Hello, I am Heather Balsky, BofA's Business and Information Services analyst, and I'm pleased to be here with Martina Cheung, President of S&P Global Ratings. Martina, thank you for being here. Thanks for having me, Heather. Martina, S&P just recently celebrated the two-year anniversary of the IHS Markit merger. You know, how has the merger benefited the ratings business, and how do you think about the opportunities ahead? Yeah. Well, it's great to be here. I would say two years in, we've benefited in a really nice way from the merger. The first and most obvious way was through the reduction in shared services costs, you know, third-party licenses that were renegotiated and produced some savings for us, along with others. So that was the first one. But I think the areas that are very interesting to us going forward, the first is around data. So we worked very hard to make some of the really high-value data that came with IHS Markit available to our ratings analysts. So think about the mobility data, the commodity insights data, some of the fixed income data, that Market Intelligence, for example. That's allowed our analysts to access data that they may have been putting together manually or may have been purchasing from third parties. But more importantly, it's also allowed us to have additional reference points as well as to produce additional research. And research is a really fundamental part of what we do. As a credit rating agency, it draws attention from investors who are interested in our opinions, and ultimately, that demand for our opinions translates into an interest in our credit ratings as well. And the third area that's been interesting for us also is that we found quite a bit of complementarity between a number of the products that came in with IHS Markit and our credit ratings, and really, I would say, the ability to step up our referrals to other divisions from the commercial team in S&P Global Ratings, and we've been tracking that quite a bit. It's obviously not the same scale as the cross-sell opportunities in the merging divisions, but for us, it's been a good activity, and we're excited to do more of that going forward. That's really exciting. That's great. So you celebrated your two-year anniversary as President of Ratings, you know, moving from leading Market Intelligence. You know, what are your priorities in this role now? Yeah, well, I actually started 14 years ago at S&P in ratings, so I know the business very well, and I was able to hit the ground running coming in. I think the priorities are really consistent with what we laid out during Investor Day, so our strategy, along with our medium-term targets, for the business. And that strategy and set of priorities really revolves around three pillars. The first is how we maintain and continue to expand and grow our core ratings business. And in that, we include how we position ourselves to make sure we are there when issuance is coming back, but also to expand our coverage in areas even where issuance may be slightly down. So, for example, we've been able to do that in structured finance in 2023. We also are paying a lot of attention in our core business to how we service our customers for the ratings that we actually surveil. So you know that we surveil over 1 million ratings, and providing additional quality services and analytics and scenarios around those ratings has allowed us to add more value to our issuer customers. And that has given us an opportunity to align the economics around our surveillance fees more closely with the value that we generate. So that's been, that's been very good for us, something that we were quite deliberate about doing when we stated our our targets around this Investor Day. The second pillar is in the non-transaction parts of the business. We have done a lot of work, making sure that, for example, we've identified additional use cases for our Ratings Evaluation Service product, for example, that led to some nice volume there last year. And of course, we monitor M&A volumes to make sure that we're positioned in the right way for our RES product as well as IPO volumes for our ICR product going forward. Other parts in the non-transaction business are growing nicely, including CRISIL, which has been quite a nice growth performance over the last two-plus years, and we continue to support that business going forward. And then the third pillar was really looking at new risks. Sustainability, obviously, maybe we would say not new anymore, but that's been a really nice story for us. The acquisition of Shades of Green, just over, I think about a year and a half ago, has positioned us very, very well in the SPO market. For example, we're the number one by SPO issuance in that market, and very nicely positioned for both SPOs as well as add-on services that we'll provide out of the sustainable finance practice. And while we don't charge for it today, we've been doing a lot of work around decentralized finance, and we launched a Stablecoin Stability Assessment towards the end of last year that has gotten quite a bit of attention and traction in the market. I think it was widely welcomed, because it's the first benchmark measure of stability for stablecoins and covered over 90% of stablecoin value. And that's allowing us to really assert our position in the decentralized finance market, which we think will grow