Moody's Q2 2022 Earnings Call Transcript

Participants

Corporate Executives

• Shivani Kak, Head of Investor Relations
• Rob Fauber, President & Chief Executive Officer
• Mark Kaye, Chief Financial Officer

Analysts

• George Tong, The Goldman Sachs Group, Inc.
• Kevin McVeigh, Credit Suisse Group AG
• Toni Kaplan, Morgan Stanley
• Ashish Sabadra, RBC Capital Markets
• Alex Kramm, UBS Group AG
• Andrew Steinerman, JPMorgan Chase & Co.
• Andrew Nicholas, William Blair
• Faiza Alwy, Deutsche Bank Aktiengesellschaft
• Unidentified Participant
• Jeffrey Silber, BMO Capital Markets
• Craig Huber, Huber Research Partners
• Owen Sum Lau, Oppenheimer & Co
• Russell Quelch, Redburn Partners
• Jeffrey Meuler, Robert W. Baird
• Shlomo Rosenbaum, Stifel Nicolaus

Presentation

[Operator]

Good day, everyone, and welcome to the Moody's Corporation Second Quarter 2022 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.

[Shivani Kak, Head of Investor Relations at Moody's]

Thank you. Good afternoon, and thank you for joining us to discuss Moody's second quarter '22 results and our revised outlook for full year 2022. I'm Shivani Kak, Head of Investor Relations.

This morning Moody's released it's results for the second quarter of 2022, as well as our revised outlook for full year 2022. The earnings press release and the 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 and 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 and Analysis section and the risk factors discussed in our annual report on Form 10-K for the year ended December 31, 2021, 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 would also like to point out that members of the media may be on the call this morning in a listen-only mode.

Before we begin, I'm pleased to announce that in response to feedback from our external stakeholders, we have enhanced our earnings materials and changed the format of our call for this quarter. This morning on our IR website, we published our supplementary presentation along with our updated earnings release. Materials that we believe provide substantial insights into our business. As such, during the call, we will be not -- we will not be going through our usual presentation, instead, Rob Fauber, Moody's President and Chief Executive Officer will provide a brief overview of our results and outlook. After which, he will be joined by Mark Kaye, Moody's Chief Financial Officer to answer your questions.

I will now turn the call over to Rob Fauber.

[Rob Fauber, President & Chief Executive Officer at Moody's]

Thanks, Shivani. Hello, and thanks to everyone for joining today's call. And as Shivani mentioned, I'm going to keep my opening remarks brief, so that we can get straight to your questions, and I appreciate that it's been a very busy morning for many of you on the call.

So let me begin with a few key takeaways about our results, and then I want to spend a few minutes our outlook and the continued strength and relevance of our business. So let me start by reinforcing that as challenging and volatile conditions in global capital markets continue, we're leading the way in providing integrated perspectives on risk for our customers. And this quarter was really a tale of two cities, as our ratings business were significantly impacted by the slowdown in issuance activity, and our MA business continue to grow very nicely.

And as we've said previously, year-on-year comparisons with our record performance in 2021 would be unfavorable this year. Overall, Moody's revenue declined approximately 11% in the second quarter and given the operating leverage in the MIS business, as well as the negative impact of foreign exchange, adjusted diluted earnings per share declined by 31% from the prior period -- prior year period to $2.22.

MIS, which was significantly impacted by ongoing cyclical disruption in the global debt markets due to a few things, rising interest rates, high inflation, unsettled geopolitical conditions. MIS generated revenue of $706 million, and really to put that in perspective, global rated issuance was down, transaction revenue was down 40%, and that reflects the negative mix driven by the weakness in the leveraged finance markets, and when balanced by our recurring revenue, this translated to a 28% decline in total MIS revenue for the quarter.

Now, on the other hand, customer demand for our MA suite of solutions, that help navigate market uncertainty and identify measure and manage risk, that demand remained robust. And that fueled steady growth in our subscription and SaaS-based products, which along with the contributions from prior year acquisitions delivered revenue growth of 18%. And MA revenue growth was negatively impacted by 5 percentage points due to FX in the quarter.

Now you'll recall, earlier this year, we introduced an annualized recurring revenue or ARR metric for MA, and we believe that's a good indicator of future growth. And this quarter, our organic ARR grew by 9% and we expect this growth to further increase to low-double-digits by year end. And that's supported by both our ongoing product development investments that broaden the ways in which we serve our customers and by the growth in our sales force and strong sales execution.

Now, I expect that many of you will have questions about our outlook in a few minutes. And I'd like to make a few comments about our expectations before we get to it in the Q&A. And we anticipate that the current market disruption will persist for the remainder of the year and we've updated our guidance to reflect that. Now, obviously if actual conditions differ from the assumptions underlying our guidance, our results for the year may differ from our revised outlook.

Now for MIS, we expect issuance to decline approximately 30% for the year, and full year 2022 revenue to decrease in the low-20% range. Now the last 2.5 years have been unusual to say the least, so I have to acknowledge that with all the uncertainty in the market, the confidence interval around our outlook is probably wider than it was pre-pandemic. Our business outlook for MA remains unchanged, however, due to the impact of the weakening euro and British pound against the U.S. dollar, we're slightly reducing MA's revenue growth outlook to the mid-teens percent range.

Now taking the reduced MIS revenue guidance and the impact of foreign exchange into account, we now forecast Moody's full year 2022 revenue to decline in the high single-digit percent range. And adjusted earnings per share are now projected to be in the range of $9.20 to $9.70. Incorporated into our outlook is a new restructuring program and that's part of our broader approach to expense management.

This geolocation restructuring program helps us further adapt to the new global workplace and talent realities and an accelerated number of ongoing cost efficiency initiatives, and that includes real estate optimization and the increased utilization of lower cost operational hubs. We expect this program to generate $40 million to $60 million in annualized savings with up to $75 million in aggregate charges through 2023. And we plan to partially redeploy these savings back into the business to support ongoing organic investments, including things like sales deployment and employee retention.

Now before I open it up to questions, let me try to put all this into perspective for a few minutes. Now, debt issuance markets are clearly in a period of cyclical turbulence. However, we believe that the fundamental drivers of issuance remain firmly intact. And taking a medium-term view, we expect issuance to resume as capital markets adjust to a higher interest rate environment. And as you saw in the slides that we shared this morning, the volume of outstanding corporate debt in the U.S. has grown each year for the last 30 years. And we believe that the fundamental role of debt in fueling economic activity and financing business growth remains unchanged.

Global GDP growth is expected to continue, albeit at a lower rate, corporate refinancing needs remains strong, and on a historical basis, rates and spreads are relatively in line with their averages despite some recent increases. During this market -- this period of market turbulence, we're going to continue to focus on what we can control in MIS. And that is to ensure that Moody's remains the rating agency of choice, providing a world-class experience for issuers and ensuring the quality, relevance and timeliness of our ratings, research and insights that all reinforce investor demand pull.

MA remains a strong and resilient business with almost 60 quarters of consecutive growth, and our investments in product development and sales are accelerating our organic ARR growth and we're realizing the benefits of our recent acquisitions. In fact, we're ahead of or have met the targets that we set for our acquisitions of BvD and RDC, and though it's early days, we are on track to meet our targets for RMS.

Now, stepping back and looking at the big picture again for just a moment. We see strong demand for our integrated risk assessment offerings. And the value that Moody's provides to our customers, especially in these uncertain times remains unmatched. So across the business, we're innovating and investing to provide our customers and market participants with the products and the insights that they need to decode risks and unlock opportunities. And lastly, all of this would not be possible without the tremendous efforts of our people, and I want to thank them for all of their continued hard work and dedication.

So, that concludes my prepared remarks. So, Mark and I would be pleased to take your questions. Operator?

