Moody's Q3 2022 Earnings Call Transcript

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Provided by Quartr
October 25, 2022

Key Takeaways

  • Moody’s reported $1.3 billion in Q3 revenue with an adjusted operating margin of 39%, as MA revenue grew 14% (9% organic) while MIS revenue fell 36%, yielding adjusted EPS of $1.85.
  • The company revised its full-year 2022 outlook, anticipating total revenue decline in the low-double-digit range, MIS revenue down ~30%, and adjusted diluted EPS of $8.20–$8.50.
  • Low debt issuance is expected to persist through year-end, prompting Moody’s to lower MIS rated issuance guidance to a mid-30% decline, though a >$4 trillion refinancing backlog supports future recovery.
  • Moody’s will implement cost-efficiency initiatives, expanding its restructuring program to achieve at least $200 million in annualized savings by end-2023 via real estate and workforce optimization.
  • Despite market challenges, MA confirmed mid-teens % full-year revenue growth and lifted its adjusted operating margin target to ~30%, fueled by 9% Q3 ARR growth, KYC & Compliance Solutions momentum, and RMS integration.
AI Generated. May Contain Errors.
Earnings Conference Call
Moody's Q3 2022
00:00 / 00:00

There are 11 speakers on the call.

Operator

Day, everyone, and welcome to the Moody's Corporation Third Quarter 2022 Earnings Conference Call. At this time, I would like to inform you that this conference is being recorded and that all participants are in a listen only mode. At the request of the company, we will open the conference up for questions and answers following the presentation. I will now turn the call over to Shivani Kok, Head of Investor Relations. Please go ahead.

Speaker 1

Thank you, and good afternoon, everyone, and thank you for joining us today. I'm Shivani Kark, Head of Investor Relations. This morning this afternoon and this morning, Moody's released its results for the Q3 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. Movies.com.

Speaker 1

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 and filed this morning for a reconciliation between all adjusted measures referenced during this call in U. S. GAAP. I call your attention to the Safe Harbor language, which can be found towards the end of our earnings release.

Speaker 1

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 ks 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. Rob Faubber, Moody's President and Chief Executive Officer, will provide an overview of our results and outlook, after which he'll be joined by Mark Kaye, Moody's Chief Financial Officer, to answer your questions.

Speaker 1

I will now turn the call over to Rob Saba.

Speaker 2

Thanks, Shivani. Good afternoon, and thanks to everybody for joining today's call. Like I did last quarter, I'm going to start with a few takeaways. And as everybody is aware, during the Q3, Economic and geopolitical conditions continued to deteriorate, and that further suppressed the global debt issuance markets from the already subdued levels that we have seen in the first half of the year. At the same time, these conditions supported increasing customer demand for data and analytics to identify, to measure and manage risk.

Speaker 2

And against this backdrop, our MA business continued to perform well with strong revenue growth of 14%, While MIS revenue declined by 36 percent and overall Moody's generated $1,300,000,000 in revenue with an adjusted operating margin at 39%. And we expect that low issuance volumes, particularly in the leverage finance space, will persist through the remainder of the year. And as a result, We're revising several of our 2022 outlook metrics, including our guidance for total Moody's revenue, which is now expected to decline in the low double digit range. And we're also updating our outlook for full year adjusted diluted EPS to now be between $8.20 8.50 Now in response to the expectation for continued economic headwinds, we're also taking decisive steps to reduce our expense run rate by at least $200,000,000 by year end, and the cost savings will be realized across the company and include a more than doubling in the size of our previously announced restructuring program as well as various additional cost efficiency initiatives. And collectively these actions put us in a position of strength as we head into 2023 and I'll provide some additional details later in the call.

Speaker 2

Now for the Q3, MA recorded both strong revenue growth of 14% and a 9% increase in annualized recurring revenue or ARR. With over half of MA's business outside the U. S, Foreign exchange rates had an outsized impact on MA's revenue growth, lowering it by 7 percentage points. For MIS, the 36% decrease in revenue against the and prior year period was driven by a 41% reduction in issuance. And altogether, This resulted in a 16% decline in Moody's revenue and the negative impact of foreign currency movements on total Moody's revenue was 4 percentage points.

Speaker 2

Now expenses grew just 1% in the 3rd quarter as we continue to execute efficiency initiatives and emphasize cost discipline and the net impact of lower revenue and controlled expenses translated to adjusted operating income of $497,000,000 for the quarter and adjusted diluted EPS of $1.85 Now let me provide some additional context on the conditions impacting issuance levels and our revised full year outlook for MIS. And at the beginning of the year, like others in the market, and we anticipated that elevated levels of inflation would be transitory and slowly abate over the course of 2022. And instead, The conflict in Ukraine further impacted market confidence and commodity price shocks pushed inflation higher. And these factors prompted central banks to raise interest rates further and faster than expected to levels we haven't seen for more than a decade and resulting in ongoing uncertainty and volatility in the capital markets. Meanwhile, corporate balance sheets remained robust following a surge in opportunistic pandemic era financing, allowing issuers to stay on the sidelines given market conditions.

Speaker 2

We expect that these macroeconomic and geopolitical conditions will continue to mute issuance levels at least through year end. And in light of this, we're updating our guidance for 2022 MIS rated issuance to decline in the mid-thirty percent range. Full year MIS revenue is now projected to decrease by approximately 30%. And while the outlook for next year will depend On the pace and scope of market stabilization and recovery, we're confident that conditions will improve over time and that the key growth drivers for issuance will resume. This year, only a little more than a quarter of the first time mandates that we've signed have gone to market, meaning there's a backlog waiting to tap the markets.

Speaker 2

And to leverage those opportunities, our teams have been engaging extensively with investors and issuers. We haven't been sitting still. We've been building our domestic rating franchises, including in Africa with the majority acquisition of GCR and across Latin America through Moody's Local. And we've made significant progress in digitizing our content to both improve the customer experience, but also to drive increased usage. As we look ahead, Our pricing opportunity remains intact and we know there are over $4,000,000,000,000 in refunding needs that will likely be refinanced over the coming 4 years.

Speaker 2

In short, we're continuing to deliver on our differentiated strategy to be the agency of choice for our customers. While current conditions for MIS are challenging as those ease, issuance will accelerate and we will be well positioned to capture growth and operating leverage through our extensive market presence. Now turning to MA, which despite the challenging market conditions, delivered another and the 3rd quarter was no different. MA reported 14% revenue growth or 9% on an organic constant currency basis. And with best in class retention rates and growing customer demand, EMA also achieved 9% ARR growth for the Q3, and that's inclusive of RMS.

Speaker 2

We're confirming our top line revenue guidance for 2022. MA full year revenue is expected to increase in the mid teens percent range, and that's despite a 5 percentage point headwind from foreign exchange rates. We expect ARR to accelerate to low double digit percent growth by year end. We're also raising the MA adjusted margin guidance to approximately 30%, and that's a 100 basis point increase over our prior guidance, reflecting ongoing expense efficiency. So let me take a moment just to highlight our fastest growing business and that's KYC and Compliance Solutions.

