Good day, everyone, and welcome to the Moody's Corporation Third Quarter 2023 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 call over to Shivani Kak, Head of Investor Relations. Please go ahead.

Thank you. Good morning and thank you for joining us today. I'm Shivani Kak, Head of Investor Relations. This morning, Moody's released its results for the third quarter of 2023 as well as our revised outlook for select metrics for full year 2023. The earnings press release and a presentation to accompany this teleconference are both available on our website at ir.moodys.com. During this call, we will also be presenting non-GAAP or adjusted figures. Please refer to the tables at the end of our earnings press release filed this morning for a reconciliation between all adjusted measures referenced during this call in U.S. GAAP. I call your attention to the safe harbor language, which can be found towards the end of our earnings release. Today's remarks may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In accordance with the act, I also direct your attention to the Management's Discussion & Analysis section and the risk factors discussed in our annual report on Form 10-K for the year ended December 31, 2022, 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 statement, set forth important factors that could cause actual results to differ materially from those contained in any such forward-looking statements. I'd also like to point out that members of the media may be on the call this morning in a listen-only mode. Rob Fauber, Moody's President and Chief Executive Officer, will provide an overview of our results, key business highlights and outlook. After which, he'll be joined by Caroline Sullivan, Moody's interim Chief Financial Officer, to answer your questions. I will now turn the call over to Rob.

Thanks, Shivani. Good morning, and thanks to everybody for joining today's call. I'm excited to share our strong financial results as well as some key business highlights. And that's going to include some notable innovations and investments, progress on our GenAI strategy and a spotlight on our fastest-growing business in MA, that is our Know Your Customer business, or KYC as we commonly refer to it. And before I get started, I just want to say how proud I am that Moody's has again finished #1 in the Chartis RiskTech100. That is the most comprehensive global ranking of risk and compliance technology providers. And it is a great recognition of the breadth and depth of our solutions based on both market research and customer feedback. I also want to take a moment to recognize the incredible resilience and dedication of our people. And I've really appreciated how our people have come together recently to support each other and to continue to deliver for our customers. So as you all will have seen from this morning's earnings release, we reported 15% overall revenue growth with strong top line performance and improved adjusted operating margins from each of our businesses. And that contributed to a 31% increase in adjusted diluted EPS in the third quarter. MA revenue grew 13% while achieving its fourth consecutive quarter of 10% ARR growth. And MA's growth continues to be led by our KYC business. We now have over $300 million of annualized recurring revenue, or ARR. And that's growing at 18%. MA also produced an adjusted operating margin of 33.6%. Now MIS grew 18% in the quarter as the leveraged finance issuance markets continued to improve from last year's subdued levels, I would call it. And MIS revenue is now expected to grow in the mid-…

[Operator Instructions]. Our first question comes from Heather Balsky with Bank of America.

I was hoping you could talk about the refinancing wall that you've just addressed and how you're seeing your customers manage through the higher-for-longer rate environment. Are they delaying refinancing right now? Is more getting pushed into 2024? And when you look at those potential customers who may refi, any concerns about some of that debt not getting refi-ed that maybe those companies could be under some stress?

Heather, yes, I'd say that, first of all, just in terms of how our customers are thinking about financing and tapping the market, and you've probably heard me say this in the past, volatility is really the biggest challenge, I think, for a CFO or a Treasurer. At the end of September, we saw a little bit of that with the jobs print and questions about rates and how much higher for how much longer. Certainly, geopolitical events can also erode confidence. I don't think we are in a risk-off mode at the moment. I would say there is some caution. But I don't think we are in a risk-off mode. And in fact, where we see the most leveraged issuers, which is bank loans, is where we're actually seeing some issuance at the moment. So that's -- I think that's good. When I think about the maturity walls, Heather, it's interesting. Overall, they're up about 10% between the U.S. and Europe. If I zero in on investment-grade maturities, they're up about 12%. And one interesting thing here, Heather -- and by the way, the U.S. study is 5 years and the Europe is 4, so I don't mean to confuse everybody. But when I look at the U.S. study, and we'll share these reports with folks if they're interested after the call, the share of U.S. investment-grade maturities within the first 3 years of that 5-year study has increased. So it's up to the low 60s percent from the kind of high 50s this time last year. And I think what that means and the reason for that is that companies have, in some cases, opted for shorter financing tenors. And also, I think higher rates have dissuaded some refinancing, so -- and it's interesting to look at what's going with average tenors. As far as the last part of your question, do I think that some issuers may opt not to refinance? I think for many folks, that will be difficult to do. So there may be select companies that have the cash to be able to do that. But I don't think that will be a widespread trend.