Questions and Answers

[Operator]

Thank you. [Operator Instructions] And our first question today will come from George Tong with Goldman Sachs.

[George Tong, Analyst at The Goldman Sachs Group]

Hi, thanks. Good morning. I really welcome the new format for the earnings call. You're assuming issuance volumes declined 30%, it looks like in 2022 based on your supplemental materials. How much conservatism is baked into that guidance? And what does that assume for issuance volume performance over the remainder of the year compared to performance over the first seven months? How should we think about seasonality in 3Q issuance?

[Rob Fauber, President & Chief Executive Officer at Moody's]

Yes, George. Thanks for the feedback. So, I suspect there'll be a few questions on issuance and outlook on this call. So I'm going to start George by trying to take kind of a big picture view. And then I will get to your question about kind of year-to-date year-to-go. But let me try to put this year's issuance into some sort of historical perspective. First of all, there are two, not one, but two big shocks that are impacting the markets at the same time right now. And the first is, what I think we all understand is the inevitable monetary tightening after a period of historically low interest rates. And now we've got the Fed aggressively addressing inflation.

And that has caused a lot of uncertainty in regards to both the trajectory and the pace of rate increases versus what I think the market had both assumed and was hoping for, would be a kind of slow and steady and well understood trajectory of rate increases during a period of tightening. But the second shock that we've got is the uncertainty around the duration and the severity of the Russia, Ukraine crisis, and that's obviously led to a spike in energy prices that's further contributed to inflation and it's also just eroded I think global confidence in general.

So, not to mention, we are still dealing with COVID-19 and the knock-on impacts of supply chain disruptions. So that's a lot of complexity. And that complexity is causing tremendous volatility in the markets that we're all living through as investors are trying to navigate all of these interdependent shocks and their implications. Now, let me put this in perspective, with all of that going on, our outlook for issuance this year is almost exactly on top of the average annual issuance of something like $4.4 trillion over the last decade, excluding the pandemic years of 2020 and 2021. So yes, issuance is going to be down significantly, but when you think about comparing it to 2019, that was quite a normal function in the year.

[George Tong, Analyst at The Goldman Sachs Group]

Great. And as a follow-up, you've previously given medium-term targets for MIS margins in the low-60s. What are your latest views on medium-term MIS margins? And how much flexibility do you have in managing MIS expenses?

[Mark Kaye, Chief Financial Officer at Moody's]

Good morning, George. MIS is a medium to long-term business fundamentals remaining intact. And again based on our view that the current market disruption in issuance is cyclical rather than structural in nature. And our view is informed by several data points observations, for example, the stock of data has steadily grown over the past several decades, the price to value is compelling for our customers and that there are strong refinancing needs that will buttress the transactional revenue base.

I'd also note that credit spreads themselves are close to historical averages, and the interest burden effectively remains low for corporates. Therefore, as issuance growth normalizes in the future, we expect the MIS adjusted operating margin to stabilize in that low-60% range. Furthermore, we are continuing to carefully evaluate our expense base, while reinvesting through the cycle to support strategic expense growth initiatives in MIS, and that's going to include ESG and climate, technology enablement, strengthening of our analytical capabilities, as well as expansion into new markets region and evolving risk areas. And with that, I'd say we still feel confident about that low-60% medium-term target range.

[George Tong, Analyst at The Goldman Sachs Group]

Got it. Thank you.

[Operator]

Thank you. Our next question comes from Kevin McVeigh with Credit Suisse.

[Kevin McVeigh, Analyst at Credit Suisse Group]

Great. Thanks so much. And again, I'll echo my sentiment on the new disclosure, it's very helpful. I guess, just following-up on the issuance, could you frame up, because the -- to your point, the $4.4 trillion, it seems like the 10 year average. And I know we're not going up to 2023. But as you think about kind of beyond '22, does it hover around that? And maybe just talk to supply versus demand dynamics within the context of issuance more. What gets investors reengage, is it the Fed funds at the -- increase at the end of the month or more visibility on the Ukraine. And I know that's a hard question, but just any way to frame where you think that gets reengage and whether or not it's just a refinance, was it ultimately trigger some incremental issuance.

[Rob Fauber, President & Chief Executive Officer at Moody's]

Yes, Kevin. So let me maybe talk a little bit about kind of upsides and downsides, it's a kind of our outlook and see if this addresses your question. But let me now, look, I think in developing the outlook, we feel like it's largely kind of weighted towards the downside, we've effectively taken the activity and the market conditions that we've seen in the first half of the year and effectively roll that forward for the balance of this year. I assume that, if that's effectively what we're going to have for the rest of the year.

So you're asking kind of what could get maybe the market started. I think one of the keys that we're going to look at is, whether we continue with economic growth or whether we tip into recession. And I think one of the keys to that is inflation. If the Fed can get that under control, I think there is the possibility that they pull back from more aggressive rate hikes towards the end of this year and into 2023. I mean you mentioned Russia, Ukraine, certainly some sort of resolution there which would address some of the supply chain issues and some of the inflation on commodity prices, but also just reinforce market confidence, I think would be a positive.

And that point around confidence is very important, because it's very difficult for issuers to issue into volatile markets. So the volatility that we see in equity markets translates into volatility in issuing in the debt markets. And so some period of stability, so that's why that kind of certainty in resolving some of these things, I think would be quite helpful. In terms of headwinds, it's a little bit of the converse, right, but it's worth mentioning in a recession scenario, that's when we'd see defaults likely start to tick up and spreads widen that would be a headwind. So we're keeping -- really kind of keeping an eye on that.

[Kevin McVeigh, Analyst at Credit Suisse Group]

Rob, that's super helpful. And then just to follow-up real quick, it seems like you're keeping the expense investments intact, again it's kind of some of the adjustments in revenue. Was that just a function of the confidence in the business or is your opportunity to maybe take advantage of some of the dislocation that the market currently offers?

[Mark Kaye, Chief Financial Officer at Moody's]

Kevin, we view very much as Rob mentioned a moment ago, the market conditions as being cyclical in nature. And that really means we're going to plan to invest through the cycle as we execute on our strategy of providing global integrated perspectives on risk. The opportunity set itself is very substantial in markets that are large and expanding, KYC and compliant, banking and insurance. And therefore, even though we're continuing to evaluate and support investment opportunities underpinning our future revenue growth and expansion, we're going to balance that against those activities that are needed to generate short-term cost efficiencies to support our margins and ultimately help us achieve our medium-term margin objectives.

So for example, we remain committed to organically invest $150 million in areas this year like product development, sales distribution capacity, as well as an additional $50 million into our -- and back to our employees. And that's going to be balanced against some of the new cost efficiencies which is derived from the 2022, 2023 geolocation restructuring program that we announced this morning. We've also learned since the beginning of the pandemic that many business activities can be performed successfully remotely, and while T&E costs may rise as compared to prior two years, we're going to prioritize customer facing travel when needed.

And, of course, we have that naturally -- we have some naturally occurring expense levers, such as the incentive compensation accruals, which are obviously going to flex based on our actual performance as compared to the targets we set at the beginning of the year.

[Kevin McVeigh, Analyst at Credit Suisse Group]

Very helpful. Thank you.

[Operator]

Thank you. Our next question will come from Toni Kaplan with Morgan Stanley.

[Toni Kaplan, Analyst at Morgan Stanley]

Thanks so much. Let's throw one in on MA. So it looked like you lowered the guide, but only because of FX. So essentially kept it in line there. But the ARR you're expecting to accelerate into the end of the year. So I thought that, that was actually a really positive data point, maybe just give us some color on which -- what's driving that? And is the environment still somewhat positive on that side? Would you expect that becomes more challenge, but you can outperform the environment or would you expect that, that just continues to do well because of the clients wanting risk solutions, etc?

