S&P downgrades Intercontinental Exchange due to Ellie Mae acquisition

Maria Nikolova

S&P expects ICE to raise about $9.2 billion of new debt to fund the acquisition, which will weaken the company’s financial risk profile.

S&P Global Ratings have lowered its long-term issuer credit rating and senior debt ratings on Intercontinental Exchange Inc. to ‘BBB+’. S&P also lowered the short-term issuer credit rating and the rating on the commercial paper program to ‘A-2’. The outlook on the issuer credit rating is negative.

The two-notch downgrade follows S&P’s expectation of a substantial deterioration in the financial risk profile following ICE’s announcement that it will acquire Ellie Mae, a provider of cloud-based software to the mortgage industry, for approximately $11 billion, with $9.25 billion in cash and $1.75 billion in ICE’s common equity.

The transaction, subject to regulatory approval, is expected to close in the third quarter or early fourth quarter of 2020. ICE expects Ellie Mae to generate about $470 million of EBITDA in 2020 and to deliver about $65 million of run-rate annual cost synergies.

S&P expects the company to raise about $9.2 billion of new debt to fund the acquisition, which will weaken the company’s financial risk profile, in its view, with pro forma S&P Global Ratings-adjusted debt to EBITDA forecast at 4.0x at the end of 2020 and 3.5x by the end of 2021.

The negative outlook reflects the one-in-three possibility that S&P could lower the ratings if the company does not reduce leverage as quickly as expected.

Ellie Mae, based in Pleasanton, California with approximately 1,700 employees, was founded in 1997 with a mission to automate and digitize the trillion-dollar residential mortgage industry. Through its Digital Lending Platform, Ellie Mae provides technology services to all participants in the mortgage supply chain, including its over 3,000 customers and thousands of partners and investors participating on their open network who provide liquidity to the market. Lenders rely on Ellie Mae to securely manage and facilitate the exchange of data across the ecosystem to enable the origination of mortgages while maintaining strict adherence to various local, state and federal compliance requirements.

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