Speaker 2

And in recent years, we've invested and that's been both organically and inorganically in acquiring, developing and integrating data analytics and technology to create a world class set of solutions. And this combination supports new use cases around counterparty verification. That's enabling us to grow with existing customers and add new customers in areas like the Fintech, Corporate and Government sectors. We continue to receive industry awards and recognition, including most recently, A top right quadrant positioning from Chartus. We also won the AI Breakthrough Award for our innovative solution for fraud prevention, and that's one of an increasing number of places where we're being recognized for the integration of artificial intelligence into our solutions.

Speaker 2

Also, as we pass on the 1 year anniversary of the RMS acquisition, let me give a quick update on that. We're on track to achieve the financial targets announced last August, and I'm excited about the opportunities that are in front of us. We are laser focused on maximizing our synergy opportunities by launching new products and pursuing markets that leverage our combined capabilities and strengths. So for example, this past quarter, We launched our ESG underwriting solution for property and casualty insurers, which integrates Moody's extensive data to help them operationalize ESG risk assessment into their insurance underwriting workflows. And I also want to recognize the great work being done by our colleagues at RMS.

Speaker 2

And in my meetings with customers over the last few months, I've heard firsthand about how important our solutions are in helping the industry address an increasing array of risks, including recently as we assisted our customers in rapidly quantifying the financial impact of hurricanes Fiona and Ian. Now moving to the restructuring plan that I mentioned earlier. On our last earnings call, we said that we would take additional actions to manage expenses and improve operating leverage if we observe further deterioration in the external environment. And given our view that the weakness in the issuance market It will likely persist through at least the Q4 of 2022. Our teams have undertaken a careful review and prioritization of ongoing initiatives, and we've identified several avenues for meaningful savings.

Speaker 2

We are expanding our restructuring program to more than double, providing up to $135,000,000 in savings in 2023 from a combination of rationalizing our real estate footprint and reducing our global workforce to reflect the reality of the current market environment. We have also undertaken a careful prioritization ongoing initiatives in light of our current business priorities, and that has identified up to $100,000,000 in additional savings. So Collectively, these are projected to lower our 2023 expense run rate by at least $200,000,000 And as we take these decisive actions, we will be mindful to invest and allocate resources to maintain the rigor and quality of our ratings and processes. Look, these are challenging and uncertain times, and we are prioritizing financial discipline today and making sure that we're well positioned to capture growth opportunities tomorrow. So that concludes my prepared remarks and Mark and I would be pleased to take your questions.

Speaker 2

Operator? Thank

Operator

you. And make sure your mute function is turned off so that your signal reaches our equipment. We will ask that you please limit yourself to one question. And the first question is from the line of Ashish Sabadra with RBC Capital Markets. Please go ahead.

Speaker 3

Thanks for taking my question. I was just wondering if you as we think into 2023, if you could provide any initial color on how we should think about issuance. There was obviously an expectation that we may see a big bounce back in issuance. Is that still an expectation as we get into 2023? Just given the higher interest rate, is it more reasonable to think about a gradual recovery?

Speaker 2

I was just wondering if

Speaker 3

you could share some initial thoughts. Thanks.

Speaker 2

Hi, Ashish. It's Rob, and I'm pretty sure we're going to get multiple questions around issuance environment and issuance outlook. So maybe let me start with kind of a big picture view and then as the call progresses, we'll continue to kind of drill down and And I know we'll talk about 2023. But you've heard me oftentimes on these earnings calls, When I said that I thought that the market could absorb rate increases as long as they were well anticipated by the market and they were accompanied by economic growth. And that's that is not what we have had this year.

Speaker 2

So the tightening cycle It's really the steepest of the past 2 decades. I think that initially surprised the market and it has been accompanied by decelerating economic growth. So back on the last call, I talked about the factors that were causing the disruption to the market at the time. And I noted that despite those factors, we expected that at the time 2022 issuance was going to come in roughly in line with the average of issuance from that 2012 to 2019 period that excludes those pandemic years of 2020 2021. But given the weakness in the Q3 that as you heard me say, we expect to continue into the Q4, we now think that the overall global issuance is going to be down something like close to 10% from that historical average.

Speaker 2

But what has really changed and that we now expect corporate issuance, and I'm including investment grade and leverage finance, to be down almost 30% from that historical average ex pandemic. So this is no longer kind of just down off of 2 unusual and record years for issuance, but now we see corporate issuance down meaningfully from its ex pandemic average going back to 2012. And I think that kind of illustrates the depth of the cyclical contraction that we're dealing with at the moment. And as I think about for the remainder of the year, I think the key is for the market to be able to get some certainty before it starts to get volatility. I think that's going to be the key.

Speaker 2

So let me pause there and I'm sure we're going to have some other issuance questions as we go forward.

Speaker 4

Yes. Maybe I'll follow-up as we anticipated there, Rob. You talked about 4 trillion I was hoping you could just help us how that breaks out. It looks like more of it might be in But just curious on your numbers. And then in a typical year, how much was refi as part of the given issuance compared to, I guess, the rest of the categories, which might just be more on capital allocation has improved, if that's correct?

Speaker 2

Yes. Hey, Manav. So we included, I think, a slide in the supplemental materials around the maturity walls. And as you said, it's $4,000,000,000,000 $4,000,000,000,000 to $4,100,000,000,000 very significant amount of debt that's It's got to get refinanced over the coming 4 years across the United States and EMEA. And it's interesting, We actually as we kind of normalized, you had about $200,000,000,000 of debt that fell out of the study due to withdrawing ratings in Russia.

Speaker 2

So The refi walls actually did actually grow this past year. It grew something like 4% on a like for like basis. But I think what's really interesting, Manav, if you go back just look at the slides back to 2019, those maturity walls have grown 28% from 19, but you actually go back another year, 2018, they're up 54%. And we're looking at a few things. So one, just the Absolute maturity walls are significant and they've continued to grow despite the fact there was obviously some refinancing activity that was going on when rates were ultra low.

Speaker 2

If you look at U. S. Spec grade for a moment, so if you look at the 1st 2 years in our refunding studies, There are about 18% of the 5 year total. That's the highest percentage since we started tracking in 2010. And the other thing I would say Manav, just to also try to triangulate to your question, if you look at the maturity walls for 2020 3, and you look at what our expectation is for corporate issuance for 2022, And I understand that's a little apples to apples to oranges, but it represents about 50% of what we expect to be the Global Corporate Financing Activity in 2022, that's a pretty big number.

Speaker 2

And remember, 40% of the MIS business or thereabouts is recurring revenue. So now we're talking about the support for that other 60%.

Operator

Your next question is from the line of Alex Kramm with UBS. Please go ahead.

Speaker 5

Yes. Hey, good morning, everyone or good afternoon, everyone rather. Wanted to shift gears to the cost base. Understand the restructuring program, but it would be helpful if you I guess, Mark Flushes out a little bit more. So the €200,000,000 achieved by the end of the year, how much of that is going to be actually impacting Yes, full year cost base and then I guess into 2023, how much on a net basis will be incremental as we think about And then more importantly, I guess, if we expect growth to accelerate next year, Fully, how should we be thinking about incremental margins on the Ratings business?