[Rob Fauber, President & Chief Executive Officer at Moody's]

Hey, Toni, it's Rob. And thanks for kind of peeling back the onion there. So I think you got the right message, the right takeaway on MA. The results are really in line with our prior expectations on a constant dollar basis. As we mentioned, FX was a significant headwind this quarter, reduced growth by 5 percentage points. And on an organic constant dollar basis, revenue grew at 8%. And our guide for the full year incorporated a little bit of a seasonality that you're seeing in the quarter-to-quarter results in MA, and that relates mostly to our banking and insurance businesses within Decision Solutions.

And I think you hit on it, the key here is that, we are still confident in achieving our full year revenue guidance and we've adjusted that guide solely to account for the impact of FX. And I think very importantly, one reason we introduced ARR was to kind of look through revenue in the quarterly impacts of revenue and be able to really focus on the growth in the base of recurring revenue. And we continue to feel confident about our ability to hit the low double-digit guide for ARR growth.

Let me give you a little bit of insight into what's driving that acceleration through the end of the year. We've talked about how we have realigned our entire global sales organization really to better organize around our customers. And we're continuing to invest to build out our capabilities across all parts of our sales organization to be able to both deepen the penetration of existing customers as we have broadened our product suite and also to bring in some new logos. And we believe that those investments are in fact showing some early results, our sales meeting activity levels have gone up pretty meaningfully as a result. And our gross business per sales rep has been pretty consistent with our expectations. And that means that even as we have added salespeople, they have remained as productive on a per head basis as before. So we're getting some good production out of the new sales team.

The second thing is through the first half of the year, we've had some good price capture compared to our historical level. And that really is due to the enhancements that we continue to make to our products and really enhances that value proposition and our ability to capture price. A good example of some of the stuff we're doing, and you're going to see in coming quarters is around CreditView, where we're continuing to redesign that web -- our flagship web credit research platform, we're overhauling the look and feel. We're going to have come out with considerably greater functionality and content and that will be a good opportunity for us to price for value.

And the last thing, Toni, I would say that's giving us confidence, just obviously, we monitor our sales pipeline very, very closely. And the sales pipeline right now is very strong and gives us confidence in our ability to hit that ARR number for the year.

[Toni Kaplan, Analyst at Morgan Stanley]

Perfect. That sounds great. And then for the follow-up, Mark, I know you lowered the free cash flow guide about 20% at the midpoint versus prior midpoint. I know MIS probably the biggest piece of that. But is there anything else that you want to call out in terms of lower free cash flow guide? And then also in terms of use of capital outlook on sort of buyback, you've lowered that as well. Thanks.

[Mark Kaye, Chief Financial Officer at Moody's]

Toni, let me take the free cash flow question and then separately, I'll address the share repurchases and the buyback guidance, perhaps another question which comes up a little bit later on. In terms of free cash flow guide for the year, what we wanted to do is to reflect the year-to-date global free cash flow of $628 million, and that was down around 49%, primarily on, to your point, the lower net income that's been driven by the reduction in MIS revenue due to significantly curtailed issuance.

In addition, this quarter, we also had a tax-related working capital headwind, the impact of which is expected to partially reverse out later this year, and that's reflected in our updated full year outlook. The midpoint of our revised full year 2022 free cash flow guidance of $1.4 billion to $1.6 billion does imply a free cash flow to U.S. GAAP net income conversion ratio, that's approximately 100%, and that's very much in line with our historical conversion levels. And that means that our refreshed 2022 guidance at the midpoint now assumes both adjusted diluted EPS and free cash flow will decrease in the low-20% range.

[Toni Kaplan, Analyst at Morgan Stanley]

Perfect. Thank you.

[Operator]

And our next question comes from Ashish Sabadra with RBC.

[Ashish Sabadra, Analyst at RBC Capital Markets]

Hi. Just wanted to drill down further on the issuance side. I was wondering if you could talk about the pipeline for new issuers. And also, if you could just talk about like what percentage of the issuance right now is really coming from new issuance versus refinancing of existing debt. And any thoughts around how that could trend for the rest of the year and exiting the year? Thanks.

[Rob Fauber, President & Chief Executive Officer at Moody's]

Ashish, maybe let me talk a little bit about what's going on with our first-time mandates, and these are new issuers into the market. And then I'll give you a little bit of color on what's going on currently in the market, kind of what we're seeing. But we revised our range for first time mandates down from, it was $850 million to $950 million in the last quarter. We've revised that down to $700 million to $800 million for the year. And that's because we had another slower quarter. U.S. first time mandate activity remained muted, I would say. But it's pretty highly correlated to leverage finance issuance. That's where most of your first time issuers into the market come from.

We expect the activity levels that we see in the first half, kind of like our broader issuance outlook to remain pretty steady in the second half of the year. I think September will be a key month. We'll be post earnings blackout post summer, and we'll see if there's some issuers that have been sitting on the sidelines that choose to hit the market at that point. It's interesting, we have something like a little over 400 first time mandates that we signed through the first half of the year, but not all of those are coming to market. And in fact, just to give you -- put a little meat on the bones there. So far this year, and excluding APAC, about 40% of the new mandates that we've signed have not actually printed. And that was -- that number was something like 10% in the first half of 2021.

To give you a sense, it typically takes something like two months from the time that we executed an engagement and the issuer actually issued a bond. That time frame has more than doubled. So in terms of what kind of market do we have right now, obviously, it is still a very challenging environment. The sentiment changes from week to week and even day to day. I would say at the very moment, there's a positive tone in the markets. This week, investment grade issuance has had its best week in something like 12 weeks. The issuance is generally dominated by financial institutions, but that may change as we kind of get through blackouts here.

High yield and leveraged loans has still been pretty light. We have seen a few high yield deals hit the market earlier this week. The secondary market firmed up towards the end of last week. Spreads came in, I don't know, something like 40 basis points or so. But in general, it's still a pretty quiet market for leveraged finance.

[Mark Kaye, Chief Financial Officer at Moody's]

Maybe, Ashish, just to add a little bit on to Rob's remarks. We do anticipate the absolute dollar MIS transaction revenue to be slightly lower in the second half of the year vis-a-vis the first half of the year, and that would align to the historical issuance patterns we've seen over the prior five years. We're, on average, the second half of the year has traditionally contributed about 47% of the full year's transaction-based revenue. And furthermore, we expect that total MIS revenue to return to more of that sort of two type patent consistent with what we've observed prior to the pandemic, and that will cause a little bit of margin headwinds in the third quarter.

[Ashish Sabadra, Analyst at RBC Capital Markets]

That's very helpful color. And then my second question was just going to be on the expense bridge. This is on Slide 23, where you've provided the expense bridge. I didn't see incentive comp broken out as it was broken out in the first quarter. I was wondering if you could provide any color on how we should think about incentive comps decline in '22 versus '21?

[Mark Kaye, Chief Financial Officer at Moody's]

Absolutely. So maybe let me spend a minute on expense bridge and then I'll get to the direct question around incentive compensation. So for the full year 2022 operating expense guidance, we are reaffirming high single-digit percent growth. And that includes $31 million in accrued expenses as part of the 2022, 2023 geolocation restructuring program that we announced this morning.

If we excluded that restructuring charge, our outlook for full year operating expenses would have been in the mid-single-digit percent growth range. And so specifically for full year 2022, you could see anticipated expense growth of approximately 8 percentage points related to acquisitions completed in the last 12 months, primarily RMS, approximately 1 percentage point related to the restructuring program I just mentioned. And then operating growth and investments net of ongoing cost efficiencies, 6 percentage points and then lower incentive comp, minus 6 percentage points, so effectively operating growth in investments being approximately flat. And then, of course, a partial offset from favorable movement in foreign exchange rates, so two points.

