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Moody's Corporation (NYSE:MCO)
Q4 2017 Earnings Conference Call
Feb. 9, 2017, 11:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Please stand by. We're about to begin. Good day, and welcome, ladies and gentlemen, to the Moody's Corporation fourth quarter and full year 2017 conference call. At this time, I'd 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 the conference up for questions and answers following the presentation.

I would now like to turn the conference over to Mr. Steve Maire, Global Head of Investor Relations and Communications. Please go ahead.

Steve Maire -- Global Head of Investor Relations and Communications

Thank you. Good morning, everyone, and thanks for joining us on this teleconference to discuss Moody's fourth quarter and full year 2017 results, as well as our outlook for full year 2018. I am Steve Maire, Global Head of Investor Relations and Communications. This morning, Moody's released its results for the fourth quarter of 2017 as well as our current outlook for the full year 2017. The earnings press release and a presentation to accompany this teleconference are both available on our website at ir.moodys.com.

Ray McDaniel, Moody's President and Chief Executive Officer, will lead this morning's conference call. Also making prepared remarks on the call this morning is Linda Huber, Moody's Executive Vice President and Chief Financial Officer.

During this call, we will be presenting non-GAAP or adjusted figures. To view the nearest equivalent GAAP figures and GAAP reconciliations, please refer to our earnings release that was filed this morning. Before we begin, I call your attention to the Safe Harbor language, which can be found toward the end of our earnings release. Today's remarks may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In accordance with the act, I also direct your attention to the Management's Discussion and Analysis section and the risk factors discussed in our annual report on Form 10-K for the year ended December 31, 2016 and in other SEC filings made by the company, which are available on our website and on the Securities and Exchange Commission's website. These, together with the Safe Harbor statements, set forth important factors that could cause actual results to differ materially from those contained in any such forward-looking statements. I would also like to point out that members of the media may be on the call this morning in a listen-only mode.

Before I turn it over to Ray, I'd like to remind everyone that Moody's will be hosting Investor Day at the end of this month on February 28th in New York City. Please contact the Investor Relations team if you would like additional information about the event. I'll now turn the call over to Ray McDaniel.

Ray McDaniel -- President and Chief Executive Officer

Thank you, Steve. Good morning and thank you, everyone, for joining today's call. I'll begin my summarizing Moody's fourth quarter and full year 2017 financial results. Linda will follow with additional fourth quarter financial details and operating highlights, and I'll then conclude with comments on our outlook for 2018. After our prepared remarks, we'll be happy to respond to your questions.

In the fourth quarter, Moody's record revenue of $1.2 billion increased 24% from the fourth quarter of 2016, primarily as a result of an increase in rated issuings. The acquisition of Bureau van Dijk, and strong organic performance for Moody's analytics. Operating expenses for the fourth quarter of 2017 totaled $703 million, down $1.4 billion in the fourth quarter of 2016. Operating expenses in the fourth quarter of 2016 included an $864 million charge related to a settlement with the U.S. Department of Justice and the Attorneys General of 21 U.S. states and the District of Columbia. Excluding the settlement charge, operating expenses were up 27% from the prior year period, including 12 percentage point attributable to Bureau van Dijk operating expenses, amortization of acquired intangible assets, and non-recurring acquisition-related expenses.

Operating income was $463 million, up from the fourth quarter 2016 operating loss of $473 million. Adjusted operating income of $519 million was up 22%. Foreign currency translation favorably impacted adjusted operating income by 3%. The operating margin was 39.7%, and the adjusted operating margin was 44.5%. Moody's diluted EPS for the quarter was $0.13 per share, up from a loss per share of $2.25 in the fourth quarter of 2016. Adjusted diluted EPS for the quarter was $1.51, up 20%, and excluded a $1.26 one-time charge related to the net impact of changes in tax laws in the U.S. and Europe. Additional adjustments included amortization of acquired tangible assets and acquisition-related expenses.