Speaker 5

And are the low 60s Targets medium term still intact. So I know that's a 3 part question, but I think it's all important.

Speaker 2

Alex, Good day. Good afternoon. I anticipate we may get a couple of questions on expenses during our Q and A session today. And so I'll start off maybe by talking broadly about the restructuring program and addressing some of your margin specific questions now and certainly we can take further at once later on. So the market disruption and downturn, as you heard from Rob, has extended for longer and has been more severe than what we anticipated earlier in the year.

Speaker 2

And because we're primarily thinking that this will extend at least through the Q4, We're taking actions consistent with our prior commitments and comments around being financially prudent and expense and that really means expanding the 2022, 2023 geolocation restructuring program that we established last quarter. So specifically, Through year end 2023, we now expect up to $170,000,000 or an approximate $95,000,000 increase in aggregate charges related to additional real estate rationalization as well as reduction of staff, and that's going to include for the utilization of alternative lower cost locations, where the requisite skills and talents exist. And that's all while ensuring that our focus and resources Remain firmly allocated to protecting the high quality of our core ratings business and continuing to strategically invest in growth areas within both MIS and MA. For the full year 2022, as we take these additional personnel related actions, as well as exit and cease use of certain leased office space. We plan to record up to approximately $85,000,000 in estimated pre tax restructuring charges, and that's going to be inclusive of the $33,000,000 pretax restructuring charge that we've recorded year to date.

Speaker 2

And that means the remaining portion of the up to $107,000,000 restructuring charges will be recorded then in 2023. And these actions are now projected to result in an annualized savings in a range of $100,000,000 to $135,000,000 and that's more than double the $40,000,000 to $16,000,000 annualized savings that we forecast under the restructuring program that we established last quarter. Furthermore, as you heard Rob mentioned just a minute ago, we have evaluated other opportunities for cost reduction, and that includes adjusting compensation policies, certain salary bands, reducing select non compensation expenses, as well as reassessing some of our business as strategies. And those additional cost reductions along with this $100,000,000 to $135,000,000 of savings from the upsized restructuring program that will generate at least that $200,000,000 run rate of savings as we enter into 2023. And we plan to use these savings, to your To really support profitability and business margin, as we take action towards achieving our medium term financial target and to a lesser extent plan to redeploy towards strategic investments, including Workplace Enhancement.

Speaker 2

And while we'll provide Official guidance for the full year of 2023 in February. These expense actions are anticipated to increase and stabilize MIS's 2023 adjusted operating margin in at least the mid-50s percentage range and they'll continue to expand MA's

Operator

Your next question is from the line of Kevin McVeigh with Credit Suisse. Please go ahead.

Speaker 6

Great. Thanks so much and Congratulations on the proactive expense management.

Operator

I don't know if this

Speaker 6

would be 4, but And can you give us a sense of what level of conservatism you have in the 2022 guidance based on the adjustments you've made kind of year to date?

Speaker 2

Yes. Hey, Kevin. Thanks for joining us today. You're welcome. Sure.

Speaker 2

The way we kind of put together You're talking about the remainder of the guidance for the remainder of the year. We've essentially assumed a continuation of what we're seeing right now into and throughout the Q4. And just to give you a sense, Our revised guidance for issuance implies that 4th quarter rated issuance will be down in, call it kind of the low 40s percent range. And if we have another quarter of Assumed unfavorable mix because of the softness in the leverage finance markets. That would mean MIS transaction revenues would be down greater than that, right?

Speaker 2

So they'd be down in the kind of low 50% range and then when you try and relate that back to revenue implies that 4th quarter minus revenue be down in mid-thirty percent range. And so that feels about right to us that we're going to continue with this environment. We've got a pretty muted environment at the moment. And I think the rest of the year in a way, because we're assuming that this continues, kind of thinking of it as a bit of a wash, because I think we're going to be in a holding pattern until the market can get some more confidence about inflation peaking and in turn the Some certainty around the pace and trajectory of Fed rate increases. Maybe I'd just briefly add 2 quick points.

Speaker 2

It's worth highlighting that the confidence intervals around our modeled outlook are wider relative to what we've seen in prior periods, And that's simply reflecting the heightened market uncertainty and volatility that we're currently experiencing.

Speaker 3

And then in contrast, EMEA has

Speaker 2

shown significant resilience to the current market disruption, really as our customers continue to elevate and improve their level of risk resiliency, which underscores the mission critical nature of our products.

Speaker 6

Thanks so much.

Operator

Your next question is from the line of Toni Kaplan with Morgan Stanley. Please go ahead.

Speaker 7

Thanks so much. I wanted to ask again on the Sort of outlook on issuance long term, you highlighted the refunding needs that's supportive. And Just wanted to understand if there's anything that you've seen so far that would lead you to think that companies will try to De lever in the coming years or anything that would sort of change the structural versus cyclical debate. And I know, Rob, You already said that you still think it's cyclical, but just any data points that you're looking at that would maybe

Speaker 2

Yes, Tony, sure. So we'll kind of zoom out here and if we need to kind of zoom Back end of 2023, I'm sure we'll do that. But as you said, Tony, there's some pretty deep cyclical issues at the moment. We've talked about all The macro uncertainty, you've obviously got the market working off some of the excess supply of issuance over the 2 pandemic years. But there are a few things I think that we're looking at that we feel are providing some, I would say, structural support for I talked about the refinancing laws and those are very Significant.

Speaker 2

There's some concern during the pandemic with ultra low interest rates that we were eating into those Maturity wise, it turns out they're intact and in fact continuing to grow and will provide support for transactional revenue. But I also say, this is there's been no change to the relative attractiveness of debt financing. And you remember on various calls over the past there, We've been talking about potential changes to tax codes and other things. None of that is out there. We've also seen there's been a lot of focus on cash balances.

Speaker 2

And certainly, U. S. Corporates were building cash during the pandemic years. We started to see that come down. So our cash power report It shows about a 7% decrease over the last year.

Speaker 2

Cash levels are similar to where they were in 2018. And I would also say, Tony, that I'm going to zoom in on the U. S. For a moment, but U. S.

Speaker 2

Corporates are in pretty good shape from a leverage standpoint. When we look at free cash flow to debt, that's one way to look at it across our rated U. S. Corporates, it's at about 11%. That's the best that it's been since 2011.

Speaker 2

So That to me means that corporate still have some room to take on some additional leverage. And then the last thing maybe I would say is, at the moment, we're continuing to see some stability of Spreads kind of remaining around historical averages. You heard me talk about a backlog of FTM. So despite all of this and maybe that's not a long term, maybe that's a shorter term, but we do have we are seeing a lot of interest from issuers who want to tap the markets. So as economic growth picks up, we expect all of that to be positive for issuance.

Speaker 2

I do think this is, as I said, is mostly cyclical. Cycles come and go, but we feel good about our leverage to a recovery in the markets.