We'll take our next question from Faiza Alwy with Deutsche Bank.

Rob, I wanted to stick with issuance and ask you, you said that current trends are well below sort of normal levels. And I'm curious if you've evolved your view in terms of what normal issuance might look like in the current higher-for-longer rate environment.

Yes. As I said, a couple of things that lead us to believe that there is some, I'd say, pent-up demand. I mentioned this concept of corporate debt velocity. That's just the amount of issuance over -- the amount of corporate issuance over the amount of corporate debt outstanding. And that's really at a decade-plus low and continues to be this year. So that leads us to believe that there is further opportunity for issuance. I talked about the refinancing walls. And over the medium term, they look promising. The other thing I think that tends to be a catalyst for issuance is M&A. And it's been a pretty spotty year for M&A. And it's about what we had expected. But private equity firms have a tremendous amount of dry powder. Somewhere, I think the other day, I saw they have $2 trillion to invest. I think M&A is probably not a Q4 story at this point. I think that's something that we're going to look into 2024 to see if that can be a catalyst for issuance. So I do think there are some things that at some point can change the trajectory of issuance.

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

Just staying on the ratings side for a minute, can you talk about how your commercial interactions have changed at all with issuers in this? Again, everybody is using a higher-for-longer environment here. I guess, what are you doing to drive, I guess, new issuers? And I'm asking from the perspective also -- and this is very anecdotal. But I've heard in Europe, for example, there are some companies that are, actually given the higher interest rate environment that they haven't seen in many decades, are considering ratings for the first time. So again, maybe anecdotal but just wondering what you're seeing to, I guess, feed to -- continue to feed the business outside of the, I guess, macro environment.

Yes, Alex, I would say two things. So we have really active engagement with issuers on both sides of the ratings business. One, as you'd expect, very active engagement with the analysts, especially around -- especially in periods like this, where there's some economic uncertainty and lots of questions from investors, lots of engagement with our analysts. And that's why having very experienced analysts is so important so that we can communicate effectively with our issuers, understand their credit stories and be able to communicate those to the investors. And that's a big part of value proposition. But second, Alex, I might also point to we've tried to broaden out the product suite over the years in MIS so that we can engage with not just issuers in the public markets but folks who may be thinking about coming to market. So a number of years ago, in fact, back when I was in MIS, we developed something called a Private Monitored Rating. And that was a great tool to be able to develop an analytical relationship on a private basis with a company who wanted to develop that relationship and understand what their credit profile looks like and also give them the opportunity then to flip that into a public rating if they decide they want to tap the markets when there's a window. So that's -- we have a commercial team that's probably between 150 and 200 people around the world, very engaged with not only our existing issuers but also with companies who may be thinking about getting a rating either public or private. So pretty active engagement.

But not seeing a change there, given the higher rate environment, that was really my question.

No. I mean, Alex, in fairness, I think the first-time mandates, when you look at that, that's obviously come down from the highs of 2020 and '21. And that's, I'd say -- we often say it's pretty closely aligned to the leveraged finance markets. But we're still looking at something in the range of 500 FTMs for the year. And as I said, lots of engagement. In fact, that number started to tick up this last quarter.

We'll take our next question from Andrew Nicholas with William Blair.

I wanted to ask a little bit more on the monetization plans for Research Assistant. I think you mentioned it would be an add-on cost. Is there any additional color you can give there in terms of maybe the magnitude or the potential opportunity? And then maybe relatedly, of the 150-plus customers who previewed the tool, is the expectation that the vast majority of them would opt in? Or what kind of success rate do you have within the customer base that did have access to the tool already?