very much in importance over time. That's really helpful, especially when a lot of our day-to-day conversations are about issuance. You know, there's more going on behind the scenes beyond. Lots more. So that said, just, you know, credit supply and talking about that, we started to see a recovery... you know, rates seem to have at least stabilized. And now there's a healthy debate about rate cuts, how many rate cuts, timing of rate cuts. You know, we also keep hearing about rising, you know, the rising refunding wall. When you think about issuance over the near term, what are the key drivers of growth? Is it their funding wall? Is it the stability? Is it rates? Help us think that through. Yeah. All of the above and more. So, the issuance environment has gotten just a hell of a lot more complex, and volatile over the last couple of years. So we now look at a great many indicators and go through quite a few turns when we think about the issuance environment and what to expect. Clearly, refinancing maturities is a very important input into that, but it's just one input. And, and so the other things that we look at are the macroeconomic factors like GDP growth, interest rates, and inflation. We also look at specific asset class activity, so where it might spike for various different reasons. So a good example of that might be the impact of the IRA, for example, in the energy sector, as well as energy transition spurring different kinds of transition finance, et cetera. And then I would also say the two sort of fundamental market factors that we take into consideration also are M&A and IPO volumes, both of which, as you know, did not have stellar years in the last couple of years. And all of this in the backdrop of a year when, you know, between 40% and 50% of the world's population will be voting in elections. And you know certain market participants have shared with us some concern about volatility in the back half of the year as well. That's, that's helpful. You know, it, it is more about rates, but I think, you know, there's a lot of focus on rates right now and what the Fed's doing. You know, how important is, you know, 25 basis points or so of rate cuts to issuance, do you think? Is it a material driver? Your guidance assumes, I think, three cuts. What if it's more? What if it's less? Yeah. Well, we look beyond the Fed. So it's the Fed, it is the U.S., U.K., and the EU, essentially. For each of those, we are expecting three cuts and various different exit rates by the end of this year. I would say, Heather, that it's not so much the individual rate cut itself. For us, we're looking at two things. The first thing is the pace of cuts over the next, I'll say, 24 months or so. So from the time when the rate cuts begin, which our base case assumes will be around the middle of the year in those three regional jurisdictions, and when we think the rate cuts will have reached, you know, the equilibrium around the sort of 2, 2%+ mark. And our economists are forecasting that that 2%+ mark is going to be in the first half of 2026. So this is not, in our view, a rapid rate reduction to get back to those rates. Now, having said that, the pace of rate cuts this year, we would anticipate to be falling into the back half of the year. What's mattered more is that it, I think it's less about the actual cuts themselves and more that the market has accepted that rates have plateaued or the market has conceded that rates have plateaued. And that is actually has been a key driver of issuance and a lot of market activity starting really in Q4 and continuing into January of this year. For example, you saw our Billed Issuance numbers in January of 66%. So that's really what's most important for us, is the extent to which markets believe the rates have plateaued. There is much more calm in the market, spreads are friendlier, pricing is more constructive. All those factors together have been, I would say, key drivers of issuance in the earliest part of this year, but that started around last year. And then I would say that, if rates were to, let's say, decline much more rapidly or at a much higher clip, that's where you may begin to see opportunistic issuance coming in. Perhaps ICRs, issuer credit ratings, driven by IPOs, for example, with high yield corporates pursuing IPOs. That could be one area that we could see some opportunity. Potentially it could lead to a faster rate of M&A than what we've seen so far. But those things are not in our base case right now. That's helpful. And that kind of brings me to my next question, which is, you know, amid this sort of recovery and supply, you know, and keeping into consideration the macro sensitivity of ratings, you know, how did you approach your guidance this year? You know, what are the pockets where you maybe were more cautious than others? Yeah. Well, we spend a lot of time building up the guidance, well, the forecast leading to the guidance, quarter by quarter on the Bille Issuance piece. And when we do that, we look across asset classes, sub-asset classes, regions, you know, you name it. We go as detailed as we can. We think about refinancing and the balance between refinancing and opportunistic. The two areas where I think we've been a little bit more cautious this year, the first is in Investment Grade. And so, really, Investment Grade formed very strongly last year in the sense