Speaker 7

Super. Thanks.

Operator

Your next question is from the line of Andrew Nicholas with William Blair. Please go ahead.

Speaker 8

Hi, good afternoon. Thanks for taking my question. Just wanted to clarify a few things on the restructuring program. First, I want to make sure I'm looking at the slide, Slide 10.

Speaker 2

I want

Speaker 8

to make sure that incremental savings of up to $100,000,000 on the non restructuring related I want to make sure that that's something that's baked in as opposed to a contingency plan. And then also if you could give any color and I apologize if I missed it, In terms of the split of those cost savings between corporate expenses versus MIS versus MA, I think it'd be helpful Understand that mid-50s MIS range that you alluded to, Mark, how much of that is a consequence of cost savings versus for cost actions versus maybe some baked in growth next year. Thank you.

Speaker 2

Good afternoon. In terms of the incremental savings of up to $100,000,000 that we list on the Page 10 of the supplemental slide set, Those are not contingency based savings. Those are certainly actions that we will anticipate taking. Maybe, Andrew, let me take your question from a Perspective of the expense levers that we had in the business. And I'll try to group this in really 4 primary buckets, and that will give you a feel for how ultimately those savings are going to translate through to the 2 different segments.

Speaker 2

The first lever is very much related to our hybrid and purpose driven work environment. And this environment really enables us to be equally effective and productive as we were pre pandemic with a much smaller physical office footprint. So last quarter, we announced plans to exit certain office space And after further assessing the best use of our real estate footprint, as well as gathering feedback from our global employees on their workplace preferences, We have identified additional opportunities for real estate rationalization as part of that expanded global restructuring program. And that real estate rationalization Range that we're looking at is between that $50,000,000 to $70,000,000 in total. The second category I point you to is certain non compensation Costs like T and E that are primarily business facing and those have increased compared to the prior 2 years.

Speaker 2

Now although we anticipated these expenses to rise, there are others that we are prioritizing and reducing through supplier cost avoidances, Rebates and volume discounts as well as negotiating for comparable levels of service with more favorable terms. And that's going to include assessing whether any existing external Services can be absorbed into our employees' day to day responsibilities. The 3rd category is really the largest, and that's our largest expense, and that's people. And approximately 60% of our expense base is compensation and benefits. And we've already taken aggressive actions to prioritize Hiring and hiring and open positions in key areas.

Speaker 2

And really as part of our expanding restructuring program, we plan to increase Our utilization of some of the alternative lower cost locations, again, where those requisite skills and talent exist, but protecting ultimately the high And those actions themselves is really what's going to lead to a higher and is adjusted operating margin at least in that mid-50s range that I mentioned earlier. And then 4th and finally, We also have naturally occurring expense levers in the business, for example, through our incentive compensation accruals. And those are going to flex based on the actual performance as compared to the financial targets that we set at the start of next year. Yes. And just to reinforce, not contingent, those are actions that we're taking now to make sure that we can realize their savings for full year 2023.

Speaker 2

Great. Thank you.

Operator

Your next question is from the line of Jeff Silber with BMO Capital Markets. Please go ahead.

Speaker 2

Thanks so much. I want

Speaker 8

to get back to the issuance environment. I'm just curious what you think will be the first sign that issuers are looking forward to come back into the market? And where in terms of which verticals we might see those green shoots? Thanks.

Speaker 2

Yes. So maybe this is a good time to kind of talk about 2023 and how we see Issuance starting to evolve over the coming quarters, and I'll touch on what those triggers are as I talk about that. So as we always do, we're going to provide our official forecast and guidance on our 4th quarter earnings call in February. It's just too early, I'm sure, as you can appreciate, given all of the uncertainty. But the first thing, so the first trigger is, I think we've got to get some certainty into the market.

Speaker 2

And I mentioned earlier, that means that the market has got to get confidence that inflation is peaking so that the market can then get comfort with the pace and trajectory of Fed rate increases. That is really, really important and I don't think we've seen that yet. And so our view is that Fed Funds is going to peak sometime in Q1 of 2023. But the headwinds that we've got now are not just going Disappear overnight. We think that it's going to take into early 2023 to resolve some of that.

Speaker 2

And we're still going to have a relatively tough issuance comp in the Q1. And maybe it's worth me just kind of saying, just in terms of where do I think we are in all of this. I think that the 3rd and 4th quarters of this year are really kind of the trough for us in terms of the rate of issuance decline from prior periods. And I think that's going to gradually improve throughout 2023, and particularly in the second half of twenty twenty three when we get some easier comps. So I think we're going to look for that certainty.

Speaker 2

As I said, what we typically see in terms of The market is opening up. So you see the investment big investment grade issuers, you start to see opportunistic investment grade issuance and then you see higher rated leverage finance as you are starting to tap the market and really start to open the leverage finance market back up. So we're going to want to have default rates that are under control, spreads that are as I said, that's what's important to look at spreads around the at historical averages and then we'll start to see that leverage finance market open up. As I said, we've got a lot of backlog. We've got a lot of first time mandates that have not tapped the markets and we know there's a lot of private equity dry powder waiting to get deployed.

Speaker 2

So that's how I would think about when we can what it's going to take to start to kind of unlock the market.

Speaker 8

All right. That was really helpful. Thanks so much.

Operator

Your next question is from the line of George Tong with Goldman Sachs. Please go ahead.

Speaker 8

Hi, thanks. Good afternoon. Sticking with the topic of debt issuance, your guidance implies 4Q issuance will be down in the low 40s range, similar to 3Q. If you look at how 3Q progressed, it did get worse progressively moving through the quarter and the 1st couple of weeks of October We're quite weak, much, much steeper declines than in the low 40s. So just curious What assumptions are you baking into 4Q?

Speaker 8

Are you assuming the exit rates from 3Q and early 4Q will reverse and get better such that you land at overall average 3Q levels? And if so, what are you seeing in the markets that would prompt that?

Speaker 2

George, good afternoon. This is Mark here. I think your underlying hypothesis and thesis is very consistent with the scenarios that We looked at in fitting our guidance for the remainder of the year. We definitely over weighted the September October and month to date issuance informing our outlook for the remainder of the year. However, there really are 2 key points I want to stress here.

Speaker 2

One, the bands are wider now thinking about the outlook for the year than what we've historically seen. And second, we do believe this disruption is predominantly cyclical in nature. You heard Rob talk about it minutes ago that we may be at the low point of the cyclical cycle. So while we may see a transactional revenue declines in the first half of next year, they're unlikely to be that same level of severity that we've seen in the 4th as seen in the Q3 and are implied for the Q4. So those are the kind of things that we're thinking about sort of as we develop the forecast for the year and as we're thinking about the first half of next year.

Speaker 2

Got it. Thank you.

Operator

Your next question is from the line of Owen Lau with Oppenheimer. Please go ahead.

Speaker 6

Thank you and thank you for taking my questions. Could you please talk about how the private credit markets have impacted your results? Is there any area that Moody's can still get a piece of it? And also how do you think about your ability to achieve your medium term targets based on for a backdrop. Thank you.