Yes. These are all great questions. And I want to give you answers to all of them, but I'm probably going to be able to give you better answers in the next quarter. So I guess, the way we are thinking about it is again we're trying to preview this with our customers so that we can get feedback so that they can iterate the product, so we can think about how we want to price and package that. I expect that many of our users will get some basic level of functionality. And other users will opt in for full functionality. And as I said, we envision that as being an add-on. We're getting ready to go into our annual renewal cycle. So we'll have a very good sense on the next quarter call. We'll be able to give you some update on what that take-up looks like. And then you're going to see that then in our -- in how we talk about our digital insights business for -- prospects for that business for full year 2024. Over -- I'd say, part of the vision here is we also want to be able to expose those customers to different content sets than they might have access to today. So imagine that the initial customer is one of our CreditView customers. They're already a customer, and they decided they want to opt in to the full Research Assistant functionality. But they may not be a customer of other content sets, so let's say, some of our climate and physical risk content. We will be working over the course of the next year, and we're already working on this and we'll be working on this, to be able to provide access to customers for content sets that they find valuable to effectively kind of comingle, right? So when I ask for a question about credit and I want to understand the impact of extreme weather events on the credit profile of the company, we'll be able to return that answer. So that's why you heard me also mention the importance of entitlements. That's going to be very important for us to get that sorted out across the platform so that we can entitle customers to new content sets and ultimately monetize all that. So again, I know -- on the next earnings call, I'll be able to give you a little bit more insight into the traction that we've gotten with our customers.

We'll take our next question from Toni Kaplan with Morgan Stanley.

Just given that we're in late October now, and this is usually the call where you give some color on how you're thinking about '24 issuance, Rob, maybe just give us your initial thoughts on sort of what you're seeing and how you're thinking about '24 just shaping up?

Thanks, Toni. Yes, happy to do that. And I'll give you some -- I'll talk a little bit about what's on our minds. And obviously, on the next call, we'll take you through the guidance for 2024. But first, I guess, I would say we expect some further economic deceleration in the U.S., Europe and China. But I think probably a reasonable probability that we achieve kind of that mythical soft landing and avoid a recession. Inflation has moderated. There's still some uncertainty over rates. I think generally, the market is concluding that we are about at peak rates. Obviously, there's some headline risk though around inflation prints and job reports. Again, you kind of see what happened at the end of September. And that's important in terms of the market getting comfortable that we are, in fact, at the kind of the end of the tightening cycle. I would say that we expect default rates to pick up in 2024 but really only modestly above long-term averages. And if that's the case, spreads should be relatively well behaved because they're pretty tightly correlated to default rates. I mean, you heard what I said about M&A. I think that's really more of a 2024 story. We'll have a better sense for that as we round into the beginning of the year. And we've got some pretty sound structural support from the things that I talked about. So we'll get into more of that on the next earnings call. But hopefully, that gives you a sense of some of the things that are factoring into how we're thinking about 2024.

We'll take our next question from Scott Wurtzel with Wolfe Research.

Maybe moving back to the MA segment. The results in R&I and D&I stood out to us and were pretty encouraging. So I was wondering if you can maybe go over any of the specific products, verticals or solutions that were driving some of the strength that we saw there.

Thanks, Scott. Good to have you on the call. So yes, we continue to see some pretty strong both demand and also utilization. That's important, right? We've talked about the utilization of our products is very important to the overall kind of value capture but around our economic data and our research and our models. I mentioned that we have just recently expanded our coverage within CreditView. And that is integrating the content from Orbis, that company database, and also our credit score. So we -- a while back, we started to provide credit scores and effectively every company that is in that giant database. And we have been integrating that into a variety of our different solutions. And we've gotten some very nice take-up from that. I would also say that, again in times where you've got economic uncertainty, there continues to be a good bit of demand for economic data and content and ability to kind of forecast and plan. And we have continued to see that. We've also seen some interest coming in from some of the government sector. So the growth there has been maybe even a little bit higher than from some of our other segments. So all in all, a number of things that are contributing to -- allowing us to keep powering along in terms of growth in that segment. And going forward, we've got the coverage expansion in Research Assistant that I think will provide future runway for growth.