Turning to full year performance, Moody's record revenue for the full year of 2017 of $4.2 billion was up 17% from 2016. U.S. revenue was $2.3 billion, up 12%, while non-U.S. revenue was $1.9 billion, up 24%. Foreign currency translation favorably impacted Moody's revenue by 1%. Revenue with Moody's Investor Service, $2.8 billion, was up 17% from the prior year. U.S. revenue was $1.7 billion, up 13%, while non-U.S. revenue was $1.1 billion, up 23%. Revenue with Moody's Analytics was $1.4 billion, a 16% increase over the prior year. U.S. revenue of $646 million was up 7%, while non-U.S. revenue of $785 million was up 25%. Organic MA, Moody's Analytics revenue, was $1.3 billion, up 8% from the prior year. Operating expenses for full year 2017 totaled $2.4 billion, down 19% from $3 billion in the prior year, which included the fourth quarter 2016 settlement charge. Excluding the settlement charge and a restructuring charge in 2016, operating expenses were up 15%, which includes five percentage points attributable to Bureau van Dijk operating expenses, amortization of acquired intangible assets, and non-recurring acquisition-related expenses. There was no material impact on expenses from foreign currency translation. Operating income was $1.8 billion, up $639 million in 2016, which included the fourth quarter 2016 settlement charge. Adjusted operating income of $2 billion was up 21%. Foreign currency translation favorably impacted adjusted operating income by 2%.

Moody's operating margin was 43%, up from 17.7%, and adjusted operating margin was 47.3%, up from 45.5% in the prior year. The effective tax rate for full year 2017 was 43.6%, which included net charge in the fourth quarter related to the impacts of tax reform in the U.S. and Europe. The effective tax rate was down from 50.6% full year 2016, which included the nondeductible portion of the settlement charge. Excluding the net charge in 2017, the effective tax rate was 29.9%. Excluding the settlement charge in 2016, the effective tax rate was 31.3%.

We're expecting another solid year of growth in 2018, and our outlook is for low double-digit percent revenue growth. Diluted EPS of $7.20 to $7.40, and adjusted diluted EPS of $7.65 to $7.85. Those ranges include an approximate $0.65 benefit from U.S. tax reform.

I will now turn the call over to Linda to provide further commentary on our financial results and other updates.

Linda Huber -- Executive Vice President and Chief Financial Officer

Thanks, Ray. I'll begin with revenue at the company level. As Ray mentioned, Moody's total revenue for the fourth quarter was a record $1.2 billion, up 24%. U.S. revenue of $614 million was up 15%. Non-U.S. revenue of $551 million was up 35% and represented 47% of Moody's total revenue. Recurring revenue of $581 million was up 23% and represented 50% of total revenue. Foreign currency translation favorably impacted Moody's revenue by 3%.

And looking now at each of our businesses, starting with Moody's Investor Services, this was the fourth consecutive quarter of record revenue for MIS. Total MIS revenue for the quarter was $725 million, up 19%. U.S. revenue increased 17% to $440 million. Non-U.S. revenue of $285 million was up 23% and represented 39% of total MIS revenue. Foreign currency translation favorably impacted MIS revenue by 3%.

And looking now at the lines of business for MIS, first, corporate finance revenue for the fourth quarter was $334 million, up 20%. This result reflected strong issuance activity in the U.S. investment grade and speculative grade bonds, EMEA speculative grade bonds and bank loans, and Asian investment grade bonds. U.S. and non-U.S. corporate finance revenues were up 16% and 28% respectively.

Second, structured finance revenue totaled $148 million, up 13%, primarily driven by strong contributions from CLOs in both the U.S. and Europe, as well as an increase in rated U.S. REIT transactions. U.S. and non-U.S. structured finance revenues were up 17% and 5% respectively.

Third, financial institutions revenue of $119 million was up 34%. This result was largely driven by an increase in banking issuance from infrequent issuers. U.S. and non-U.S. financial institutions revenue were up 36% and 33% respectively.

Fourth, public project and infrastructure finance revenue of $119 million was up 16%. This result reflected increased U.S. public finance issuance, as municipal borrowers accelerated financing ahead of anticipated changes in U.S. tax legislation, as well as strength from infrastructure finance. U.S. and non-U.S. public project and infrastructure finance revenues were up 14% and 18% respectively.