Speaker 2

Hey, Owen. Thanks. So it's an interesting topic and we've been getting some questions from investors about this. So let me share a few perspectives on this. First of all, Just kind of the size of the market, about $1,200,000,000,000 in 2021, it's expected to continue to grow assuming that this asset class continues to hold up.

Speaker 2

But the segment of the market that represents, I think, the potential cannibalization risk Our loans, I'd say, dollars 300,000,000 and up. That's kind of broadly the minimum threshold for deals that get done in the public And in 2021, something like $50,000,000,000 of those ones done in the private credit market versus a leveraged finance market that was, call it, dollars 1,300,000,000,000. So this year, we've had severe dislocation in the And that figure for that cohort of loans could be as high as kind of $90,000,000,000 to 100,000,000,000 So yes, the private credit market was able to step in and provide some financing for certain transactions, while the public markets were dislocated. But I think that actually brings us to an interesting question about risk and sustainability. So private credit market clearly has more flexibility to provide higher leverage In public markets, meaningfully higher leverage.

Speaker 2

The private the cost of private debts is typically higher yielding, right, so more expensive than public markets. And leverage companies with expensive debt typically have high default rates during periods of stress. I'd just be wary of people that tell you that this time or this sector is different. So it remains to be seen how this I'd say class is going to fare if we've got a meaningful increase in credit stress. I think it's probably going to be hard to get a true apples to apples comparison on default rates, given that private lenders may be able to renegotiate agreements in terms of credit stress.

Speaker 2

So that growth and that opacity in this market It's leading some people to start to call for regulation, but it's also where I think that growth in capacity is where we can add value. First, as I said, given the cost of private debt, I think as corporate borrowers, as their credit profiles improve, I think we're going to see some of these companies Want to move from the private credit markets into the public credit markets. So that growth of the private credit markets, I think, does represent Some future first time issuers into the public markets over time. 2nd of all, we're actively engaged in outreach in this market to see how we may be able to provide things like private ratings or credit assessments before those companies do in fact tap the public markets. And the other thing I'd say is, We're starting to engage with investors in these credit funds who are looking for more transparency as to the credit quality of the funds that they're invested in.

Speaker 2

And they're saying, hey, rather than the internal risk ratings that these credit funds are using, We want to get an independent assessment of credit risk of the portfolio that we're investing in. So I think we're really well positioned to to serve that particular need. We've got our risk calc and EDF credit models that are really considered the gold standard for corporate on portfolio and credit analysis around the world, and we're starting to develop a sales pipeline around that. So the last thing I'd say is, So yes, private credit has been a meaningful source of leverage finance funding this year as public markets were challenged. But we are seeing The market dynamics in that market starting to shift a bit as well.

Speaker 2

I mean private credit is not immune to What we're seeing in the market, so you see credit funds cutting back on debt packages or increasing the equity component of deals are pulling back from big buyouts. So while we're engaged with private borrowers, private equity, credit funds and investors to see how we can play a more important role by bringing And Owen, on your second question, just on the medium term target. So we introduced medium term guidance in February of this year, and we said 2021 is the base year. And that was obviously prior to the very significant geopolitical shocks that have resulted from the Russia Ukraine conflict as well as the unforeseen degree to which inflationary Pressures, driven by post pandemic, demand supply mismatches would emerge. In establishing our medium term targets, We intentionally assumed a period of economic stress following 2 historically strong issuance here.

Speaker 2

Our assumptions included foreign exchange rate stability as well as the expectation for interest rates to gradually rise over this period with global GDP gradually decreasing. However, as we know, this is certainly not 2020 has unfolded in the space and the degree of macroeconomic headwinds with inflation at levels not experienced in decades. And as a result, we've seen central banks rapidly rise rates in an attempt to curb inflation expectation, and we've seen FX rates react quite significantly with the flight to quality. And so those factors collectively have contributed to a lot of what we spoke about in the call this morning, really that extended in more severe market disruption. Fundamentally, we believe the underlying factors and drivers of our business remain firmly intact.

Speaker 2

And the key to achieving our medium term target is going to be heavily influenced now not only by the macroeconomic outlook, but also if it's around expense prudence and discipline and the issuance recovery pattern that we're going to see in 2023 and beyond as issuers return to the market to refinance those existing obligations, fund their working capital needs and really invest for growth. And so given those developments, we'll be revising select medium term guidance metrics when we hold our 4th quarter earnings call in

Speaker 6

February. Thank you very much.

Operator

Your next question is from the line of Faiza Alwy with Deutsche Bank. Please go ahead.

Speaker 9

Yes. Hi. Thank you. So I'm going to sneak in 2. Just one is on MA margins.

Speaker 9

I believe you increased Months that you were originally planning to make this year and sort of if you can talk about any sort of broad outlook on that for 2023? And just my second question is, I believe you have some interest rate hedges in place where you've swapped your fixed straight for floating. So curious if you could share some perspective around what your exposure is to that and sort of when those hedges expire? Thank you.

Speaker 2

Good afternoon and thank you for the questions. On MA's margin, I'll speak really about 2022. So after Expanding MA's adjusted operating margin to be above 30% year to date. And we obviously are pleased to raise our guidance to 30%, which is up from approximately 29% last quarter. And that includes about 100 basis points of margin compression from unfavorable foreign exchange translation rates and approximately 30 basis points of net headwinds from recent acquisitions, primarily RMS.

Speaker 2

And what that really means is that the underlying MA margin and is expected to expand by over 500 basis points off of 20 20 1's actual results of 20 I will note that the 100 basis points improved full year margin outlook does reflect new and ongoing expense control initiative, primarily supported through actions from our corporate or shared service areas. We're still investing back in the business, and we still expect expenses to increase in support of growth opportunities in EMA in the 4th quarter as we capitalize on our existing revenue momentum. On your second question around floating rate exposure, so we seek to maintain a floating rate Exposure of between 20% 50% of our overall debt portfolio. And although we initially issue all debt at a fixed rate, We do maintain a basket of interest rate and cross currency swaps that convert a portion of outstanding fixed rate exposure to floating rates. So as of September 30, our floating rate debt was approximately 32% of the portfolio.

Speaker 2

And then now most importantly, That's apportioned as 28% euro exposure and just 4% U. S. Dollar exposure. So Our swap portfolio has performed very well historically. It's reduced annual interest expense by about $55,000,000 in 2021 and an anticipated $40,000,000 this year.

Speaker 2

And it also brings our average weighted average cost of capital down by about 20 basis points to just over or just under 3.1%. If I try to think forward now about the impact to our P and L From the latest forward curves and what they imply for euro and U. S. Dollar moves, you could think about the swap portfolios moving to a more neutral rather than positive impact. So taking that into account, plus the fact that we issued debt this past August, I would expect the actual interest expense in 2023 to be higher by between $40,000,000 $60,000,000 Yes.

