in the fourth quarter of this year?

No. Doug, we think the fourth quarter is going to be a strong quarter. It’s just that last year the fourth quarter was an extraordinary quarter. And so the comparable is very tough, but in absolute dollars, the fourth quarter is going to be a big quarter.

Okay. Thank you.

So it's Linda, just a couple of housekeeping items to make sure we've got everybody working through their models on the same page. So we've talked about where we see the year going, a view might be sort of flattish fourth quarter to last year, which means we have to work on our expenses. We often talk about our expense ramps and we often benchmark this to our second quarter actual expenses, which was about $500 million. At this moment, we are expecting an expense ramp of maybe $20 million to $25 million in the fourth quarter over the second quarter. That's a little bit lighter than what we did last year. It's just very important that everyone knows that if things break favorably and we start seeing issuance really pickup, we could have to put up some more money for incentive compensation. Moving against us, is as Ray said, we're working with the pound, we budget at $1.52 and the euro a $1.12, unfortunately the euro is now at $1.10 and that makes our lives more difficult. So we'll see where the euro goes, but it has moved down a bit with more recent comments on quantitative easing. So given these softer conditions, we are working very hard on our expense line. We continue to repurchase our shares as we said, and we are waiting what will happen with conditions here in the fourth quarter but this week we have seen things improving a bit. So that's I think about everything we have to say. I’ll look to see if Ray or any others have anything else that we need to wrap this up.

Just want to confirm that there are no more questions. Is that correct?

There are no other questions at this time.

Okay. I want to thank everyone for joining us today. We look forward to speaking with you again in the New Year. Thank you.