that there was a lot of refinancing activity. We think that there is a possibility that there are enough Investment Grade corporates that refinanced that they can now wait until rates actually start to come down to tap the market again. So that's one area where we've been maybe a little bit more cautious this year. And the other is, you know, as I've said before, we just simply don't have heroic assumptions around M&A in our analysis. And I know that there's been some M&A announcements in the healthcare sector, for example, in the early part of this year. For us, two months don't make the year, and we'd need to see it extend across multiple sectors to begin to see more of a trend in terms of M&A coming back to more normal levels. That's helpful. When you think about issuance over a much longer term period, you know, what do you think are the main factors? You know, is it just a matter of economic growth, and do you think issuance trends can return to those pre-COVID levels even if rates stay higher for longer? Yeah. Well, so we're actually at, we're above pre-COVID levels in the sense that, issuance in 2023 is just about 4% or so above, market issuance in 2019. So, we have achieved that sort of like resetting back to pre-COVID. I can't state that without saying that we view 2020 and 2021, as you know, as outlier years that were driven by a very unique set of circumstances around pandemic stimulus, ultra-low rates, et cetera, and we don't see that as a set of circumstances that could occur again in our base case. And so, for us, it is looking at the pace at which we see some of the parts of the market that haven't normalized again, like M&A, coming back in. But I would tell you that, for the plan that we set out last year played out broadly, maybe a little bit above our expectation, but not dramatically above our expectation. And this year is very much playing out to our expectation. And so we would, maybe I could, you know, sort of refer back to Investor Day when we show the very long-term slide for how fixed income outstanding grows over a long period of time. We think we're sort of getting back to to that trajectory again. That's great. That's really great. And so, you know, when you think about S&P's ratings, revenue growth, what, what are you most excited about long term in terms of both secular trends and, and your strategic initiatives? Yeah. So long term, I would say, we have tremendous opportunity in the business, and this goes back to our ability to continue to extend our position in the core ratings franchise. We've worked very hard on making sure that we have the staffing, the expertise, and the outreach required to be successful in pockets of structured finance that we had deep conviction around, as well as infrastructure, private markets, sustainable finance. So we're quite excited about those areas as part of the core business. I obviously cannot stress enough as well that the surveillance piece of what we do is huge, and it's not just, you know, a product, let's say, it's actually an obligation to monitor and surveil the ratings that we have. As I said, one of our key strategic themes around surveillance is to continue to add value to the surveillance offering through research, through scenarios, through additional functionality, et cetera, on our issuer product, Ratings360, and that's allowed us to align our economics with the value that we offer there to issuers. More broadly, I would say the areas of investment that I mentioned earlier, we're quite interested in seeing the pace at which the decentralized finance market picks up. That is something that we would expect to pick up a lot in, call it sort of a five-10-year time horizon, and we're putting in the work in a, I would say, very packaged and cost-conscious way to make sure that we are well positioned with the expertise and the products for that market as it evolves. So that's another example, I would say, of kind of the long-term view that we take. And then maybe the last thing to say would be, we're taking a very pragmatic view around emerging markets. Emerging markets in general, they may have spectacular growth rates. A lot of times it can be a little bit more price sensitive, and to some extent, much more price sensitive, depending on which market. And so that's an area where we're going market by market, and being very, very disciplined to make sure that having a presence in the domestic market is both growth and margin accretive, let's say, over the desired time horizon. That's helpful. You know what? I just want to ask this because it's come up a bunch, and people may be following your story may be more familiar than others. You talk about decentralized finance. What does that entail? Like, what is that market? Yeah. So it is. You know, people will probably introduce it interchangeably with crypto, and it, it's much more than crypto. It's really about the expansion of blockchain technology into the broader financial markets. The asset class that emerges from that is crypto, you know, Stablecoin, for example, where we've issued the first benchmark. So we look at this in a couple different ways. One is we want to make sure that if issuance is going to happen over blockchain or on chain, that we are positioned with market participants who are pursuing that channel to make sure that we actually get the ratings. Mm-hmm. And we've