Speaker 2

And just to Kind of reemphasize, the balance that we're trying to get right is being financially disciplined while at the same time making the investments that we need to make to continue accelerating

Operator

Your next question is from the line of Craig Huber with Huber Research Partners. Please go ahead.

Speaker 10

Yes. Hi. Thanks. Two quick housekeeping questions on pricing and incentive compensation costs. Historically, you guys raised prices usually 3% to 4% average across the portfolio.

Speaker 10

What's it going to be this year, please? Is it totally different for the ratings business versus the overall? And then what's your outlook for pricing maybe next year? Maybe it's truly to talk about that, but if you touch on that, I appreciate it. And then what was the incentive comp in the Q3 versus what it was the 1st 2 quarters.

Speaker 10

Thank you.

Speaker 2

Hey, Craig, it's Rob. So on pricing, and I'll touch First of all, as we always say, we're looking for kind of a 3% to 4% annual price increase across all of our business. And I would say that if anything, the and you hear us talk about this all the time, the volatility and uncertainty has really reinforced the importance of what we're doing and the value of what we're doing. In MIS, as we do every year, we conduct a very detailed review of our pricing across Sectors and regions and based on that work in the coming year, our list prices will probably reflect a bit more of an increase than our historical average, but our actual pricing realization as it really as it always does is going to depend on issuance mix, where does the mix where does the issuance actually come from. In MA, we always think about our focus on kind of value based pricing and that's why product development and Integration of our content is so important.

Speaker 2

We're looking to integrate new analytics and data sets into our offerings because that allows us to support both price increases, but also upgrades and add ons. And that's why we actually think about those two things together. And so we're continuing to see some very good usage and demand for our products that continues to support the pricing for opportunity going forward. The Q3 year to date incentive compensation accrual was approximately $60,000,000 and approximately $180,000,000 respectively. For the full year 2020, we expect incentive compensation to be Approximately $240,000,000 and that implies obviously approximately $60,000,000 in the 4th quarter and that's around 30% lower than the total incentive compensation we accrued for in 2021, and that's primarily driven by a downwindy revised outlook for a rate of issuance.

Speaker 10

Great. Thank you.

Operator

Your next question is from the line of Andrew Steinerman with JPMorgan. Please go ahead.

Speaker 6

Hi, Rob. I'm going to ask you about that trough comment. So if you could just be a little more specific what you meant when you think 4th and third quarters like It's going to be a trough for debt issuance, noting that we still have unfavorable mix in the Q4, like when would you expect MIS revenue to start to improve?

Speaker 2

Yes. So what I really meant was that the year over year quarterly declines in Lines in revenue in MIS, we would expect a trough in the 3rd, Q4 of this year. Even though we've got a so we've got a tough comp in the Q1 of next year from an issuance perspective, but We think that the rate of declines have probably bottomed out here in the 3rd or 4th quarter and we'll start to see gradual improvement throughout the balance of next year.

Speaker 6

Right. Okay. That's a revenue comment. I got it. Thank you.

Operator

Your next question is from the line of Shlomo Rosenbaum with Stifel. Please go ahead.

Speaker 8

Hi. Thank you for taking my question. I want to touch on both what Manav Talked about and Tony talked about, with the refi walls that we keep talking about, how much real support Is there some of these refi walls for MIS revenue? Like if I were just to flat out say, hey, 2022 midpoint of revenue guidance, If we just have our refi walls, that would provide X percent of revenue. Is that something you could provide so that we can get some And then just on the refi, Wallace, I mean, most of the people on this call were on a call earlier this morning that heard The CFO saying, hey, with the rates going up, we're going to start paying down more debt.

Speaker 8

And I'm just trying to understand what leverage measured as Debt divided by EBITDA doesn't take into account the interest expense and CFOs, they want their earnings to increase besides just looking at debt to EBITDA and how are you kind of factoring that into your refi wall expectations?

Speaker 2

Yes. So maybe just to try to come back and triangulate to see if this can help. If you think about There's the first part of your question. If you just think about the let's talk about in the corporate space. If you think about the maturities that are coming due in 2023, right, so we do our maturity wells, we've got 4 years of forward maturities.

Speaker 2

And then when we look at what our expectation is for corporate global corporate finance insurance for this year, And I understand the 2023 maturity wells are going to get refinanced next year, but just given current levels of activity, It's about 50%. So that I think is how you can start to size, right? And then you can say, okay, well, Now as I think about the way to build to MIS revenue, well, 40% of it roughly is recurring revenues and I've got 60% transaction, how much is corporate and how much of those maturity wells there in corporate because that thing tends to be much more stable with financial institutions on kind of more regular issuance calendars and so on. So Hopefully, that kind of gives you a sense of the size relative to the current activity levels in the market today. And Shlomo, just on deleveraging for a second, the dearth Of issuance that we've seen obviously as a result of the year to date cyclical market disruption doesn't indicate or lead us to believe or Expect the trend of deleveraging.

Speaker 2

Just think about this factor, when estimating future refinancing activities, one factor is certainly rising rates. And that's going to deter individual company traders from necessarily retiring use, for example, through or retiring debt, for example, through the use of any excess cash on the balance sheet. And the rationale that we're thinking there is that as the cost of debt increases, Companies are going to be more likely to retain debt that was borrowed as more favorable interest rates rather than pay off those borrowings and then incurring the potential risk of Being required to reissue in the future at higher rates and therefore potentially lower investor demand.

Operator

Your next question is from the line of Russell Quelch with Redburn. Please go ahead.

Speaker 2

Yes. Thanks, Tammy, on the call. A couple of questions. Firstly, am I right in saying that the ARR for Decision Solutions has fallen quarter on quarter from 11% previously to 10% this quarter. And if so, why?

Speaker 2

Maybe start there. Thanks. I understand hello, thanks for joining the call. I understand how you've drawn that conclusion, but I think there's Some nuance here that we need to be able to provide to you. So ARR is an organic number and it always has been for us.

Speaker 2

So we have not had RMS in our ARR number that we have been reporting. So Decision Solutions ARR grew about 10% in the quarter, But that's with RMS now included. It was not previously. So that created a 3 percentage point drag on Decision Solutions ARR. That would have been 13%.

Speaker 2

If we go back to the last quarter, Decision Solutions now on a like for like basis with 11%. So we look at this as actually an acceleration of a like for like ARR. And I think everybody on this call knows that RMS has had a lower growth profile. We're confident about our ability to enhance that growth profile, but the ARR growth in RMS today is lower than MA. So it has a dilutive effect now that we're including it in the ARR metric.

Speaker 2

I would say the same thing is true if we zoom out at the MA level. And I think that's important to understand too. So RMS was about a 1 percentage point drag on overall MA ARR. So again, on a like for like basis, MA ARR, if we had not included RMS, would have been 10%, up from 9% last quarter. And as you know, we're guiding to low double digit for the full year.

Speaker 2

You heard me mention acceleration of ARR. That's why we feel that there's an acceleration of ARR. Okay. Yes, that makes sense. Thanks.

