Core Thesis - Moody's Corporation (MCO) is viewed as a compelling investment opportunity due to its strong market position and growth potential despite being recognized as a high-quality business [2][6] Business Segments - The company operates through two main segments: Moody's Investor Services (MIS), which contributes approximately 70% of EBITDA, and Moody's Analytics (MA), which accounts for about 30% [2] - MIS is the second-largest credit rating agency globally, with a market share exceeding 80% when combined with S&P Global [2] Financial Performance - MIS enjoys significant pricing power and margins near 60%, with revenue primarily driven by issuance [3] - Historical growth averages around 6% CAGR over multi-year periods, despite recent volatility due to the pandemic and interest rate cycles [3] - MA's subscription-based model generates over 95% recurring revenues and exhibits high-single-digit organic growth, providing a counterbalance to MIS's cyclicality [3] Growth Drivers - Long-term growth is supported by steady issuance volume growth, annual price increases, and a refinancing tailwind, with approximately $4.9 trillion of U.S. and EMEA corporate debt maturing over the next four years [4] - The company is expected to benefit from compounding price hikes and advancements in generative AI, which may lead to structural margin expansion [4] - Private credit, often seen as a threat, is emerging as a growth driver, with Moody's securing mandates and monetizing portfolio-level analytics [4] Future Outlook - EBITDA growth is projected to compound in the low double digits, with free cash flow per share expected in the mid-teens [5] - Consensus estimates may underestimate the durability of MCO's growth trajectory, with potential upside exceeding 50% over two years, even with modest multiple compression [5] - Key catalysts for growth include upcoming earnings reports and potential interest rate cuts in the second half of 2025 [5] Market Position - The company's entrenched duopoly and high cash generation provide a cushion against downside risks, supported by a history of opportunistic buybacks [5] - Despite a recent stock price depreciation of approximately 2.17%, the bullish thesis remains intact due to the company's strong market position and pricing power [6]

Group 1 - Moody's upgraded SoftBank Group Corp.'s rating from Ba3 to Ba2, but the company criticized the rating as being based on subjective assumptions without factual basis [1][2] - Despite the upgrade, SoftBank's debt remains classified as non-investment grade, often referred to as "junk" in the bond market [1] - The CEO of Fujiwara Capital noted that the rating implies potential difficulties in debt repayment, which could mislead market perceptions [2] Group 2 - Criticism of credit ratings is not uncommon, with historical examples during the global financial crisis and Europe's sovereign debt crisis highlighting the backlash against rating agencies [2] - The "issuer pays" model used by many rating agencies raises concerns about conflicts of interest, although SoftBank's rating was unsolicited, which complicates the argument regarding its basis [2][3] - In Japan, regulations often require investment-grade status for bond purchases, contrasting with the more developed high-yield bond market in the US and other regions [3]

Group 1 - The Bank for International Settlements (BIS) has indicated that record global share prices are increasingly disconnected from rising concerns about government debt levels in bond markets [1][2] - Moody's has downgraded the United States to a non-triple A status, and Fitch has cut France's rating to its lowest ever level due to concerns about government finances [2] - The head of BIS' Monetary and Economic Department, Hyun Song Shin, warned about the elevated valuations of risky assets, which leave them vulnerable to market stress [2][3] Group 2 - Government bond issuance is being absorbed by highly-leveraged investors like hedge funds, which could lead to market eruptions before debt levels exceed sustainability definitions [3] - Despite some non-U.S. investors selling U.S. bonds and stocks in April, most of these flows reversed in May and June, indicating a gradual shift away from U.S. assets [4] - The BIS noted that the significant holdings of U.S. assets by global investors and the slow pace of strategic asset allocation suggest any major portfolio shifts will be gradual [4] Group 3 - A new global survey by the BIS on public inflation expectations shows that the post-COVID spike in prices has raised household inflation expectations, particularly in countries with the largest increases [5][6] - The BIS expressed concerns about the lasting effects of temporary inflation surges, noting that households generally do not blame central banks for inflation issues [6] - There is a cooling of the real economy, particularly in the U.S. labor market, as indicated by Shin [6]

