stock exchange

-- London Stock Exchange Group PLC (LSEG) said it has reached an 	
agreement to acquire a majority stake in U.K.-based holding company 	
LCH.Clearnet Group Ltd, subject to shareholder, regulatory, and antitrust 	
approvals.	
     -- We are placing our 'A-' long-term rating on LSEG on CreditWatch with 	
negative implications.	
     -- The CreditWatch placement reflects our view that LSEG's financial 	
profile will deteriorate if the transaction goes through because of increased 	
debt.	
     -- We expect to resolve the CreditWatch when the transaction closes or 	
falls through by affirming the rating on LSEG or lowering it by one notch.	
	
Rating Action	
On March 13, 2012, Standard & Poor's Ratings Services placed its 'A-' 	
long-term counterparty credit rating on London Stock Exchange Group PLC
 (LSEG) on CreditWatch with negative implications. We affirmed the 'A-2'
short-term rating.	
	
Rationale	
The CreditWatch placement follows LSEG's announcement on March 9, 2012, that 	
it has agreed to acquire a majority stake of up to 60% of U.K.-based holding 	
company LCH.Clearnet Group Ltd (LCHC). LSEG would pay a maximum EUR463 million 	
for a 60 % stake, in cash, and would partly finance the transaction by issuing 	
additional debt, drawing on its new committed revolving credit lines.	
	
The CreditWatch placement reflects our view that LSEG's financial profile 	
would deteriorate if the transaction went through, given the additional debt 	
required to finance the acquisition.	
	
In our view, the merger would strengthen LSEG's business position by expanding 	
its product offering in post trade services and its geographic footprint in 	
continental Europe, excluding Italy, and the U.S. LSEG would become the world 	
leader in clearing over-the-counter (OTC) interest rate swap contracts, 	
through LCHC's SwapClear unit, which we believe could grow further because of 	
recent regulatory changes making central clearing of some OTC derivatives 	
mandatory.	
	
However, our preliminary figures show that LSEG's leverage metrics would 	
deteriorate in the short term if the transaction went through. Pro forma gross 	
debt leverage would rise to 2.3x from an estimated 1.9x for LSEG. Pro forma 	
EBITDA interest coverage would fall to 9.2x at March 2013 and tangible total 	
equity would also depreciate significantly, nearing negative GBP1 billion. 	
	
In the longer run, the restoration of leverage metrics for LSEG that we would 	
view as consistent with a rating in the 'A' category would depend on LCHC's 	
capacity to sufficiently grow revenues from OTC clearing and interoperability 	
and implement efficiency measures it has promised. Without these changes LSEG 	
would not be able to offset the adverse impact of the upcoming termination of 	
NYSE Euronext's (A+/Stable/A-1) clearing contracts on LCHC's business. 	
	
We see LSEG's statement of intention to maintain a net debt target leverage of 	
1x-2x as positive, as this is a level that would be more consistent with our 	
current rating. 	
	
CreditWatch	
We expect to resolve the CreditWatch upon completion of the merger, probably 	
around the end of 2012.  The deal is unlikely to close sooner because of the 	
many regulatory and antitrust approvals both entities must obtain, mostly in 	
Europe. If the deal goes through, we might affirm the rating on LSEG or lower 	
it by one notch. If the deal falls through, we would most likely affirm the 	
rating on LSEG.	
	
Related Criteria And Research	
     -- Standard & Poor's Updated Methodology For Rating Exchanges and 	
Clearinghouses, July 10, 2006	
	
Ratings List	
Ratings Affirmed; CreditWatch/Outlook Action	
                                        To                 From	
London Stock Exchange Group PLC	
 Counterparty Credit Rating             A-/Watch Neg/A-2   A-/Negative/A-2	
	
London Stock Exchange Group PLC	
 Senior Unsecured                       A-/Watch Neg       A-	
	
	
Complete ratings information is available to subscribers of RatingsDirect on 	
the Global Credit Portal at www.globalcreditportal.com. All ratings affected 	
by this rating action can be found on Standard & Poor's public Web site at 	
www.standardandpoors.com. Use the Ratings search box located in the left 	
column.