IHS would lever up for large acquisition and aim to quickly delever

By Paul Deckelman

New York, Oct. 7 – IHS Inc. plans to maintain its leverage ratio within its previously stated target of debt at 2-to-3 times EBITDA, operating “in the higher end of that leverage target,” its chief financial officer said Wednesday.

But Todd S. Hyatt told participants at the Englewood, Colo.-based business information and analytics provider’s investor day that “we’ll temporarily lever up if we have a large-scale acquisitive opportunity.”

He said that the company could lever up “a full turn above the 3 times” but added that “we’re confident and comfortable doing that because the free cash flow that we’ll generate will allow us to rapidly pay down the debt.”

Hyatt, who also is the company’s executive vice president, said that after IHS acquired R.L. Polk & Co., a provider of automotive information and marketing solutions to the automotive industry, insurance companies and related businesses, in 2013, it was able to eliminate the net debt that it incurred for that $1.4 billion acquisition and delever by “a full turn in less than a year.

“That’s why we have a high level of confidence [that] if we have sufficient capital structure flexibility, even if we were to lever up a turn, we would be able to rapidly delever.

As of the end of the company’s fiscal third quarter on Aug. 31, its total debt stood at $2.08 billion, including $673.75 million of term loan debt, $655 million of borrowings against its $1.3 billion revolving credit facility and $750 million of 5% senior notes due 2022.

The bonds were sold and the new term loan and revolver facilities were all entered into last October as part of a refinancing of existing debt.

Hyatt said that “we have basically put in place a permanent-type capital structure through our bond offering last year that has driven an increase in interest expense.”

However, he said that even with the higher interest costs the company is paying in exchange for locking in a fixed interest rate on that debt, “as we look on a longer-term basis, we still see consistent delivery in the mid-60s [percent range] from a cash-conversion perspective and would certainly expect it to be at the high end of the peer group [of competing companies] in terms of that.”

Liquidity at Aug. 31 consisted of $264 million of cash and equivalents and $645 million of revolver availability.

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