We'll take our next question from Craig Huber with Huber Research Partners.

Rob, what's your updated thoughts on the private credit market out there? And how significant do you think it could be for your ratings business here? And is there an area here where this could potentially be a headwind to ratings growth if it's not picked up, the stuff there is not rated? I do have a housekeeping question, if I could throw that in there. What's your incentive comp for the first 3 quarters, please?

Yes. So I'm going to let Caroline get to that in just a second. But let me take the private credit question first. And Craig, we've talked about this a bit on the calls before. And there are places where you could see this as a headwind, where companies decide that they're going to tap the private credit market rather than the public markets. We have seen more and more cases where companies have done that. And they've actually come into the private -- into the public markets. That makes sense. Because in general, the public markets tend to be cheaper than the private markets. So I actually -- when this kind of first came up, and I'd say maybe it might have been a year ago when we first started talking about this in these calls, I've gotten, I'd say, more and more positive on the opportunity for Moody's. And while acknowledging what I just mentioned, there's just a lot of opportunity for us to serve this market. There's a lot of opacity in this market. When you're in times of increasing credit stress, the investors in those markets want to have a better understanding of what the credit risk is of the investments that they're holding. And so we've had some really good discussions both with alternative asset providers, so the private credit lenders, as well as investors in their funds. And so we're seeing demand for some form of credit assessment coming from both of those constituents. And I spent a good bit of time actually engaging with the private equity firms and alternative asset managers. And there are just a number of ways that we already work with these firms. They have pretty extensive relationships across the firm. But there are more and more ways that we're continuing to support them. So in general, Craig, I actually see this as a net positive for us. It has meant that we have had to think about our product offerings. I mentioned the coverage expansion in CreditView. And importantly -- one important reason we did that is to make it more relevant to that market. We've thought about some of our rating products and assessment tools. So it has led us to think about the product suite and make sure that we're evolving the product suite to meet the needs of what is obviously a growing market.

So Craig, with regards to incentive comp, our accruals align with our actual and projected financial and operating performance. And we expect incentive comp to be between $370 million and $390 million for the year with approximately $90 million for the fourth quarter. For Q1, it was $89 million. For Q2, it was approximately $100 million. And for Q3, it was approximately $100 million.

We'll take our next question from Owen Lau with Oppenheimer.

So going back to MA, I think the margin was pretty strong at 33.6%. And I know you maintained the margin guidance for MA. But going forward, given that you have been investing into GenAI, how should we think about the sustainability of your margin?

Owen, great question. And just on the margin, maybe I -- just one thing I'll say is I'm not sure I'd get too wound up about a margin in any given quarter. And you've heard us talk about some seasonality in both expenses and the way that revenues can come in. Obviously, it was a good quarter for us. I think I would say that we have really tried to be disciplined across the business and to think about how we are reprioritizing across the business to make sure that we are putting resources against the highest and best opportunities. And obviously, we have made some investments to date in GenAI. In fact, I was just with our team that is providing our LLM as a Service across the company, it's probably 25 people. Some of those are from different parts of Moody's and some of those are new to Moody's. I guess, what I would say, Owen, is looking forward, I mean, you've heard me talk about we want to lean into growth and invest in growth. And one reason that's so important is, in some of these markets, you have literally new customers coming into the market adopting solutions. So we talk about KYC and how that's broadening beyond just meeting regulatory requirements into wanting to understand who you're doing business with, what your supplier risk looks like. That means you have new customers coming into the market. And you've seen our retention rates, pretty similar. Many other players in the market who provide services like this have very robust retention rates. That means those customers are sticky. So once you get that customer, it's hard to dislodge that customer. So while we have a lot of market growth, we want to make sure we invest in the products and the sales distribution to make sure that we get those customer relationships. And then over time, as we continue to build more and more scale, we will have the opportunity to grow the margin. Next year, I guess, the other thing I would say with just GenAI investment, it's early days, right? I mean, yes, I've got a team here I mentioned, but we haven't started putting customers on the products yet. And so that means that we're going to have growth in our expenses around compute capacity and other things. I imagine we'll continue to be building out kind of our capabilities across the firm next year. But we'll also balance that with making some hard calls and being very disciplined in where we invest across the entire business. So hopefully, that gives you a little feel, Owen.