Core Insights - Markets are shifting focus from inflation data to signs of a faltering U.S. labor market, indicating concerns about a deeper economic slowdown [1] - Consumer prices rose more than expected in August, with the headline rate at 2.9% and the core rate at 3.1%, both above the Federal Reserve's 2% target [2] - Initial jobless claims surged to 263,000, the highest in nearly four years, reflecting a deteriorating employment situation [3] Economic Indicators - The rise in consumer prices suggests the Federal Reserve may hesitate to cut interest rates, despite the labor market concerns [2][6] - The increase in jobless claims indicates a potential shift towards stagflation, characterized by high inflation and stagnant growth [5] - Traders are betting on a rate cut from the Fed, but the current data complicates the economic outlook [6] Market Reactions - Crypto markets initially reacted negatively to inflation data but rebounded as employment data took precedence, with notable gains in altcoins [4] - The 10-year Treasury yield fell below 4% for the first time since April, reflecting investor sentiment towards economic conditions [3] Future Outlook - Economists predict challenging months ahead as tariff impacts continue to affect the economy, leading to higher prices and potential layoffs [7]

Core Viewpoint - KBRA has assigned preliminary ratings to four classes of notes issued by Upstart Securitization Trust 2025-3, which is a $320 million consumer loan asset-backed security (ABS) collateralized by unsecured consumer loans [1][3]. Summary by Relevant Sections Ratings and Credit Enhancement - The preliminary ratings indicate initial credit enhancement levels of 56.45% for Class A notes, 43.50% for Class B notes, 33.30% for Class C notes, and 20.50% for Class D notes [2]. - Credit enhancement is composed of overcollateralization, excess spread, a non-declining cash reserve account, and subordination (excluding Class D notes) [2]. Company Background - UPST 2025-3 marks the 47th ABS securitization backed by unsecured consumer loans originated through Upstart Network, Inc., a wholly-owned subsidiary of Upstart Holdings, Inc. (NASDAQ: UPST) [3]. Methodology and Analysis - KBRA utilized its Consumer Loan ABS Global Rating Methodology, Global Structured Finance Counterparty Methodology, and ESG Global Rating Methodology in analyzing the portfolio pool data, underlying collateral pool, and capital structure [4]. - The analysis included operational reviews of Upstart and periodic update calls with the company, with operative agreements and legal opinions to be reviewed prior to closing [4].

Core Insights - Moody's Corp. plans to acquire a majority equity stake in Middle East Rating & Investors Service (MERIS), a domestic credit rating agency in Egypt, with deal terms undisclosed [1][3][7] Company Overview - MERIS, established in 2003, is a joint venture between Moody's and Egyptian consultancy FinBi, providing national-scale credit ratings across various sectors including financial institutions and structured finance [2][7] Strategic Rationale - The acquisition strengthens the partnership between Moody's and MERIS, enhancing Moody's presence in the Middle East and Africa, and supporting local capital market growth [3][4] - The deal is pending regulatory approvals, and MERIS will maintain its independence, including its own rating methodologies and management team [3][7] Management Commentary - Monica Merli, COO of Moody's Ratings, expressed enthusiasm about the strengthened relationship with MERIS, highlighting its importance in Egypt's domestic credit rating landscape [4] Recent Performance - Moody's shares have increased by 3.5% over the past six months, compared to a 10.6% growth in the industry [5]

Core Viewpoint - The downgrade of U.S. Treasury bonds by Moody's has led to a significant decline in global confidence, prompting countries like China and Hong Kong to reduce their holdings, which could signal a shift away from U.S. dollar assets and a potential end to dollar hegemony [1][3][12]. Group 1: Impact of Moody's Downgrade - Moody's downgrade of U.S. Treasury bonds has resulted in global financial institutions reassessing the safety of these assets, with Hong Kong's Mandatory Provident Fund being forced to sell off U.S. Treasuries due to the loss of AAA rating [3][5]. - As of May 2025, China's holdings of U.S. Treasuries have plummeted by 42% from their peak in 2013, now standing at $765.4 billion [5][7]. - The market reaction has been severe, with the 30-year Treasury yield surpassing 5%, the highest since 2007, and the U.S. dollar index dropping to around 100 [7][11]. Group 2: China's Strategy and Global Reactions - China's reduction in U.S. Treasury holdings is a strategic move to mitigate risks associated with U.S. financial policies and geopolitical tensions [7][11]. - The shift away from U.S. Treasuries is part of a broader trend where countries are increasingly turning to gold and other currencies, as evidenced by China's record gold purchases and the rise of the renminbi in cross-border transactions [11][12]. - The potential for a financial crisis is heightened as rising Treasury yields increase global borrowing costs, leading to economic distress in developing countries and impacting global financial stability [11][14]. Group 3: Political and Economic Implications - The political polarization in the U.S. has been identified as a key factor undermining trust in U.S. debt, with both major parties failing to implement fiscal tightening measures [9]. - Former President Trump's response to the downgrade has included blaming the current administration and calling for interest rate cuts to alleviate debt burdens, reflecting a lack of accountability for the rising national debt [9][14]. - The ongoing crisis may lead to a significant transformation in global finance, with predictions that 2025 could be one of the most tumultuous years since the collapse of the Bretton Woods system [14].