And turning now to Moody's analytics, total revenue for MA of $441 million was up 32%. U.S. revenue was $174 million was up 10%. Non-U.S. revenue of $267 million was up 51% and represented 60% of total MA revenue. Organic MA revenue for the fourth quarter of 2017 was $379 million, up 13% from the fourth quarter of 2016. Foreign currency translation favorably impacted MA revenue by 3%.

And moving now to the lines of business for MA, first, research data and analytics, or RD&A, revenue is $258 million, up 55%. U.S. RD&A revenue was up 18%, and non-U.S. RD&A revenue more than doubled. Bureau van Dijk's revenue contribution of $62 million for the fourth quarter included a $22 million reduction as the result of a deferred revenue adjustment required under acquisition accounting rules. Organic RD&A revenue was $196 million, up 17% from the fourth quarter of 2016, driven by broad strength in all product lines. Second, enterprise risk solutions, or ERS, revenue of $143 million was up 10% from the prior year period, driven primarily by demand for products that enable adoption of the International Financial Reporting Standard, or IFRS 9, accounting requirement, as well as strong performance in the insurance product line. U.S. ERS was down 5%, while non-U.S. revenue was up 18%.

Trailing 12-month sales for ERS increased 7%. We continue to make progress on shifting the mix of ERS business to emphasize high margin products, with trailing 12-month product sales up 14% and services sales down 13%. Recurring revenue represented 69% of total ERS revenue in 2017, up from 66% in the prior year. And third, professional services revenue of $40 million was up 7%. U.S. and non-U.S. professional services revenues were up 6% and 8% respectively.

And turning now to operating expenses, Moody's fourth quarter operating expenses totaled $703 million, down from the $1.4 billion in the fourth quarter of 2016. Operating expenses in the fourth quarter of 2016 included the $864 million settlement charge. Excluding the settlement charge, operating expenses were up 27% from the prior year period, which includes 12 percentage points, attributable to Bureau van Dijk operating expenses, amortization of acquired intangible assets, and nonrecurring acquisition-related expenses. Other drivers of expense growth included additional compensation expense for merit increases and hiring, as well as increased performance-based incentive compensation. Foreign currency translation unfavorably impacted operating expenses by 1%. And as Ray mentioned, Moody's operating margin was 39.7%, and adjusted operating margin was 44.5%.

And now, I'll provide an update on capital allocation. During the fourth quarter of 2017, Moody's repurchased approximately 200,000 shares at a total cost of $36 million, for an average cost of $146.85 per share. Moody's also issued 100,000 shares as part of its employee stock-based compensation plan. Moody's returned $73 million to its shareholders by dividend payments during the fourth quarter of 2017. And on January 24th, the board of directors declared a regular quarterly dividend of $0.44 per share of Moody' common stock, which is a 16% increase from the prior quarterly dividend of $0.38 per share. This dividend will be payable on March 12, 2018 to stockholders of record at the close of business on February 20, 2018.

For the full year 2017, Moody's repurchased 1.6 million shares at a total cost of $200 million, for an average cost of $121.21 per share, and issued a net 1.9 million shares as part of its employee stock-based compensation plan. And that amount includes shares withheld for employee payroll taxes. Moody's also returned $290 million to its shareholders by dividend payments during 2017. Outstanding shares as of December 21, 2017 total $191 million, approximately flat to a year ago. As of December 21, 2017, Moody's had approximately $500 million of share repurchase authority remaining. And at year-end, Moody's had $5.5 billion of outstanding debt and $870 million of additional borrowing capacity available under its revolving credit facility.

Total cash, cash equivalents, and short-term investments at quarter end were $1.2 billion, down $1 billion from December 31, 2016, primarily due to the acquisition of Bureau van Dijk. Cash flow from operations in 2017 was $748 million, down from the $1.3 billion in 2016. Free cash flow in 2017 was $657 million, down $1.1 billion from 2016. These declines in cash flow were due to the settlement charge payment in 2017. And with that, I'll turn the call back over to Ray.