We'll take our next question from Seth Weber with Wells Fargo.

I wanted to actually follow up on that question. The -- I was intrigued by the KYC discussion in your remarks. I think you said 20% of MA customers buy KYC today. I was just wondering, can you just talk to what that trend line has looked like and where you think that could go from like a wallet share perspective? And I think you may have touched on this a little bit. But are these customers that are not using your -- are these new wins? Are they customers that aren't using anything today? Or are they conquests? Or just how we should think about that opportunity?

Yes, it's a great question. And this is probably something we're going to be talking with you more about next quarter, would be my guess. But again, if you think about what has gone on historically, that customer base, it really started really in financial institutions and mostly in banks. And then it started to evolve as all corporates had to start complying with different sanctions regimes around the world. But also, as corporates said, hey, we want to start -- this trend I talked about around better understanding who you're doing business with has driven a need from our customers to really get foundational master data and then build a set of -- leverage analytics on top of that to help them think about things like sales and marketing optimization, extending trade credit, onboarding and monitoring customers and thinking about supplier risk. Those are -- that's a set of activities that almost every one of our companies, our customers is doing. And so we're having conversations with more and more and more of our customers around, "Well, how do you think about the master data and linking then the data and the analytics that you have at your firm and that we can layer on top of that to help you get a better, more holistic view of who you're doing business with and to power those different use cases?" And so that gives us some confidence that we're really going to be able to grow in the corporate and government sector even faster than what we've done. It's a small -- you can see the customer split. But we think we have an opportunity to really get some growth there. And I think you'll hear us talk more about that in the next quarter when we start to talk about what our product pipeline looks like for 2024.

Our next question comes from George Tong with Goldman Sachs.

On Slide 10, you trimmed your issuance guidance from mid-single-digit growth to low to mid-single-digit growth. And the cuts are centered around investment grade, leveraged loans and structured finance. How much of your updated issuance outlook is locked because of refinancing needs versus discretionary in nature and more influenced by macro considerations? And then related to that, does the refinancing pipeline, particularly in high yield, what does that tell you how quickly that issuance can expand for next year?

George, I'd tell you what, I'm going to try to give you some insight. You're asking about fourth quarter, right, the assumptions going into the fourth quarter. And you talked a little bit about refinancing and how much does that give us confidence, how much is "kind of in the bag." But let me give you some insight, and I think it's going to be helpful for everybody on the call, into how we are thinking about fourth quarter from both an issuance and revenue standpoint. And I'm going to talk a little bit -- I'm going to talk -- focus more on really sequential growth in issuance and revenues than maybe perhaps I normally do. Because I think in some ways, at the moment, it's a little easier to triangulate back to the environment that we'd just experienced in the third quarter versus was a very different environment a year ago. So overall, we're assuming low to mid-single-digit decline in total sequential issuance growth for the fourth quarter versus the third quarter of '23. And that translates into high-teens growth on a year-over-year basis now for Q4, looking back to Q4 '22. And then that gets us to our low to mid-single-digit issuance guide for the year. And let me drill down, George, because you were touching on corporates, we're assuming that corporate issuance grows, call it, mid-single digits for the fourth quarter versus the third quarter of '23. And that translates to something like mid-single-digit revenue growth for corporates in the fourth quarter versus the third quarter, okay, so mid-single-digit issuance and revenue growth sequentially in the fourth quarter. For all other ratings lines, we expect pretty flattish revenue growth versus the third quarter of '23. And if you -- if now I come back up to overall…

We'll take our next question from Ashish Sabadra with RBC Capital Markets.