put in a tremendous amount of work through our Chief Decentralized Finance Officer to make sure that we're well positioned. We've rated the majority of transactions that have been done over blockchain in the last two years. And then I look at it beyond rated issuance. I look at it as an area where there is a need for greater transparency for robust benchmarks, which is what we do in S&P ratings. And that's where we thought that we could add value to the market by providing the Stablecoin Stability Assessment, which we launched at the end of last year, and that has gotten a lot of very positive reception in the market as well. That's great. That's really helpful. So, you mentioned Biiled Issuance, and it's a relatively newer metric for S&P, you know, and for the market, you know. So you have Biiled Issuance. Your research analysts have their own outlook as well. You know, can you just remind us what Biiled Issuance is? And does your research team's outlook factor into your outlook for Biiled Issuance? So the last question, the answer is yes. It's one of the factors that we take into consideration, along with GDP, sector activity, and some of the other measures and metrics that I mentioned earlier. The reason why we started publishing Biiled Issuance is because the Market Issuance includes vast amounts of issuance that do not really have any relationship to our revenues. For example, unrated issuance, a lot of international public finance. Biiled Issuance correlates or is a better proxy, let's say, for our revenues, which is why we started to publish that number. The reason why... I can give you one example for why it's helpful that you have Biiled Issuance now, and that is that market issuance for Structured Finance, for example, in 2023, was down, but Biiled Issuance for S&P Global Ratings in 2023 was up. And so that helps you understand a little bit more about the dynamics of the business, the work that we're doing to improve our position in the Structured Finance space and expand our coverage, and I think is a better way for investors to get an appreciation for how we run the business. That's helpful and provides a lot of perspective. And I just have to ask, you mentioned that January, you were up 66%. Mm-hmm. We saw the data. It's a really big number. You know, but issuance can be lumpy. And so what did you see in the market, and why should we not be extrapolating that for the rest of the year? Yeah. January actually played out the way we thought it was going to play out. Remember the activity really was spurred, starting towards the end of last year, and we could see that coming in our pipelines. So we knew that January was going to be very, very big, and, that number did not surprise us. I will tell you for the balance of the year, while a few things, with my investor relations Mark Grant hat on, I will tell you, one month doesn't make a year. But more broadly, we planned the year from a Biiled Issuance standpoint, very much building up quarter by quarter and taking all these considerations around timing of refinancing, where spreads were at, pricing, expectations about volatility in the back half of the year, et cetera. So that's why we gave an indication that we expected a stronger first half than a second half of the year, and that factored into our Billed Issuance guidance of 3%-7%. Now, you know, as I said on the earnings call, it's early. We'll get more precise as we move throughout the year. It is just too early to say that you know we're seeing a trend for the rest of the year. And all of the indications that we have are that our base case scenario for this year of a weaker back half still holds true. Okay, that's helpful. I want to touch on direct lending and private lending. I feel like there's an article a day right now on the topic. You know, it's ballooned as an industry. I think it's nearly or $1.7 trillion right now. You know, how does S&P ratings interact with that market today? You know, management called out that private credit was strong in 4Q. So what's supporting your growth in that business? Yeah. We pointed out that we were very optimistic about private markets as a growth opportunity during Investor Day, and we had a deliberate strategy around it, which was multipronged. We, I would say, hired behind the expectations of how private credit could drive issuance even outside of the core, let's say, portfolio company that private credit is lending to. And we've seen that play through. So for example, we have done a brisk volume of fund ratings, for example, and a brisk volume of structured finance ratings, for example, as the private credit players, the direct lenders themselves, are actually managing their balance sheets. So it is - it goes beyond the, you know, the private credits lending to a corporate. Do we rate the corporate? There's a much more complicated and opportunistic, actually, story here for us, and we were very, very, deliberate in pursuing that. We've increased our outreach dramatically to the sponsors. We were deliberate about the ones that we chose, that we wanted to, know better and, spend a lot of time educating, and, understanding those, sponsor strategies, with their various different funds. And I think most importantly, had the expertise and, and the capacity and talent available, as the demands come in. I will say that we have been helped in this, by asset