The outlook also then implies year-to-go operating expense growth of a decline in the low single-digit percent range. And while we don't normally provide expense growth forecast by segment, given that we still expect the majority of our 2022 strategic investments to support future MA revenue opportunities, the year-to-go segment implied guidance would be a high single-digit percent decline and a mid-single-digit percent increase for MIS and MA, respectively.

And then on to your Pacific question, the second quarter and year-to-date incentive compensation accrual was approximately $50 million and approximately $114 million, respectively. And for full year 2022, we expect incentive compensation to be around $240 million, including RMS.

[Ashish Sabadra, Analyst at RBC Capital Markets]

Mark, that was very helpful color. Thank you.

[Operator]

And our next question will come from Alex Kramm with UBS.

[Alex Kramm, Analyst at UBS Group]

Yes. Hello, everyone. Just, of course, coming back to MIS for a second here. You multiple times have talked about the normalization that you expect to occur. So just wondering if you look out a little bit more than just the next couple of quarters, how much confidence we should be having? I guess what I'm asking specifically is in prior periods of issuance declines, and that's obviously what we're looking for 30% down, we've seen a pretty big snapback and I think a lot of people expect that to happen again next year.

So I'm just wondering how much confidence we should be having in that. Like the refinancing walls actually don't really start increasing for a couple of years. Obviously, M&A has been down year-to-date. And then lastly, with higher rates and higher spreads, the kind of opportunistic financing is still pretty anemic. So just wondering how much confidence you have that we get that snap back next year or if it could actually take a couple of years for that normalization to play out?

[Rob Fauber, President & Chief Executive Officer at Moody's]

Yes. Alex, maybe a couple of things. Again, I'm just going to give you a few kind of data points and perspectives just to try to triangulate around this. And we kind of looked at issuance over the last 10 years and then compare that to our current outlook for 2022. And just to give you a sense of kind of what we're dealing with, the last time that overall corporate finance issuance was below this current outlook was 10 years ago. It was back in 2012. And when you look at our -- at average issue over that 10 year period and you exclude the 2020 and 2021 periods, our outlook for investment grade is about 10% to 15% below that 10 year average.

Looking at leverage finance, our outlook implies issuance probably 5%, 6% above that 10 year average. So high yield -- the high yield market is very quiet. In fact, we're seeing levels of issuance that are even below 2009 and -- so an important component to our overall kind of outlook is leveraged loans. I think as I'm going to tie that on then to thinking about how to triangulate that then to our medium-term outlook because we continue to feel good about that medium-term outlook.

So you've heard me talk about issuance over this kind of 10 year period. And whether you look at overall issuance or just fundamental issuance, so either overall, including structure or just fundamental, it's grown roughly in line with GDP growth, obviously, plus or minus 1% or 2% and GDP growth grew at something like 3% over that period. Obviously, there have been puts and takes to that on any given year. The asset class with the fastest issuance growth has been leveraged loans over that period of time. And that contributed to a favorable mix over the time period. You hear us talk about it on these calls all the time. So now let me go to medium-term. And if you think about the building blocks that we always talk about, GDP growth, pricing, recurring revenue growth from first time mandates and mix.

If we've got modest economic growth, which is the outlook, I think, kind of in the near to medium-term, let's call it low single-digits, then translate that to issuance growth and low single-digits is probably a reasonable assumption based on history like I was just talking about. You got a modest benefit from ongoing disintermediation, -- and rather than mix as a tailwind, I'd probably assume it's either neutral to a slight headwind. So if we're in a recessionary scenario, we're probably at the low end of that low to mid single-digit range.

And if we're experiencing recovery and expansion, we expect to be at the higher end of that range. So Alex, hopefully, that gives you a little bit of a sense of why we continue to be comfortable with that kind of medium-term guidance. And I know we got a lot of questions about it when we first put it out into the market, but I think you can kind of see where we're coming from here.

[Alex Kramm, Analyst at UBS Group]

No, that's helpful. And I appreciate very uncertain times these days. Just maybe a quick one then. And apologies if that has come up already on the Moody's Analytics side. It seems like clearly a lot of mission-critical products, a lot of demand because you're expanding into high-growth areas. But just any areas that I should be aware of as it comes to potential pockets of risks, things that maybe clients can do without in a tougher selling environment or any areas where maybe sales cycles are lengthening at all? Or is it really strong across the board?

[Rob Fauber, President & Chief Executive Officer at Moody's]

Alex, not really. We continue to have some very strong retention rates, and there's nothing I could point to there.

[Alex Kramm, Analyst at UBS Group]

It's enough. Thank you.

[Operator]

Our next question comes from Andrew Steinerman with JPMorgan.

[Andrew Steinerman, Analyst at JPMorgan Chase & Co.]

Hi. I wanted to ask about Decision Solutions. Rob, you mentioned some seasonality of a specific product in that area. And I guess you were talking about it here in the second quarter because our Decision Solutions organic revenue growth year-over-year, substantially decelerated to 8%. So if you could just tell us about the banking product that kind of drove that growth deceleration in the second quarter. And of course, you can imagine the other side of that question is, will that seasonality of that banking product benefit third quarter organic revenue growth for Decision Solutions?

[Rob Fauber, President & Chief Executive Officer at Moody's]

Yes, Andrew. Let me first start by just reminding everybody about the really kind of the core components of what's in Decision Solutions. And the largest business collectively by revenue is insurance, when we look at kind of our legacy insurance business in RMS. Second is banking. And third is KYC. Then we've got a few other smaller businesses like structured finance and so on. So we had very good growth across the entire subsegment Decision Solutions, particularly KYC.

And I think the best thing to do is to look at ARR here because there's been a little bit of revenue lumpiness in the first half of the year when I referred to seasonality, that's really what I was referring to. So let me just kind of take some of the key numbers. As you said, Andrew, organic constant dollar revenue 8% in the quarter, 16% last quarter. However, the key number here is organic ARR grew at 11% for Decision Solutions, and that's the same as last quarter. So there's the same altitude of kind of sales and building the book of recurring revenue. There's no change there.

KYC continues to be kind of a high flyer growing in the kind of mid-20% on an organic constant dollar basis. So where does the lumpiness come from? Both our insurance and banking businesses have a mix still of on-prem and SaaS solutions. And you've heard us talk about we're working to migrate more of the portfolio to SaaS. That's true, but we still have a suite of on-prem products that introduce an element of lumpiness given some aspects of revenue recognition.

And that was the case for the first half of this year. But we accounted for that as we thought about our full year guide. So insurance, RMS, you heard me say on track, our insurance, our legacy insurance business growing very nicely and banking. There, we're seeing some very nice growth as well. I'm going to touch on that in just a second in terms of what is driving that. We've got three primary areas that we serve for banks, lending, risk management, finance and planning. We're continuing to really build out our SaaS offerings.

That is the highest growth part of our banking business. It allows us to really deliver a lot more functionality and usability to our customers. That then drives a lot more usage from our customers and that supports the overall kind of value proposition and pricing opportunity for us. One area I would maybe call out, Andrew is commercial real estate. You've heard us talk a lot about the investments that we've been making there.

Obviously, commercial real estate is very important to our banking customers. And we recently signed a strategic partnership with one of the largest commercial real estate lenders in the country to kind of codevelop a commercial real estate lending solution. We're very excited about doing that and bringing together all of our commercial real estate data and analytics with our cloud-based loan origination tools to really help this bank and other banks with a more holistic view to streamline their processes.