I wanted to focus or drill down further on the insurance ARR. We saw a material improvement there from 6% last quarter to 8% in the third quarter. I was just wondering if you could provide some color, where you're seeing that improvement. We obviously saw the ExposureIQ product at the Innovation Day. So is it more driven by the Climate Solutions, the RMS acquisition or the core business, the historical ERS business? So color on that one would be helpful.

Yes, Ashish, thanks. It's a good question. Last quarter, I think we talked about hitting that high single-digit mark for ARR growth within insurance and then you see 8%. And that's, as you said, improved. And I'd say there's a few things that are going into that. And as you know, we've got, what I'll call, kind of a P&C franchise, which is really historically the RMS franchise. And then we have the life franchise or historically, the Moody's franchise. And now all of that is our insurance business. And in P&C, we have started to see an improvement in ARR growth from our core RMS customers. And some of that is just good old-fashioned blocking and tackling and great sales execution. And we have a very robust, intelligent risk platform. That's the SaaS platform. So we're having some nice success in migrating people from on-prem solutions to the SaaS platform. And we're also, as you mentioned, starting to roll out new solutions. It's giving us an opportunity to continue to not only bring in new customers but also to be able to do more for our existing customers. So that's one. I would also say that while it may not be showing up in the insurance segment, we also feel very good about the cross-selling synergies that we're seeing, where we've got insurers who may be buying solutions from other parts of Moody's Analytics. So a good example is around KYC and master data. And then on the life business, so we -- over the last couple of years, there was some growth -- one of the drivers was around some of the IFRS 17 accounting standards. Some of that is now in place. But now we're in a wave of kind of product enhancements and other things. So we still have -- actually have some very nice growth in the life business. So all in all, pretty encouraged by the -- not only the growth in the insurance business, but I think the opportunity for us to continue to see some further acceleration there.

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

Just wanted to ask real quick, any -- first off, any disclosures you can give us on revenue or growth in your ESG climate businesses there within Moody's Analytics? And is this, at this point, still mostly RMS and insurance? Or is -- it sounds like you were alluding to some cross-sell opportunities as well. So any color there would be appreciated.

I'm going to flip that over to Caroline.

Sure. Maybe we'll answer the RMS question first. So we are on track to achieve $150 million of RMS-related incremental run rate revenue by 2025. And with regards to climate and ESG, for 2023, we expect about $200 million in annual revenues. They're growing at a double-digit pace. So there's really ongoing demand from our customers with regards to more information around climate that's really helping us out with that.

Yes. And I'd say that, obviously, the bulk of what Caroline just talked about is from RMS. Beyond that, we've got ESG scores. We've got the ESG module, which is an extension of our CreditView module. And we also have a sustainable finance franchise that produces second-party opinions on labeled bond issuance out of the rating agency. All of that is what goes into ESG and climate. And the other thing I would say is that, I mean, Caroline is right. We've got, I think, healthy demand -- ongoing demand. But I gave the example of integrating the RMS transition and physical risk data and models into our banking solutions. So that was always the plan. And those kinds of things are going to help us continue to grow that overall pool of revenue from ESG and climate going forward.

And we'll take our next question from Andrew Steinerman with JPMorgan.

I just wanted to jump into RMS a little bit more. First here, could you mention how well RMS is growing in the third quarter? And surely, you definitely caught my ear with the earlier comment about how Moody's is integrating the RMS climate risk data into ESG solutions for banks. So my question is how much of RMS revenues are now coming outside of that core P&C insurer? And are the products really different when you're delivering RMS data to banks than insurers?

So I don't think -- we don't disclose RMS growth at the -- on a quarterly basis. But I can tell you that our target of RMS revenue, including synergies, to grow in the high single-digit range for 2023, that's -- we're still on track for that. And as I mentioned, the two components is RMS growth is, what I'll call, core growth has been picking up. I think we all understand it was a fairly low-growth profile when we acquired it. That is improving. And we are starting to get more and more synergy revenue. And I guess the other thing I'd say, Andrew, is something like integrating the content into our banking solutions, we'll capture that as synergy revenue. But you won't necessarily see that in the insurance segment, which is why I think it's important for us to be able to give the color on how we're capturing synergy across the broader business. And Andrew, can I make sure I just understand that last bit of the question, it was the difference in insurance delivering in insurance and banking?