Ray McDaniel -- President and Chief Executive Officer

Okay, thanks, Linda. Before discussing our full year guidance for 2018, I'd like to provide some highlights on our progress with Bureau van Dijk integration and synergy activities. Our integration efforts are on track, and we remain confident about achieving the synergy targets that we communicated when we announced the acquisition. Since closing the acquisition in August, we have enhanced Bureau van Dijk's products with content sourced from Moody's, launched programs across our Bureau van Dijk products, and initiated measures to enhance sales productivity and efficiency. In New York, San Francisco, and Hong Kong, Bureau van Dijk staff are now co-located at Moody's offices, with six additional offices in Europe, Asia, and South America set to be combined in 2018. The Bureau van Dijk business continues to perform well, and we are very pleased with the progress we're making as we pursue our various collaboration and integration efforts.

So, I will conclude the morning's prepared comments by discussing our full year guidance for 2018. A complete list of Moody's guidance is included in table 14 of our fourth quarter and full year 2017 earnings press release, which can be found on the Moody's Investor Relations website at ir.moodys.com. Moody's outlook for 2018, is based on assumptions about many geopolitical conditions and macroeconomic and capital market factors, including interest rates, foreign currency exchange rates, corporate profitability and business investment spending, mergers and acquisitions, consumer borrowing and securitization, and the amount of debt issued. These assumptions are subject to uncertainty, and results for the year could differ materially from our current outlook.

Our guidance assumes foreign currency translation at exchange rates as of January 31, 2018. Specifically, our forecast reflects exchange rates for the British pound of $1.42 to the pound and for the euro of $1.25 to the euro. As I noted earlier, Moody's expects full year 2018 revenue to increase in the low double-digit percent range. Operating expenses are also expected to increase in the low double-digit percent range. The company is projecting an operating margin of 43 to 44%. Adjusted operating margin is expected to be approximately 48%. The effective tax rate is expected to be 22 to 23%. Full year 2018 diluted EPS is expected to be $7.20 to $7.40. Adjusted diluted EPS is expected to be $7.65 to $7.85. Both ranges include an approximate $0.65 benefit resulting from U.S tax reform.

Free cash flow is expected to be approximately $1.6 billion. Moody's expects share repurchases to be approximately $200 million, subject to available cash, market conditions, and other capital allocation decisions. Capital expenditures are expected to be approximately $120 million. Depreciation and amortization expense is expected to be approximately $200 million. For MIS, 2018 revenue is expected to increase in the mid-single-digit percent range. U.S. revenue is expected to increase at a low single-digit percent range, and non-U.S. revenue is expected to increase in the high single-digit percent range. Corporate finance revenue is expected to increase in the high single-digit percent range. Structured finance and financial institutions revenues are each expected to increase in the mid-single-digit percent range. Public project and infrastructure finance revenue is expected to decrease in the low single-digit percent range.

For Moody's Analytics, the 2018 revenue is expected to increase in the mid-20s percent range. U.S. revenue is expected to increase in the low double-digit percent range, and non-U.S. revenue is expected to increase in the mid-30s percent range. Organic MA revenue is expected to increase in the low double-digit percent range. RD&A revenue is expected to increase approximately 40%. The full year 2018 revenue contribution from Bureau van Dijk will be reduced by an estimated $16 million as a result of a deferred revenue adjustment required as part of acquisition accounting. Organic RD&A revenue is expected to increase in the mid-teens percent range. ERS revenue is expected to increase in the low single-digit percent range, and professional service revenue is expected to increase in the high single-digit percent range.

Before turning the call over to Q&A, I would like to talk for just a minute about Linda. As you all know, we announced that Linda will be leaving Linda's after more than 12 years of outstanding service as our Executive Vice President and Chief Financial Officer. We're grateful for Linda's service and wish her every success in the next phase of her career. We're also grateful that Linda has agreed to remain at the company for a transition period, and I'm confident with the strong team she has built, her successor will be able to hit the ground running. We're not focused on finding the right person to take on the role, and I have begun a comprehensive search. We'll be looking at both internal and external candidates, and have engaged a search firm to assist us in this process. Of course, Linda's departure has no effect on our corporate strategy or financial priorities, which have delivered an unprecedented period of growth for Moody's during Linda's tenure.