That's one example, but I'm going to come back to the key takeaway here for Decision Solutions because we've had some volatility in the revenue from quarter-to-quarter is look at ARR and ARR for Decision Solutions is 11% in the quarter, same as last quarter. So no change to the very good growth we're seeing across the entire Decision Solutions portfolio.

[Andrew Steinerman, Analyst at JPMorgan Chase & Co.]

Right. And Rob, there was a piece at the end. Do you expect the seasonality to benefit third quarter for Decision Solutions organic revenues?

[Mark Kaye, Chief Financial Officer at Moody's]

I think what we're likely to see in third quarter is pretty similar to what we've seen in the second quarter and then an acceleration at the end of the year in the fourth quarter.

[Andrew Steinerman, Analyst at JPMorgan Chase & Co.]

Okay. Thanks, Mark.

[Operator]

And our next question will come from Andrew Nicholas with William Blair.

[Andrew Nicholas, Analyst at William Blair]

Hi, thanks for taking my questions. First one is just kind of on your own M&A appetite. Obviously, a challenging environment or at least a choppy one. Do current economic conditions or perhaps some conservatism from a growth perspective heading into the end of the year impact how you're thinking about doing deals? I know you already kind of lowered share repurchase expectations due to the free cash flow, presumably the free cash flow decline, but wondering how that impacts your outlook for M&A as well.

[Mark Kaye, Chief Financial Officer at Moody's]

Good afternoon. I'm going to spend just a minute talking about share repurchases, and then I'm going to turn it over to Rob to touch on the M&A component of your question. So perhaps most importantly, how capital planning and allocation strategy remains unchanged. And this year, we are still planning to return approximately $1.5 billion to our stockholders or approximately 100% of our projected 2022 free cash flow at the midpoint of our guidance range.

As you can appreciate, global economic conditions have significantly weakened relative to our first quarter outlook. And we spoke about several of those factors, but primarily the uncertainty around the duration and severity of the conflict in Ukraine as well as heightened inflationary risks. And although we ultimately view these market conditions and the disruption to be cyclical, we are being very thoughtful about our leverage and liquidity levels. And we're going to do that in order to ensure that we maintain a strong balance sheet and an equally important financial flexibility.

And as a result, we have lowered our guidance for full year 2022 share repose to approximately $1 billion. And that means we've adopted a slightly more conservative short-term approach to capital management with the philosophy of preserving financial firepower to be able to take advantage of market conditions if and when they arise.

[Rob Fauber, President & Chief Executive Officer at Moody's]

Yes. And let me add to that. So we have done a number of bolt-on acquisitions over the last, let's call it, 18 months. We've been really focused on executing on that portfolio of acquisitions and integrating and getting the real business value out of those acquisitions. In fact, we track our performance against our acquisition cases and we review them every quarter. And we included in the slides kind of our performance on some of our larger acquisitions to date, and we feel very good about that.

It's interesting because I ran the corporate development team for years. And in these periods of market dislocation, the initial instinct is to think, Oh, well, this has got to be a buyer's market, valuations are down so sharply. But like we're talking about what's the duration of this kind of correction, the same thing that sellers are thinking about. This is a six, nine, 12 month correction.

I remember when we were talking about multiples at one level 12 months ago, and so I'm not a seller. So you tend to see oftentimes some disconnects between valuation expectations between buyers and sellers in these markets. If you've got companies that have very leveraged capital structures, eventually that may force them to do something, that's often not the case in our sector.

And so I guess the last thing I would say is, like Mark said, we've got plenty of financial firepower. We have a very clear view of the kinds of things that our customers want and need from us and what would be additive to our offerings for our customers. And so we're always on the lookout, but I'd say we're going to continue to be disciplined in this market and continue to extract the value out of the things that we have invested in over the last 12 to 18 months.

[Andrew Nicholas, Analyst at William Blair]

Great. Thank you. That's helpful. And then maybe a follow-up, Rob, to a point that you made on kind of the success of some of your acquisitions of late. Obviously, on Slide 22, you note mid-30s type growth for your screening capabilities and being ahead of plan there in terms of $300 million of revenue in that business. I was wondering if you could spend a little bit more time on what exactly within that business is outperforming your initial expectations? Obviously, the market is a strong one, but if there's anything from an execution standpoint or a product offering stamp -- standpoint that's really resonating with customers, would love to hear it. Thank you.

[Rob Fauber, President & Chief Executive Officer at Moody's]

Yes. So I think this is really about our KYC and again, I'm warning you, we may move on from that term because I think in some ways, it's a little too limiting for what it is. But very simply, we help customers assess, screen and monitor the individuals and companies that they do business with or that they want to do business with. And we do that by helping them know the entities and individuals by understanding the risks associated with those third parties and also to execute at scale with some workflow tools.

And you've heard us talk about the goal here is to be both more efficient and more effective. And so I talked about -- we mentioned it at Investor Day, virtually, every company around the world is working to better understand the risk profile of their customers, but also their suppliers and other counterparties. So there's a big opportunity here.

And back to acquisitions and investments, in the fourth quarter of last year, we were pretty active in this space, and we made several acquisitions, and that has allowed us to begin assembling a much more comprehensive offering to support customers in their KYC workflow. That includes data and intelligence with really unmatched coverage on entity's ownership in companies. It includes an element of workflow orchestration with highly configurable, integrated and automated KYC management and also the thought leadership and expertise that our customers expect of Moody's.

So we're pulling all of these together in a way, leveraging these world-class data sets, leveraging now this highly configurable workflow platform and all the expertise we have to not only help with, as I said, the traditional know your customer use cases, but now going even more broadly to know your counterparty, know your supplier and so on. So there's a lot to it. But that -- all of that -- back to your original question about RDC and what we had said, we knew that RDC was going to be a very important component of basically unlocking our opportunity here, and in fact, it has been.

[Andrew Nicholas, Analyst at William Blair]

Thank you.

[Operator]

Thank you. Our next question comes from Faiza Alwy with Deutsche Bank.

[Faiza Alwy, Analyst at Deutsche Bank Aktiengesellschaft]

Yes, hi. Thank you. So I wanted to just sort of -- first, just put a finer point on your medium-term outlook for MIS. I think at the time when you put out that outlook, it was based off of 2021 issuance levels. And I just want to clarify, I think what I'm hearing you say is that we should think about the base now as more 2019. Like is that the right way to think about sort of normalized growth from here? Or am I misunderstanding what you're saying with respect to your medium-term outlook?

[Rob Fauber, President & Chief Executive Officer at Moody's]

Yes. I think generally, I think that is right for some of the reasons that we've talked about on the call so far.

[Mark Kaye, Chief Financial Officer at Moody's]

And maybe, I would just add -- maybe just add one quick comment to Rob's remark. When we set our medium-term outlook for MIS revenue in particular, we did build in a period of stress and economic stress into the model as the setting of our medium-term target really followed the point that you're making to historically strong years of issuance in 2020 and 2021.

[Faiza Alwy, Analyst at Deutsche Bank Aktiengesellschaft]

Okay. Understood. And then just as a follow-up on the MA business, I heard you say that you haven't seen anything -- any type of slowing in any component of that business at this moment in time. I'm curious, again, on your medium-term outlook, which was in the teens, like how resilient do you think that business is to the macro environment in general? Are you confident in those targets going forward?

[Rob Fauber, President & Chief Executive Officer at Moody's]

Yes. We've talked about this a bit before. It's a very resilient business. And I think the reason for that is if you think about what we're helping our customers do and we talked about, again, it's -- it may sound a little bit trite, but in these periods of uncertainty, you've got customers who are trying to navigate all this uncertainty and they need expertise. They need data. They need analytics. They need expertise. And so they really, really value us in those periods. As we've continued to broaden out our offerings, when you think of -- I talked about what are we doing in banking. It's loan origination, risk and finance -- risk management and finance and planning. Those are not things that banks are turning off in periods of stress. Think about what's going on across our insurance portfolio. I mean we've got models that are literally at the very heart of pricing property and casualty risk for insurers.