Yes. So when you look at the type of RMS climate data that banking customers are consuming, is it very different than insurers? And let me just remind you, like when you look at a cat model, you've got to be expert genius to consume that data.

Yes, you do. I actually, in a way -- I've said this before, in a way, I've always -- I've sometimes thought of that content is in some ways trapped in very sophisticated insurance workflow software, right? So there's really, really rich, detailed weather models, climate models and massive amounts of data that has historically been used in the RMS software for the larger global insurers and reinsurers and brokers around the world. And the reality is -- and this was a main driver of why we bought this company. We knew that there was going to be a lot of demand for that content but delivered in a different way. So for instance, we've come up with something called Climate on Demand, where we can actually do fairly simple scores and give you an average annual loss estimate. So this is the financial quantification of a weather event on a given property. And we can go down to a 10-meter resolution. So banks are saying, "Hey, I'm underwriting a commercial loan. I'm securing it by -- I'm underwriting loans, securing it by commercial real estate. And I understand the insurance policy is an annual policy, but this is a 15-year loan." And so I want to start to understand -- so we are doing exactly what you just described is how do we take that content and deliver it to customers in different ways that are consumable for them in their workflows in ways that are valuable? And that, I think, was very difficult for RMS to do as a stand-alone company. That's part of the value that we're bringing here.

We'll take our next question from Russell Quelch with Redburn Atlantic.

I noticed there was a small uptick in the expected restructuring charge to '23 versus what you said in Q2. I know it's very small, but wondered what's driving that. And maybe sort of broader question, is there room for further restructuring in '24 if the economic environment doesn't pan out like you laid out in response to Toni's question?

Yes, Russell, I think I'm going to hand that to Caroline.

Sure. So we expect our restructuring program to be substantially complete by the end of the year. We are forecasting up to $205 million for about $100 million to $110 million in MA and $90 million to $95 million in MIS. And the charges relate to both real estate rationalization and workforce optimization. And we inspect -- expect to incur restructuring charges between $20 million to $40 million in the fourth quarter, over 65% of that being related to real estate. So with regards to expanding this into 2024, we have no plans for that.

Yes. And Russell, I would just -- to add to that, it was interesting, back when we first announced this, I think it was on this call a year ago. And I got some questions from people like, "Hey, why are you all doing that?" And I don't get those questions anymore. We really took some hard decisions and took a hard look at the business and figured out where we wanted to reprioritize. And as Caroline said, we've continued to do that through the course of the year. But I think in terms of restructuring program, we're done. There will still be -- and you heard me talk about this. We're still going to be thinking about where we move resources and prioritizing things. But I think as far as restructuring, I think we're done.

We'll take our next question from Shlomo Rosenbaum with Stifel.

I had kind of an operational question for you, Rob. Just looking at the operating profit going up pretty substantially in MA from 2Q to 3Q, I was wondering if you could just discuss more kind of detail around what actually happened there. I don't usually see that kind of move in your business. Was it getting out of a lot of leases at one point in time? Or can you just give us some on-the-ground thoughts of that? Because usually, I think of your business is very much in that area. Your costs, a lot of them are people. And I'm not sure that you had that kind of movements within your headcount.