Speaker 2

And then just as a follow-up, I mean, given the experience of 2022, Is now the time to look more seriously at scale M and A opportunities in M and A as a way of reducing earnings volatility in the business? And Yes. So We have a very active approach to corporate development. We always have. We have Some very well defined product roadmaps and what we call business blueprints about what are our customers looking for across our various product suites and where we have gaps.

Speaker 2

Obviously, we're pretty active last year and over the last several years and we feel really good about bringing in RMS and really bulking up our capabilities around insurance and climate. So we I think we feel pretty good about the portfolio that we got. Sometimes it's harder to transact in these markets than you think because there's a bid ask Spread between what the sellers think is their valuation and what the buyers are willing to pay. And I would view I always have as a disciplined buyer. We've got to make sure that we can achieve the synergies to make sure that we get and hit the return hurdles that we want.

Speaker 2

So I guess I would say, we're always looking. We're very disciplined in this market, and we've been using this time to really integrate what we've acquired over the last several years and really make sure that we're getting the value out of those acquisitions that we were seeking to get. And frankly, we feel pretty good about the integration and the progress we're making around a number of those

Operator

Your next question is from the line of Jeff Meuler with Baird. Please go ahead. Yes. Thanks for taking the question. Maybe if you could Put some additional commentary around enhancing RMS's growth profile.

Operator

So I caught that it's on track from a financial target perspective. But For instance, like how are the upgrades to the new platform going? Where are you in terms of integrating the heritage Moody's Capabilities and leveraging MA's good market and I guess related to it, I think there's some that think ESG has Taken a bit of a hit in 2022, is that showing through in terms of demand for your ESG solutions from clients and prospects or not? Thank you.

Speaker 2

Yes. So I'd say I'm pretty encouraged by where we are with RMS. And we've got a number of things that we're making some real progress around integration. We're on track certainly for the financial targets that we announced at the time. We're a year end.

Speaker 2

We have Confidence over our ability to continue to accelerate sales and revenue growth next year. And you had asked about some of the tangible things that we're doing. Let me just touch on a few. So we've had some really nice traction around what we call ESG for underwriting, and that's taking Moody's ESG content and then being able to integrate it into the underwriting and portfolio management processes of RMS customers. And one of the things that our customers were looking for is just very broad coverage.

Speaker 2

And so That's been we've made some very good progress there. 2nd, we've been integrating RMS' life risk models into our existing life offerings. And then on climate, and as you know, when we announced this deal, we wanted to be able to move much more substantively into insurance, but also want to be able to leverage their climate capabilities and we're developing a pretty thorough product roadmap around what we call climate on demand. And so we've been engaging with a lot of customers in the banking and commercial real estate space about what they need and want around climate, and we're building out that capability of leveraging the RMS IP and models and we're building a sales pipeline for that. Another area that we see a lot of synergy is around commercial real estate.

Speaker 2

You've got RMS has a depth of information, obviously, about the physical risk relating to properties. We have enormous amount of information about a wide range of aspects of any given property in terms of market, location, by creditworthiness of tenants and so on. And so we're pulling all of that together to create what we call kind of a high definition view of real estate, and we think that that's going to be a very interesting offering for us. I'm only going to touch on ESG very briefly because there's a lot more I could get into. But around ESG, What we're starting to see is that there is more and more demand to be able to translate ESG and climate, specifically to financial risk with the rigor that the market wants and needs.

Speaker 2

So I kind of think of that as version 2.0 of what the market is looking for. 2nd, the market needs very broad coverage and this is where we're having some great conversations with our banking insurance customers who say, I need to understand the ESG profile of say 150,000 companies. Well, we've got Coverage on 300,000,000 companies leveraging the Orbis database and our modeling in ESG capabilities. So that is a source of real competitive differentiation for us. And then lastly, there's just there's growing demand for understanding the physical risk related to extreme weather and climate change and transition.

Speaker 2

And with RMS, we've got that at scale. Maybe just two quick numbers around that. So we are maintaining our expectation for 2022 RMS sales growth to be in the mid single digit percent range. And that's obviously up from RMS's historical growth rate in the low single digit percent range. We also now expect RMS to become accretive and will moderately accretive to adjusted diluted EPS in 2023.

Speaker 2

So that's a year earlier than what we previously projected in our deal model and as we communicated previously to the market. And then finally, our expectation for ESG and Climate related revenue is for a low double digit percent growth this year to approximately $190,000,000 Yes. And maybe the last thing I'd add, kind of beyond the numbers, but this stuff is important is We just found that the marriage with RMS has been a great cultural fit. Our teams are working really well together, and I think that bodes really well for our ability to kind of deliver on integrated risk assessment together. Got it.

Speaker 2

Thank you both.

Operator

Your next question is a follow-up from the line of Alex Kramm with UBS. Please go ahead.

Speaker 5

Hey, thanks. Hello again. I know it's late in the call, but just coming back to my original question from earlier, Mark, your mid-50s comment on MIS was helpful, but I think as somebody else said, there's probably some sort of growth assumption embedded in that. So If I may come back to the specifics I asked about earlier, like can you give us a little bit more help when it comes to the Net impact of the €200,000,000 restructuring this year and next year and then how we should be thinking about incremental margins in MIS As we think about 2023, I think that would be helpful as we have our own growth assumptions clearly.

Speaker 2

Alex, I appreciate you coming back into the queue to ask this question. I am we would like to intentionally not front run Our MIS revenue outlook for 2023, I think what we are comfortable committing to as a management team is what we're able to control, and we certainly are able to control our expense base. And I think what we're also comfortable to commit to you is that we'll get the 2023 MIS adjusted operating margin at least in that mid-50s percentage range. In other words, as you consider modeling this out, we don't want you to take the approximately 51% We're guiding to full for 2022 and assume that's a new baseline. Yes.

Speaker 2

And I guess, Alex, I would say, we don't want to base that on just hoping that there's growth in order to get to that level. So Hope is not a strategy. So we've really tried to think about the expense base without having to think That the only way that we can get to that margin that Mark is talking about is by having a huge snapback in revenue. Hopefully, that gives you a little bit of insight.

Speaker 5

No, I appreciate it very much. Thank you.

Operator

Your next question is a follow-up from the line of on behalf of Patnaik with Barclays. Please go ahead.

Speaker 4

Yes, sorry. Maybe I can just follow-up complete this follow-up to that question. So the $200,000,000 in savings, Is that all in the MIS business? Is that how you get to the mid-50s? And I guess any kind of margin commitments or M and A in the same regard?

Speaker 2

The $200,000,000 or at least $200,000,000 in run rate savings of our 2023 expense base will benefit both MIS and AMA. As you can anticipate or you could probably infer, the benefit to MIS may be larger than Benefit to EMEA given how we're targeting expenses with being very deliberate and very thoughtful around how we manage the expense base for the 2 businesses as well as the allocation of corporate expenses. On the MA adjusted margin, as we think about it, I think The way I propose to think about this is through a medium term lens here. And there I would say that we remain on track to achieve our medium term Adjusted operating margin for EMA of mid-30s percent range within that 3 to 5 years. And that's primarily due to, as you heard on this call, Increase in the proportion of subscription based product sales, they provide improved operating leverage, especially as recurring revenue becomes an increasing proportion of MA's total revenue base.