And in our KYC business, you've got to make sure that you're not doing business with sanctioned entities or bad people, whether we're in good periods or bad periods. And so we just -- we have some very mission-critical workflows that we're serving for customers. And you can see from the retention rates, this stuff is very sticky. Once we're embedded into these workflows, the retention rates are very high. So that's why I tend to feel quite confident about the business even when we're in periods of kind of market stress.

[Faiza Alwy, Analyst at Deutsche Bank Aktiengesellschaft]

Okay. Thank you so much.

[Operator]

And our next question will come from Manav Patnaik with Barclays.

[Unidentified Participant, at Moody's]

Hi, good afternoon, this is Brendan on for Manav. Just want to ask, and I apologize for going back to this about the issuance that you talked about the $4.4 trillion near the average if you exclude the pandemic. But -- and I just want to be clear, it sounds like you're saying, is this more so a new base to grow off of based on your current guidance when we think about 2023? Or is there still -- or are you still thinking there's a bit of rebound that could happen? Or is that more so when the refinancing walls pick up beyond that?

[Rob Fauber, President & Chief Executive Officer at Moody's]

Hey, Brendan. Good to have you on the call. I mean, I think we have to acknowledge that the last two years were unusual years. And I think a lot of analysts and investors are looking back at long time series of issuance just like we are. And those last two years are, in fact, unusual. And so as we're kind of running our scenarios, we are kind of looking at historical patterns and what we think is a reasonable growth on a go-forward basis.

[Unidentified Participant, at Moody's]

Okay. And then I just wanted to ask on the RMS and ESG, your businesses, how that's doing? And any current trends? Any change in trends there in the last couple of months? And then after that, just anything on M&A opportunities in that space? Or if it's still pretty pricey?

[Rob Fauber, President & Chief Executive Officer at Moody's]

Yes. Let me start with RMS. So it's been almost a year, in fact, since we announced the acquisition, and we're having some -- I've talked about a little bit in the past, some very encouraging discussions with major insurers and reinsurers. We really want to automate and digitize and integrate. And we're integrating across our product suite. We're co-creating new products. Last quarter, I think I mentioned that we're mapping all of the properties in CMBS securities to RMS data.

There are a few other areas where we're making some nice kind of early progress. There are a number of use cases for banks that we have identified and are starting to get some traction, helping banks, particularly around looking at physical risk in their portfolios. We're working on starting to do the same around transition risk. You mentioned ESG, Brendan. A lot of interest from insurers in integrating our ESG data and scores into RMS's underwriting solutions. So that they can better understand the ESG profile of companies as they're underwriting and looking at their broader portfolio.

We've already got several very nice customer wins there, and we are building a nice pipeline. And we're also -- we also have some very nice product enhancements. So as you may remember, before we bought RMS, we had a small climate business. And now we're able to take those RMS models and data and to be able to kind of power some of those climate solutions, some of our climate on-demand solutions. We're also starting to pick up the pace around cross-selling conversations with insurers to help them around a broader range of risk assessment needs. So in general, feeling pretty good about what's going on across the company in terms of not just RMS, but also in terms of climate and ESG.

[Mark Kaye, Chief Financial Officer at Moody's]

Maybe just two quick quantification points there to help with the modeling. We still expect RMS's sales growth to be in the mid-single-digit percent range this year, and that's obviously up from the historical growth rate of the low single-digits. And then for 2022, we're expecting to further increase our direct and attributable ESG related to our revenue by about 20% to $34 million. And that's just a little bit lower than what we previously forecast simply reflecting some weakness in the sustainable finance market.

[Unidentified Participant, at Moody's]

And just anything on M&A and ESG?

[Rob Fauber, President & Chief Executive Officer at Moody's]

It's a pretty fragmented market. There aren't a lot of kind of scale opportunities to move the needle out there. That was one reason that we really felt good about the acquisition of RMS because you look around and you think if climate analytics are important to your customers, how do you get that at scale? And how do you get that in a platform that you feel very, very confident in the analytics.

And as a discussion we had with our Board at the time of the acquisition, they've been -- RMS has been serving the global insurance industry for over 30 years. So you know that those models are robust. So I guess I would say ESG is probably primarily an organic opportunity. We've been investing organically. We keep our ears to the ground. But like I said, not a lot of scale opportunities out there.

[Unidentified Participant, at Moody's]

Thank you.

[Operator]

And our next question will come from Jeff Silber with BMO Capital Markets.

[Jeffrey Silber, Analyst at BMO Capital Markets]

Thanks. I know it's late. I'll just ask one. I was wondering if we can just get a little bit more color about what you're calling, I guess, the geolocation restructuring program not only in terms of details, but I'm just curious why now, why not last quarter, why not next quarter, etc.?

[Mark Kaye, Chief Financial Officer at Moody's]

The $75 million -- or up to $75 million geolocation restructuring program that we announced this morning was really focused on optimizing our existing real estate footprint. Thirdly, utilizing our lower cost locations where the requisite skills and talents exist and really ensuring our focus and resources remain firmly allocated to a prioritized areas of opportunity.

Why now? I think the workforce of the future -- workplace of the future programs at Moody's are progressing well, and that has presented opportunities for us to be more efficient with use of stockholder capital. And that means for the second quarter that we recorded that $31 million pre-tax restructuring charge, which is mostly related to personnel expenses. And then as we exit and see use of our leased office space, which is expected to really begin in the fourth quarter of this year, and continue through the first half of 2023, you can expect us to reflect between another $25 million and $35 million in pre-tax restructuring charges in our financials.

For the $40 million to $60 million in annualized savings that we anticipate generating through these actions, the majority is going to be redeployed towards our strategic investments. And that's going to include further workplace enhancements, further employee retention initiatives. And the idea here is really to be able to create that financial flexibility to balance between profitability in the short-term and then supporting business margin expansion over the long-term.

And then finally, just as an aside, if the issuance downturn, is more severe and protracted than what we've modeled as our central case, you could expect us to take more aggressive actions around expenses in the future.

[Jeffrey Silber, Analyst at BMO Capital Markets]

Okay. That's really helpful, Mark. Thanks so much.

[Operator]

And our next question will come from Craig Huber with Huber Research Partners.

[Craig Huber, Analyst at Huber Research Partners]

Great. Thank you. I wanted to get back to this, the Decision Solutions subsegment, if I could. Obviously, it was up 12% organically, excluding currency for six months, but only up 8% here in the second quarter year-over-year. You talked about the banking piece of that, if I heard you right, being the major reason for the slowdown, I guess. But wasn't that also an issue in the first quarter? And I guess I'm trying to figure out what's changed in the latest three months versus the first quarter to account for the slower growth there?

[Rob Fauber, President & Chief Executive Officer at Moody's]

Yes. Craig, I guess maybe a couple of things. I would just flag and back to the both banking and insurance have some, as I said, both a mix of on-prem and SaaS solutions. And so you had some aspect of, I'll call it, kind of timing and revenue recognition that contributed to what was going on in the first quarter and as well in the second quarter. And so -- that's one reason that we kind of keep going back to ARR because it gives you the ability to kind of look through some of the kind of rev rec issues that you get from kind of this on-prem product suite that we still have. And so back to -- as I think about the underlying kind of health of that business, I'm looking at ARR and ARR for Decision Solutions, 11%, same as it was last quarter.