Yes. Thanks, Shlomo. And I guess, I'll reiterate the kind of health warning of I don't want to get overly fixated on 1 quarter. Obviously, it was a good quarter from a margin perspective. But we do have some seasonal spending patterns in MA. This year, I think, is no different. And obviously, you're looking at then our full year guidance and what that implies for the fourth quarter. And obviously, that means that kind of margin will be a little bit lower in the fourth quarter than it was in the third quarter. So kind of why is that? And I would just say that as we go into the end of the year, we've got all sorts of projects that start to -- people are trying to get them done by the end of the year. And we also have a good bit of increase in selling activities, just a huge renewal and sales period for us. And the other thing I might say is that, again you've heard me talk about this reprioritization. You saw that we took some additional actions that were reflected in that updated restructuring charge. So there was -- there were some things that went on over the course of the summer. That was part of that reprioritization. And some of that went into that restructuring charge. Some of that then flowed through -- we saw that flow through. But then in the fourth quarter, as I said, we've got a plan for investments. We know we're going to have a lot of selling activity. And the other thing I'd say is if you think back to the call back in February of -- earlier this year, I mean, GenAI wasn't even a thing. And so we've had to figure out how are we going to get after GenAI? How are we going to have the right resources with the right skills and really go after that and fund that internally? And so again, that was all part of the kind of the reprioritizing and repositioning within the business. So hopefully, that gives you a bit of a sense. But I wouldn't get too caught up just in this quarter.

Our next question comes from Jeff Meuler with Baird.

Want to ask a long-term question on corporate debt velocity. I hear you that it's the lowest it's been in a while. There's a lot that's impacted issuance. We should see cyclical recovery. And refi wall should be supportive. But if you look at the very long term, like a multi-decade view, I'm curious what the data shows in terms of correlation. After a period of a material interest rate increase, does corporate debt velocity tend to persist at a low level? Or is that correlation not really there?

Yes. This may be -- you may have stumped the professor on this one. I've got the data, but I don't have it handy. But what I would say is that we have looked at issuance -- and so I'm not going to necessarily come at this from a debt velocity standpoint, but we have looked at issuance in periods of higher interest rates. And I think it's during the period of transition is when we typically see more challenge to issuance. So it's not simply an absolute higher level of rates that is the headwind. Typically, higher rates are also accompanied by economic growth, which ultimately is positive for issuance. So over the longer term, we tend to see that correlation, which is supportive of issuance. Maybe the other thing is, I mean, just thinking out loud here is if we go back decades, the size of the markets, just vastly different. So I just don't know how comparable that really would be. But you know what, there might be something we can follow up on with you and dig in on.

Our next question comes from Jeff Silber with BMO Capital Markets.

This is Ryan on for Jeff. Just a quick clarifying question, looking at the quarterly changes in rated investment-grade issuance volumes and revenues on Page 5 of the release, I saw issuance was up 6%, but revenue is down 6%. Can you just explain the disparity there and how the pricing comes into play there?

Yes, that was a mix issue. So in investment grade, we have typically two types of issuers: those who are on kind of frequent issuer programs; and those who are less frequent, opportunistic issuers. And so in this quarter, that mix tended more towards the frequent issuers and less towards opportunistic, which in some ways makes sense. As you've got kind of a rising rate environment, the opportunistic investment-grade issuers are going to sit on the sidelines if they can. So I think that was primarily what was going on there. It really wasn't a pricing issue.

And we will take Craig Huber's question with Huber Research Partners.

Rob, I've got a follow-up question, on pricing, can you just quantify what pricing is doing this year for each of your two main segments, up about 3% to 4%? How should we think about that for '23?

Yes. It's pretty steady Eddie. And I guess, Craig, the real devil is in the details because it does depend to some extent on the issuance mix. So as you know, we don't just have a blanket price increase across the entire issuer community. We're really, really thorough and thoughtful about how we do this. And we think about regions and asset classes and the value and the costs to support the surveillance. And so all of that goes into how we think about pricing. So again, you don't have a blanket price increase. So depending on where we have more or less price increases that average out to 3% to 4%, it depends on what effectively kind of our pricing take is in any given year. But I would say the idea of kind of 3% to 4% on average across the portfolio is true this year. And we expect it to be true again next year.

And there are no further questions at this time. I'd like to turn the call back over to Rob Fauber for any additional or closing comments.

Okay. Well, I think that does it. I really appreciate everybody for joining the call. And we'll talk to you in February. Thank you. Bye-bye.

And this concludes Moody's Third Quarter 2023 Earnings Call. As a reminder, immediately following this call, the company will post the MIS revenue breakdown under the Investor Resources section of the Moody's IR homepage. Additionally, a replay will be made available immediately after the call on Moody's IR website. Thank you.