This concludes our prepared remarks, and joining Linda and me for the question and answer session are Mark Almeida, President of Moody's Analytics, and Rob Fauber, President of Moody's Investors Service. We'll be pleased to take any questions you may have.

 

 

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, if you'd like to ask a question, please dial *1 on your telephone keypad. If you are using a speakerphone, please pick up your handset 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 with a brief follow-up. You are then welcome to rejoin the queue for any additional questions you may have. Again, that's *1 to ask a question. And our first question comes from Toni Kaplan with Morgan Stanley. Please go ahead.

Toni Kaplan -- Morgan Stanley -- Analyst

Hi, good morning. Your guidance calls for mid-single-digit growth in MIS after a year where the segment grossed 17%, and it looks like non-U.S. is really the strong part. So, could you just give us some color on which geographies and products are really driving this high single-digit growth in non-U.S. in '18, and also, just what you're seeing so far in 1Q, just given that it's the toughest comp for the year? Thanks.

Steve Maire -- Global Head of Investor Relations and Communications

Sure. Maybe we can kick it off by letting Linda talk about the consensus we used that we've collected. And I know Rob will have some comments on this.

Linda Huber -- Executive Vice President and Chief Financial Officer

Yeah. Toni, thanks for the question. I'll start with the views from the various banks that we survey. And again, these views are the consensus views of those banks, and it may not line up exactly with Moody's revenue categorization. Investment grade bond issuance for '18, the call is for $1.25 trillion at issuance, which is flat to down 10% from '17. Notes include that the market remains robust with tight spreads offsetting rising rates. And January '18 was the second largest January on record after January '17. You've probably noticed the growing M&A pipeline among the investment-grade borrowers, and we note the 87% probability of a Fed rate high in March, with an average expectation of three rate hikes in total in '18.

For high yield, the call is for $285 billion at issuance, flat to up 10% from '17. Notes include high yield fundamentals remaining strong with demand for new issuance and improving macroeconomic environment in relatively narrow spreads, and issuance remains primarily driven by refinancing. Year-to-date 2018 issuance is already up 10% year-over-year, and the forward pipeline is characterized as robust. Potential headwinds with tax reform impact on companies is very high amounts of debt and low EBID and EBIDTA, and I'm sure we'll talk about that later.

On the leverage loan front, the third category in the U.S., $500 billion is expected for 2018, flat to down 10% from 2017. Notes include that the leverage loan market remains strong and spreads are narrow. Full year 2018 is expected to be down slightly from a record 2017, with upside should M&A activity accelerate or if rising rates create further demand for floating rate paper.

And switching over to Europe, investment grade in Europe has had a bit of a slower start to issuance for the year, but it is expected to pick up post-earnings season. We're near historical lows. Some concern about the ECBQE tapering, but those are muted. And the euro area continues to see strong growth in GDP and corporate profits. Speculative grade in Europe. Notes include high yield in leveraged loan markets are in good shape with strong forward pipelines, though issuance levels face tough comps as compared to the strong 2017. Spreads are narrow due to strong demand, and those are fueling opportunistic issuance. So, again, that's the view from the banks, and then I'll ask Rob to comment a little bit more about the various sectors.

Robert Fauber -- President of Moody's Investors Service

Yeah. Thanks, Linda. So, Linda provided the street estimates for issuance, and overall for U.S. corporate, generally flattish to slightly down. Our forecast is broadly in line with those estimates, as you'd expect. And yeah, as you noted, Toni, we're coming off very strong issuance from the corporate sector in 2017 in really all regions. Just kind of tying this together, several factors influencing our overall issuance outlook this year. And Linda touched on a few of these. But expanding global economy, this concept of synchronous growth across the G20. First time we've seen all G20 economies growing at the same time since 2010. Modest geopolitical risks, firming commodity prices, declining default rates that are supporting the tight spreads that Linda talked about, and expect to see some robust M&A activity, which we think will help to offset some of the decline, expected decline in the refinancing activity that we saw, particularly in the bank loan market last year. There are obviously some risks, namely the recent increase in market volatility, and concerns about inflation and rate increases. And currently, our outlook hasn't really accounted for any kind of market disruption to issuance activity in 2018. We didn't have that in 2017.