Core Insights - S&P Global reported its second quarter results for 2025, with earnings release and supplemental materials available for review [1] Group 1: Earnings Results - The company's senior management will discuss the second quarter 2025 earnings results during a conference call scheduled for July 31 at 8:30 a.m. EDT [2] - Additional information from the conference call and supplemental slide content can be accessed on the company's Investor Relations website [2] Group 2: Company Overview - S&P Global provides essential intelligence, enabling governments, businesses, and individuals to make informed decisions through data, expertise, and technology [4] - The company is recognized for offering credit ratings, benchmarks, analytics, and workflow solutions across global capital, commodity, and automotive markets [5]

Core Viewpoint - Moody's Corporation (NYSE: MCO) is viewed positively due to its pricing power and potential for upside if the macro environment improves [1] Group 1: Investment Philosophy - The investment approach is fundamentally driven, focusing on identifying businesses with potential for scaling and unlocking significant terminal value [1] - Key factors considered include competitive moat, unit economics, reinvestment opportunities, and management quality, which are essential for long-term free cash flow generation and shareholder value creation [1] - The focus is on sectors with strong secular tailwinds, indicating a preference for industries poised for growth [1] Group 2: Professional Background - The analyst has 10 years of experience in investment banking and is currently managing personal funds sourced from friends and family [1] - The motivation for writing is to share investment insights and receive feedback from the investment community [1] - The aim is to help readers concentrate on the elements that drive long-term equity value [1]

Core Insights - Moody's reported second-quarter 2025 adjusted earnings of $3.56 per share, exceeding the Zacks Consensus Estimate of $3.44, with an 8.5% year-over-year growth [1][7] - The company's revenues improved to $1.90 billion, surpassing the Zacks Consensus Estimate of $1.85 billion, reflecting a 4.5% increase year-over-year [3][7] - Operating expenses rose to $1.08 billion, up 3.6% year-over-year, impacting overall profitability [3][7] Financial Performance - Net income attributable to Moody's was $578 million or $3.21 per share, an increase from $552 million or $3.02 per share in the prior-year quarter [2] - Adjusted operating income reached $966 million, a 7.1% increase year-over-year, with an adjusted operating margin of 50.9%, up from 49.6% a year ago [3] Segment Performance - Moody's Investors Service (MIS) revenues slightly declined to $1.06 billion due to weakness in Corporate Finance and Financial Institutions, partially offset by growth in Structured Finance [4] - Moody's Analytics (MA) revenues increased by 10.5% year-over-year to $891 million, driven by strong demand for proprietary data and analytical insights [4] Balance Sheet and Liquidity - As of June 30, 2025, Moody's had total cash, cash equivalents, and short-term investments of $2.29 billion, down from $2.97 billion as of December 31, 2024 [5] - The company reported $7 billion in outstanding debt and $1.25 billion in additional borrowing capacity under its revolving credit facility [5] Share Repurchase Activity - In the quarter, Moody's repurchased 0.6 million shares at an average price of $460.76, with $0.9 billion of share repurchase authorization remaining [6] Guidance and Outlook - Moody's updated its 2025 guidance, expecting adjusted earnings of $13.50-$14.00 per share, revised from the previous target of $13.25-$14.00 [7][8] - The MIS segment's revenue growth is now expected to be in the low to mid-single-digit range, adjusted from stable to mid-single-digit growth [8] Strategic Developments - In June, Moody's fully acquired ICR Chile, enhancing its presence in Latin America's domestic credit markets, although the transaction is not expected to materially impact 2025 financial results [9][10]