owners, so the LPs who have been asking sponsors to have an S&P rating, and in cases where it's been, "Give us a large credit rating, agency rating," we're happy that we have been getting to know the sponsors because we're there to say, "Why don't you work with us? Yeah. And so it's been a good story for us. We've been very pleased with the performance. We had explicit targets against it and very, very pleased with the performance there. That's great. And I guess I just have to ask you, what do you say to investors who may view it as a secular headwind to your business? I would say it hasn't proven to be. It has proven to be a growth opportunity for us. We view it as highly complementary to the broader financing ecosystem, and we do see it as a fixture. So I don't know a world in which private credit goes away, but it has been around for a long time, and it's been getting more attention since the unusual situation, I would say, in 2022, when the markets were shut down and there was a lot more opportunity to tap financing through direct lending or private credit. I would. I view it really as a piece of the overall corporate credit spectrum at this point, and I think we have the right foundation in place to support the sponsors from multiple different angles. We also, for example, just appointed Ruth Yang, who previously led LCD, as the head of private credit analytics, and, and that gives her the opportunity to look at non-ratings products for sponsors also. So for us, it's a, it's a very specific strategy, but one that is complementary to and fully integrated with our overall strategy for the business. That's really helpful. That's a great perspective. So I have to... I think I'm obligated to ask a Gen AI question as like a rule. Oh, yeah. So we're hearing about a fair amount of enthusiasm from info services companies about their potential to integrate Gen AI for new product development, enhancements. You know, what's the opportunity for ratings, and how does Kensho give you an advantage? Yeah. I would say that I am cautiously excited, if I could say that, around this. The reasoning is we have to be pragmatic about the deployment of generative AI in any business, but I would say in particular for a business like ratings, where the transparency of what we do is incredibly important, both to the markets as well as the regulators that we are supervised by. There are three areas where I'm incredibly excited right now, and I don't have any numbers for you, Heather, but I can tell you that we're working hard. We have a lot of pilots underway. The first is the extent to which we can gain efficiencies across our operations as a result of deploying these tools. And I... The other point that I would make is, I don't see us necessarily deploying generative AI in a vacuum. For me, this becomes part of a toolkit that also includes automation, and I think the combination of those two together could has the potential to to unlock good value for us from an efficiency standpoint. On the efficiency front, I think there's potential to benefit the tech teams, the commercial teams, and the analytical teams. I think Ewout and Doug have talked in the past about a CLO pilot that we were doing to essentially cut the time to extract information from these very lengthy, complex CLO documents. We're quite happy with the performance of that pilot and beginning to think about how we actually put that into production, with our analysts, for example. Think about that as one small piece of what our overall analytical population does. A lot of these models that we're piloting right now take a lot of training to make sure that we're returning the right answers to our analysts. Obviously, we can't be returning garbage. And so, we're also looking at a number of other areas, like how we can make it easier to extract information from corporate sustainability disclosures. That's a pilot that we're doing in partnership with the Sustainable1 team. And then, I also see the opportunity to potentially speed up our time to market by creating some additional capacity and also streamlining some of the work that's done. So that could take a variety of forms. It could be that we're joining up the dots between processes more easily. We have greater integration in our workflows, and again, that would be a combination of automation as well as generative AI. So those are some areas that we're excited about. I think there's always the potential for product revenue. I just don't know where that comes right this second and what shape it takes. I know the team has some ideas, but we've really not, I would say, done a proper vetting of some of that. But we have a fantastic generative AI council that's been running now for about a year and a half leading all this work. Kensho is exciting to me because Kensho and the construct that Doug has announced and created gives me the potential to tap into a set of common capabilities. So I don't have to reinvent the wheel within ratings. And the power of that, we've proven that we could do that before. In S&P, we built a common set of desktop services in market intelligence when I was running market intelligence, and now ratings is using the Cap IQ Pro search function, for example, on top of our own ratings workflow. I want to see us do the same thing with Kensho at the center. We know that, and we've said before, it's