[Craig Huber, Analyst at Huber Research Partners]

And my follow-up, please. On the credit research business you guys had for many years, obviously, maybe just touch on the growth rates that you're seeing. It seems like it's holding up quite well despite the very volatile markets. Maybe talk about pricing there, if you could, that's changed at all. Thank you.

[Rob Fauber, President & Chief Executive Officer at Moody's]

Yes. You're right. That continues to be a very nice business for us. I talked a little bit about the kind of demand in times of uncertainty. That's certainly true. In fact, we've shared some statistics around usage. And you saw during COVID, usage really spiked. We saw during the Ukraine crisis usage spiked because our customers view this as really kind of must-have insights into the credit markets. So that all then supports the value proposition and the pricing opportunity for us. And we've also had some success in actually expanding the usage at some of -- excuse me, the kind of the broad usage at some of our customers as well. So all of that is contributing to supporting what is continuing to be some nice growth. And I also mentioned, Craig, we're continuing to make some enhancements in that CreditView platform that we think will provide ongoing support for growth.

[Craig Huber, Analyst at Huber Research Partners]

Great. Thank you.

[Operator]

And moving on to Owen Lau with Oppenheimer.

[Owen Sum Lau, Analyst at Oppenheimer & Co]

Thank you for taking my question. I only have a quick two part question. So the first part is, could you please talk about the FX impact to your overall business to your overall results in the second quarter? And then the second part is with regard to the interest expense guidance, I think you raised that number a little bit. Could you please talk more about that? And how we should think about the sensitivity on rising rates? And how we should model out the interest expense going forward? Thank you.

[Mark Kaye, Chief Financial Officer at Moody's]

Owen, good asking in, and thank you. I'll start with the FX impact of first, not trying to be comprehensive here as I realize this is an important element for consideration. During the second quarter, we did see the U.S. dollar strengthened quite considerably against both the euro and the British pound. Specifically, the end of quarter, spot rates were $1.05 against the euro and $1.21 against the pound. And that's meaningfully down from $1.11 against the euro and $1.31 against pound last forecast. And as a result, the quarterly MCO, MIS and MA revenues were unfavorably impacted by approximately 3%, 2% and 5%, respectively. And the net impact of all of that flowed down to adjusted diluted EPS of about $0.07 negative in the quarter.

If I step back just for a minute. So approximately 45% of our revenue is generated through our international operations. And then of that, approximately 65% is generated in EMEA. And so further strengthening of the U.S. dollar specifically against the euro is going to weigh on our actual results as the year progresses. Similarly, about 40% of our operating expense base is denominated in non-U.S. dollar currency as over 60%-ish of our employees are located outside of the U.S., and that's going to help neutralize or at least partially neutralize the FX movements.

So if I were to roughly quantify the annualized impact of foreign currency movement for modeling purposes, every $0.01 FX movement between the dollar and the euro is going to impact full year EPS by approximately $0.02, and full year revenue by about $8 million to $10 million. And then every $0.01 FX movements between the dollar and the British pound, is going to impact full year revenue by about $2 million and expenses by about $2 million. So more release neutral on an EPS basis.

And then finally, if I think forward, when we set our medium-term targets back in February, we have assumed constant foreign currency exchange rates over the medium-term. So specifically, the euro of about EUR1.14 [Phonetic] to the dollar and the pound of GBP1.35 [Phonetic] to the dollar. And so if foreign exchange rates remain at the current levels or if the U.S. dollar continues to appreciate, we're going to see a little bit of headwind to achieving the medium-term targets to become a bit more pronounced.

On your second question around interest expense guidance, we do have a $500 million 2.625% coupon note that is maturing in January 2023. And our revised 2022 interest expense guidance of $220 million to $240 million incorporates the current expectation that we will look to refinance our January 2023 notes in the second half of this year. And given the rise in benchmark rates, you could naturally expect a coupon or a higher coupon on a similar size and duration as the note that is due in early 2023.

And so for additional context, historically, we've refinanced upcoming maturities before they've become due. And that's really part of our commitment to effectively manage our capital structure and maintain our financial flexibility. The best example of that, you could think about November 2021, when we refinanced the $500 million 4.5% debt that was maturing in 2022. So maybe a last comment on the topic. In the event we don't proactively refinance the upcoming bond maturity, that would clearly reduce our interest expense expectation for the full year 2022.

[Owen Sum Lau, Analyst at Oppenheimer & Co]

Thanks a lot, Mark.

[Operator]

And our next question will come from Russell Quelch with Redburn.

[Russell Quelch, Analyst at Redburn Partners]

Yes, thanks [Indecipherable]. So those have been helpful comments so far on the expenses. I wondered if you could detail what you would be prepared to do with respect to reducing expenses in the second half of the year if we do see a continued deterioration in markets?

[Rob Fauber, President & Chief Executive Officer at Moody's]

Russell, it's Rob. First of all, I just want to welcome you to the call. And just in terms of the additional actions that we would take during the second half of the year, I think there are two ways I'd like to look at this. There's definitely actions would take based on a cyclical outlook going into 2023. And then actions we take, which is not our central case based on sort of a structural outlook going into 2023.

In terms of cyclical activities that we could take, certainly slowing down hiring, that would be one. There are also natural expense levers in terms of managing our T&E costs as well as managing our incentive compensation accrual. We also have the ability, though, I would preserve this really for more structural-based outlook changes of reducing our organic strategic investments during the year or staggering those to be a slightly lower burn rate. And I think the reason that's important is those initiatives really do underpin medium-term guidance when you think about MIS and MA revenue.

[Russell Quelch, Analyst at Redburn Partners]

Okay. Good. That's helpful. Thanks for your comment, Rob. And a follow-up, I just wondered if you confirm from what you're saying in the guidance that you're not going to be buying back any more shares for the rest of this year. And from your comments, all the firepower is going to be saved for bolt-on M&A. If that's the case, where do you believe you need to focus investment in NA from a data product perspective? And perhaps as a final note and maybe a polite challenge, given the balance sheet is very healthy, as you noted in the schedule, close to 24 month low, why stop the buyback now? Thanks.

[Mark Kaye, Chief Financial Officer at Moody's]

I am -- maybe just to reiterate some of the key points that we spoke about earlier So we have lowered our guidance for full year 2022 share repurchases to approximately $1 billion, and that is lower than our prior guidance of $1.5 billion. And you could think about that as reflecting the current economic environment, specifically the fact that our outlook for full year and net income of full year EPS is commensurately lower by that amount.

And from a CFO's perspective, it's important, at least at this point in time, to adopt a slightly more conservative approach to capital management. And the idea here is to, again, preserve financial firepower to be able to take advantage of market opportunities. Those market opportunities could include further share price repurchases or they could include M&A. In other words, they're not looking to signal one over the other, only to create financial flexibility as we approach the end of the year.

[Russell Quelch, Analyst at Redburn Partners]

Okay. Thanks. And then in terms of priorities, if it is M&A derivative, where do you think you like in terms of data products?

[Rob Fauber, President & Chief Executive Officer at Moody's]

Yes. I think you've seen us be very active in that kind of know your customer verification space, where we have a compelling set of assets in a high-growth market. We're supplementing our acquisitions that we've done to date with organic investments, but there may be other opportunities there, and that would be very attractive for us because the growth rates we're seeing and the traction that we're getting from customers.

I would say also our banking business, you've seen us make some bolt-on acquisitions there over the last several years is the same with our insurance business. We've also, over the last few years, added what I'll call kind of domain capabilities that are really important to this idea of really bring to life integrated risk assessment for our customers. And so ESG and climate and properties and other things, we believe are -- we haven't done those at the same scale but are important in terms of this concept of delivering integrated risk assessment for our customers.

[Russell Quelch, Analyst at Redburn Partners]

Okay. Great. Thank you.