Speaker 4

Okay. Thank you.

Operator

Your next question is a follow-up from the line of Kevin McVeigh with Credit Suisse. Please go ahead.

Speaker 6

Great. Thanks so much. Hey, There's been a lot of questions on corporate issuance, but I wonder, Mark, if you could talk about your own debt. It Seems a little high, anything to kind of call out there? Just is it timing?

Speaker 6

Maybe you could just frame that first a little bit.

Speaker 2

Kevin, thanks very much for the question. So we remain committed to anchoring our financial leverage around the BBB plus rating, which we believe provides the appropriate balance between ensuring ongoing financial flexibility and lowering the cost of Capital management really does extend beyond prudent allocation. We are thoughtful about our leverage and liquidity levels as well as maintaining a strong balance sheet. And over the last years, we've enhanced our capital position and reduced our cost of capital both by structuring a well laddered debt maturity schedule and by extending our debt maturity profile to take advantage of, at the time, what at a relatively flat yield curve and historically low rates. Although our net debt to Adjusted operating income, and I think this is the point that you're getting at, was 2.3x as of September 30, and that's well within the BBB Slash rating range when accounting for our cash position.

Speaker 2

We have seen an uptick in our gross debt to adjusted operating income range, which is approximately 2.9x as of September 30. And that's a direct result The significantly weakened global economic conditions, again, relative to our first and second quarter outlooks. And that means we are considering the possibility We are perhaps executing a very small or very limited debt repurchase strategy in the coming months, just allowing us to opportunistically take advantage of current market conditions to marginally, marginally, marginally delever our balance sheet and improve our growth position.

Speaker 6

That's helpful. And I know it's getting late, but Mark, just any comments on CapEx for the balance of

Speaker 2

the year? Absolutely, Dean. We expect CapEx for full year 2022 to be approximately $300,000,000 As a reminder, There are a number of factors underpinning our CapEx guidance, including our strategic shift to developing SaaS based solutions for Continued acquisition, integration activities, specifically around our recent KYC and RMS acquisitions, as well as ongoing enhancements to our office and IT infrastructure associated with some of our Workplace of the Future programs. We're not providing guidance for 2023. However, we do currently foresee absolute dollar CapEx to remain at similar levels to 2022, especially as we continue to emphasize developing hosted solutions.

Operator

Your next question is a follow-up from the line of Craig Huber with Huber Research Partners. Please go ahead.

Speaker 10

Yes. Hi. Mark, do me a favor. Can you just dig in a little bit further on your 2022 expense bridge attribution and also curious what's your currency sensitivity right now on costs? Thank you.

Speaker 2

On the 2022 expense outlook, we are lowering our full year 2022 operating expense guidance from growth in the high single digit percent range to the upper end of the mid single digit percent range. And our outlook for the year assumes Additional expense accruals in the Q4 of up to $55,000,000 related to the expanded restructuring program that we've spoken about. If I would exclude these restructuring related charges, our outlook for the full year operating expenses would have been at the lower end of the mid single digit percent growth range. And that's just demonstrating the ongoing expense discipline and prudence, especially compared to our full year guide back in February, which was for an increase in the low double digit range for expenses at that time. Specifically to your question, Craig, For the full year 2022, we anticipate expense growth of approximately 7 percentage points related to acquisitions completed in the last 12 months, primarily RMS, approximately 3 percentage points related to the restructuring program And then ongoing growth in investments net of cost efficiencies and lower incentive compensation is approximately flat.

Speaker 2

And then there's a small partial offset from favorable movements in foreign exchange rates of approximately 4 percentage points, and that should get you Thank you. On your second question, just on FX, we have seen significant moves this quarter in FX. And so if I were to update the annualized impacts of further foreign currency movements for modeling purposes, they would be every $0.01 movement Between the U. S. Dollar and the euro will impact full year EPS by approximately $0.03 and then full year revenue by approximately $10,000,000 And then every $0.01 FX movement between the dollar and the pound impacts full year revenue by approximately $2,000,000 and then full year operating expenses by $2,000,000 So and effectively neutral on an EPS basis.

Speaker 10

Great. Thank you.

Operator

Your next question is a follow-up from the line of Owen Lau with Oppenheimer. Please go ahead.

Speaker 6

Thank you for squeezing me in. Could you please talk about is there any impact from the Inflation Reduction Act on your share repurchases program? Thank you.

Speaker 2

I don't think we expect any material impact, tax impact at least on share repo.

Speaker 6

Okay. Thank you very much.

Operator

Your next question is a follow-up from the line of Shlomo Rosenbaum with Stifel. Please go ahead. Hi.

Speaker 8

Thank you for squeezing me back in. Hey, Rob, MA revenue has been remarkably resilient. I was just wondering, is there any areas within there that you would think if we head into like a real significant recession that we would start to see some kind of Changes in the growth rates over there, like how should we think about that on a component basis?

Speaker 2

Yes. Shlomo, great question. I mentioned in the opening remarks that MA it's been pretty acyclical and I know it might sound trite, but it is because they're providing these mission critical products that are helping organizations Deal with risk. So in times of stress, the value prop of our offerings actually increases. And we see that with things like our Credit view usage that's up on a year over year basis.

Speaker 2

And I have to say, I've been meeting with a lot of customers and Yes, this strategy to help customers with this multidimensional and integrated perspective on risk, it really does resonate. And I think it resonates more now than ever. We're having some really great conversations with our customers. So we feel good about that. If you think about like a severe downturn, Let's take the global financial crisis.

Speaker 2

In that case, what we saw was that we had Some bankruptcies, we had some consolidations in certain sectors. The banking sector obviously was under Pretty severe stress and at the time, a much bigger proportion of MA's customer base was banking. So we are more exposed to the banking sector at that time. And we did see that we retention rates would tick down a little bit As we lose customers and we've talked about on the calls before, our retention rates are pretty high right now. But we could also see some lengthening of sales cycles.

Speaker 2

I think others would see the same kinds of things, more challenging pricing discussions, which is why back That point I made around pricing, it's so important to be thinking about what is the value that you're driving into the products to be able to support pricing. It's really important to be able to communicate that to your customers in times like this. So, but I guess the last thing I'd say, Shlomo is, It's a pretty challenging environment right now. And not only are we not seeing that, but as I said earlier, we're actually accelerating ARR growth in MA in the current environment.

Speaker 8

Okay, great.

Operator

And at this time, there are no further questions. Please continue with any closing remarks.

Speaker 2

Okay. With that, thank you everybody for joining. I appreciate the questions and we'll talk to you on the next earnings call. Have a good day.

Operator

This concludes the Moody's Q3 2022 earnings call. As a reminder, immediately following this call, the company will post the MIS revenue breakdown under the Investor Resources section of the Moody's IR homepage. Additionally, A replay will be made available immediately after the call on the Moody's IR website.

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