And then, maybe as we take the issuance outlook and then build to the revenue guidance, so obviously, there are several factors that go into how that then translates into revenue. First, the issuance forecast I talked about, we also have some assumptions around mix, which you hear us talk about on many of these calls. Then new mandate activity. I'm happy to talk about the new mandate activity for the year at some point on the call. Recurring revenue growth, from an increase in monitored ratings, and I think this is important, this is about a third of our total revenue, the recurring revenue. You've seen some pickup in our recurring revenue growth rate over the last couple of quarters, and that is due in large part to the growth in first-time issuers that we are now rating. And then finally, kind of our standard pricing contribution, and a bit of favorability from FX. That gives a start.

Toni Kaplan -- Morgan Stanley -- Analyst

That's great. And just for my follow-up, and I think this is the question everyone wants to know, but what are your plans, and what drove your decision to move on?

Linda Huber -- Executive Vice President and Chief Financial Officer

Thanks, Toni. This is my 51st earnings calls for Moody's, and I think it's just time to take a look at some other things that are out in the world. And a very orderly transition, and nothing really too exciting to say. Don't have finalized plans as of this point.

Operator

And we'll go next to Peter Appert with Piper Jaffray.

Peter Appert -- Piper Jaffray -- Analyst

Thank you. And Linda, I would just like to say thanks for all your great work here over the last couple of years. I am missing you already. Big shoes to fill for sure. In terms of the RD&A business, the organic growth looked particularly strong, and the outlook for 15% growth next year. I just want to be clear, this is XBVD, right? That's one. Two is what's driving the what seems like better than recent performance in the RD&A business? And then I'm gonna ask my follow-up in advance. The margins in the legacy MA business, can you speak to the trend you're seeing there? Thank you.

Mark Almeida -- President of Moody's Analytics

Excuse me. Peter, it's Mark. In RD&A, first, just to be clear about what's in and what's out, in '17, there's no Bureau van Dijk when we talk about organic RD&A for '17. That includes no Bureau van Dijk. In the '18 guidance, we do have, in the fourth quarter, Bureau van Dijk becomes organic. So, we will have Bureau van Dijk in the '18 numbers and reflected in our '18 guidance for RD&A. So, definitionally, that's what we're working with.

Just to provide some color around the good, the very good results we're seeing in RD&A, I guess I'd just call out that we had very solid low double-digit underlying growth in the credit research and data businesses, which was a result of our work to improve upon and expand and deliver to our credit platform and our data feats. New business production's been solid. Customer attrition has remained very low. And our yield from existing customers generated strong growth. As customer institutions are upgrading their usage rights an extending access to our content across more users in their organizations. So, in addition, we gained two or three points of growth in RD&A in the fourth quarter from one-time projects, which was mostly modeling work for customers stress-testing IFRS 9 requirements. And our results were further helped in the fourth quarter by about 300 basis points of favorable FX.

So, in short, we are seeing very good execution of our project strategy, the strong take-up of the range of our capabilities, plus some FX benefits. That's what we saw in the fourth quarter of '17 that drove the very good numbers we had. And as we look into '18, frankly, it's more of the same. We have good momentum going into '18. We see continued good performance in all of the businesses, especially as we bring our new content delivery platform, CreditView 2.0, the market in midyear. CreditView 2 will provide a more modern interface with expanded content and greater flexibility that accommodates access to broader range of data, which will enable us to better cross-sell the Bureau van Dijk content. And in addition, we will get a strong year-on-year contribution from Bureau van Dijk as the business moves into the organic category in the fourth quarter. And we also expect continued favorable FX impact, which takes up our already strong full year outlook by another couple of points.

Peter Appert -- Piper Jaffray -- Analyst

Got it. And then how about the legacy MA margins and the trend you're seeing there?