not just Kensho, it could be third-party models, you know, et cetera. But this set of common capabilities and standards that we use, I think, has the potential to really help us within ratings to, you know, move forward with greater clarity and to get to scale more easily with some of these capabilities. That's great. That's really great. You know, I want to use our last few minutes to talk about your role with Sustainable1, because you lead S&P Sustainable1 right now. Can you talk about that group's role within the organization? Yeah. Sustainable1 was launched and announced around the time that we announced the deal with IHS Markit, and the purpose of the Sustainable1 organization is to really bring together, the products and unique IP, I would say, that we have across the divisions. Connecting the dots, both from a customer standpoint and go-to-market, but also finding the opportunities to integrate those products in new ways and, and innovative ways. And so we've been working very hard. There's just been an absolutely phenomenal and tremendous opportunity with some of the assets in, in Commodity Insights, for example, where the, the IHS Markit, information and, analysis at the asset level, for example, was really tremendous and very, very deep beyond anything that we'd seen before, and we've been working hard in integrating that data, to get new products out to market. So those are the key reasons for establishing Sustainable1, and it's, we place that emphasis on it the same way that we do on private markets, because it's such an important theme for our customers. Yeah. Being able to do it holistically is something that we've been deliberate about. That's helpful. And, you know, last year, S&P lowered its midterm target for ESG and sustainability on the revenue side. You know, we've heard about macro disruption in this, the sector from some of your peers. Where are you seeing demand for ESG products? Where is there some softness, and how do you see that business evolving over time? Yeah. I think the greatest challenge has been on the fund side. So, ESG labeled funds saw quite a bit of outflow activity- Yeah. Particularly in the U.S. I think Europe has held up reasonably well, but that certainly has posed a challenge. And I think asset managers, we have had anecdotal feedback that asset managers are sort of waiting out some regulations before they make some additional decisions. So that has caused a little bit of slowness in some of, you know, the cycle times for closing deals, for example. But remember, we're very, very diversified around sustainability, much more so than than I think most companies that operate in this space, because we have such a unique collection of assets. The Commodity Insights assets are quite simply unparalleled in terms of the energy transition capabilities that we now have in that merged Commodity Insights organization. And we also have incredible capabilities throughout market intelligence that we've been able to knit together with some of the core assets that we had pre-merger to generate more value. So, you know, we, we bring those solutions to outside of the asset management space, you know, which is more where you'll see that hesitation and slowdown. We bring that to corporates, we bring it to banks, we bring it to asset owners, we bring it to multiple sectors, and multiple geographies. And that's really enabled us to continue to have products that are performing at very, very high levels, even as we're seeing some slowdown in certain sectors. Yeah, that's helpful. You know, it's interesting. You know, days ago, March sixth, the SEC finalized its rule requiring public traded companies to disclose certain climate-related information. So can you give us some background on this decision, and what does this mean for S&P, you know, given it's a resource for climate data for its customers? Yeah. So this has been out there for quite some time, as you know, as a question mark, and so highly followed and anticipated by certain market observers. For us, this ties closely with the work that we've been doing in other jurisdictions, where the same rules have been enforced for many years. And so, we have products that help companies who have to report in line with TCFD, for example. There are many jurisdictions that have essentially linked their reporting requirements to TCFD, which is the Task Force on Climate-Related Financial Disclosures. And we also have products that are responsive to the nuanced differences in reporting in Europe, for example. So I think we're pretty well aligned on this. I guess the... Maybe the only point that I would make is, a lot of public companies were already publishing something. So, you know, to think that this would be kind of a net new thing for, you know, the entire public market company ecosystem in the U.S., I don't think is true. You know, there may be pockets where there are companies who are now having to think about this, but the vast majority of companies that we work with have already been thinking about this in some form or fashion for the last several years, and we've been positioned to help them throughout that time. Yeah. It's nice to potentially see some standardization, too, in all of this, so- Yeah. Yeah. So we really appreciate your time, Martina. Thank you so much for joining us. It's a pleasure. Thanks very much. Thank you, everyone.