[Operator]

And our next question come from Jeff Meuler with Baird.

[Jeffrey Meuler, Analyst at Robert W. Baird]

Yes. Thank you. The question is, how independent are the M&A compensation plans from the MIS? Or overall corporate performance, and I know shared services burden can shift and between the segments or it can impact executive comp and whatnot. But I guess the lead-in for the question would be, given the magnitude of the consolidated revenue guidance reduction, I would have expected more of an adjustment in that operating growth plus incentive compensation expense bucket, but I'm wondering if the answer is largely because there's this big pool of MA expense that's largely untouched in given the current circumstances?

[Rob Fauber, President & Chief Executive Officer at Moody's]

Yes. So I mean, overall, we have kind of one corporate bonus pool, and we obviously have allocations to our businesses and our functions guided by performance. But I think at a high level, you're right, I mean it's been a tale of two cities. So the MA performance has been quite strong, MIS performance less so. And so that -- we then expect that to be reflected in our compensation accruals.

[Jeffrey Meuler, Analyst at Robert W. Baird]

Okay. And then, Mark, when I add up the factors on Slide 23, I get to like 6% year-over-year growth. Are you trying to signal something at the lower end of the high single-digit percentage increase range? And just to be clear, that includes 1 point from restructuring charges, which are then excluded on an adjusted EPS basis?

[Mark Kaye, Chief Financial Officer at Moody's]

Thank you for allowing me to reconfirm that point. That's exactly right. So I certainly would like to signal the lower end of the high single-digit percentage growth for full year operating expenses. And that, of course, to your point, includes approximately 1% from the restructuring program.

[Jeffrey Meuler, Analyst at Robert W. Baird]

Okay. And that restructuring is excluded from adjusted EPS, correct?

[Mark Kaye, Chief Financial Officer at Moody's]

That is correct.

[Jeffrey Meuler, Analyst at Robert W. Baird]

Okay. Thank you.

[Operator]

And our next question comes from Shlomo Rosenbaum with Stifel.

[Shlomo Rosenbaum, Analyst at Stifel Nicolaus]

Hi, good morning, good afternoon. Thank you for taking my questions. I'm just trying to think a little bit about Slide 17 in terms of MIS with the debt has grown throughout varied economic conditions. Is that really the right way to look at it? I mean we're looking at 2008 where it looks like debt is -- debt went up, but the MIS business had significant declines during that point in time. What should we be looking at in terms of really moving the needle back and forth for the business? Is it really should we be looking at high yield and leveraged loans? I mean how should we be thinking about that? And then the potential impact from rising interest rates, particularly in those securities in terms of like CFO's interest in just rolling their debt forward at current levels or potentially looking to delever.

[Rob Fauber, President & Chief Executive Officer at Moody's]

Yes. Maybe I'll provide a few perspectives, and then I'll see if Mark wants to build on that. I mean, there are -- I think a number of ways to kind of triangulate around what you think kind of a growth rate for the business going forward is. I do think the overall stock of global debt is an important one. And what I think this chart in part shows is that you've obviously got new issuers coming into the market year after year.

And so that stock of debt has continued to grow. And that's very important because these maturity walls that we talk about provide kind of a -- we've used the term kind of a ballast for the business. And there's just been a lot of debt that has been issued in particular in the last few years. But the overall just stock of debt has gotten much larger. And then we look at the flow of debt, and we've had, I think, a good bit of conversation about the flow of debt on this call.

And you touched on mix. And one of the big themes over the last 10 years was the growth of the leveraged finance markets. And that, in fact, has been favorable to our mix over the years. It's hard to say what I said in the near-term, you could see mix being neutral to even negative. But keep in mind, part of what is driving that is that you have private equity firms that have raised an enormous amount of capital over the last few years. And so they are deploying that capital with buyout activity. And that has really fueled the leverage finance market and the leveraged loan market in particular. I think that's actually been kind of an important structural trend that has supported issuance over the last decade.

[Mark Kaye, Chief Financial Officer at Moody's]

And maybe, Shlomo, just add on to Rob's comments. I think it's a little bit of a different direction here, but I think it will be helpful as you consider the moment in history that we're in. And the way I want to approach this is really just taking it through the lens of cyclicality versus structural over time. And when we think about a cyclical shift in issuance, and I think about both refinancing activity as well as new debt issuance, for example, existing issuers growing their balance sheet or new companies accessing the debt market, really could consider the following point.

So firstly, it's a cyclical decline, which is our central case scenario. It's really temporary until, I suppose, one of two conditions happen: either funding costs turn from rising to falling or -- and/or a growth trend turned from falling to rising. And our belief is that those two conditions really might be met by the second half of next year, if inflation is reined in by the first half of next year or by 2024, if this is a longer downturn, i.e., inflation is hardly reined train or growth suffers materially, not our central case, but a structural decline in debt issuance or you consider aggregate global deleveraging would be a longer-lasting phenomenon where companies and governments across various sectors and regions decided to shrink the balance sheet.

And that's really a result of demand or supply in balance. So you think about it on the demand side, longer-term global growth prospects are lowered so significantly that companies aren't expanding or social needs have fallen. So governments aren't expanding services, for example. Similarly, on the supply side, savers are saving less and there is late money to borrow or saves are investing in vehicles other than the deep markets. And I think the key point here, in that the years that are going to follow sort of '23 and '24, we may not ultimately return to a period of low inflation and low rate, but debt issuance is likely to remain in a very efficient method to refinance growth.

And ultimately, that becomes very important in how we think about sort of the outlook, not just for this year but over the medium-term period, in consideration. And maybe a final point here is the global economy has really gone through many physical and structural shifts over time and debt has remained a key method of financing that growth and innovation.

[Shlomo Rosenbaum, Analyst at Stifel Nicolaus]

Okay. Thank you. Just one follow-up, where are you with retention? I mean, there's a lot of talk of reinvesting to improve retention and things like that. And you guys really are in a very much a people business for a lot of it. Where are you with your retention metrics now? Are you comfortable that you have -- that you will be deploying enough to retain the levels of employees that or then the quality of employees that you're looking for?

[Rob Fauber, President & Chief Executive Officer at Moody's]

Shlomo, you're right. People are absolutely critical to our business. And it's what has gotten us through the pandemic so well. And we have indeed made some investments in making sure that we retain our people. In general, I would say that based on the kind of data that we have and kind of our ability to benchmark against financial services, we think we're either broadly in line or even slightly better in terms of overall employee retention than financial services more broadly. But it continues to be a competitive market, and we continue to make sure that we're making the right investments to not only retain the people we need, but attract the people that we need as well.

[Shlomo Rosenbaum, Analyst at Stifel Nicolaus]

Thank you.

[Rob Fauber, President & Chief Executive Officer at Moody's]

One other, Shlomo, one other thing to add to that, sorry, is not all about compensation either. Compensation is important, but we hear from our employees all the time that several other aspects of working at Moody's. It's about working in a company that you feel has a real purpose and does something important in the world. It's about having the flexibility that you value. We did a recent employee survey and our employees tell us we're doing a pretty good job on workplace flexibility. So we're going to continue to make sure that we're focused not just on compensation, but on the whole kind of basket of things that contribute to kind of a compelling value proposition for our employees.

[Operator]

Thank you. And that does conclude the question-and-answer session. I'll now turn the conference back over to Mr. Rob Fauber for any additional or closing remarks.

[Rob Fauber, President & Chief Executive Officer at Moody's]

Okay. So thanks, everybody, for joining today, and we look forward to speaking with you next quarter. Goodbye.

[Operator]

[Operator Closing Remarks] 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 of this call will be available after 4 p.m. Eastern Time on Moody's IR website. Thank you.