Mark Almeida -- President of Moody's Analytics

Yeah. Well, you saw in the fourth quarter, we had 300 basis points of expansion in the adjusted operating margin. Most of that is from the legacy Moody's Analytics business, with some additional contribution from Bureau van Dijk. So, we're seeing good success as we continue to rigorously pursue our strategy to drive margin expansion and MA. You may not that we had no headcount growth in Moody's Analytics next year, ignoring the addition of the Bureau Van Dijk staff. We literally had two more people working in Moody's Analytics at the end of '17 compared with the end of '16. So, the strategy is to deploy the resources that we have against our very best opportunities, which we've identified, and are pursuing them. And we expect to continue to pursue that strategy and feel good about where we're headed.

Ray McDaniel -- President and Chief Executive Officer

And Peter, it's Ray. I would just add, as we look forward in 2018, Moody's Analytics will be getting a larger allocation of our shared service expense because of the increased size of the business with the acquisition of Bureau van Dijk, primarily, so just in terms of what to expect.

Mark Almeida -- President of Moody's Analytics

Yeah, and I think we will dive into that in some detail at Investor Day.

Linda Huber -- Executive Vice President and Chief Financial Officer

Peter, also -- it's Linda. Just so everyone's aware, we're not helping Mark from the accounting perspective here. As we've brought on the business, the BVD business, we had to move through a deferred revenue adjustment. We handled some of that in 2017, and some of that will remain in 2018. Just so there's a bit more guidance for modeling purposes, we expect that there's about $16 million left of deferred revenue adjustment for Bureau van Dijk in 2018. Just so you have the detail quarter by quarter, that lays out about $10 million in Q1, $5 million in Q2, and the rest in Q3. And I think we are done with that once we close the acquisition in 2018. So, Mark is nodding. Just a quick addition there in terms of this deferred revenue haircut, in case it's not as well understood as it should be.

Peter Appert -- Piper Jaffray -- Analyst

Great. That helps. Thanks.

Operator

We'll move next to Anj Singh with Credit Suisse.

Anj Singh -- Credit Suisse -- Analyst

Hi. Thanks for taking my questions. I was wondering if you could speak on capital allocation a bit, what you plan to do with the proceeds from the tax savings. It seems like you'd probably just de-lever quicker and faster. But wondering if there are any tweaks or changes to your normal capital allocation priorities as we look to 2018. Thanks.

Linda Huber -- Executive Vice President and Chief Financial Officer

Sure. It's Linda, and I'll let Ray help me with this one. I think we announced when we took on the Bureau van Dijk business that with the $2 billion of debt we had added for that acquisition, our plans for '17 and '18 really centered on deleveraging after that deal. In '18, we're planning to reduce our debt by about $500 million, and we're ahead of schedule in that process because we are seeing strong operating cash flow. We think our capital allocation priorities are going to remain about the same. We have some very good opportunities to invest in our business, which will always be job one.

In terms of our international cash, we probably have less cash offshore than many corporations do at this point because we spent $1.3 billion of it for the Bureau van Dijk acquisition. So, for Moody's, we may end up with a couple hundred million dollars of offshore cash to repatriate, but not a huge amount. So, I think we're gonna stick to our plan and continue to focus on deleveraging. And, as I think Ray had mentioned, about $200 million of share repurchase on the docket for 2018. Ray may have something else you might want to add.

Ray McDaniel -- President and Chief Executive Officer

No, just I agree with how Linda has characterized our priorities. It is deleveraging. First, we are going to be able to be ahead of schedule as compared to our acquisition analysis on the deleveraging. And at the same time, we are going to be able to make necessary investments in the growth of the business.

Anj Singh -- Credit Suisse -- Analyst

Okay. Okay. Got it. That's helpful. And then for a follow-up, could you just speak to MIS margins down year-over-year in the quarter? I realize it's up strongly on a full year basis, but this comes despite the strength in revenue growth. How much is driven by mix versus investments or just incentive comp, and help us understand how these shape your outlook for that segment as it relates to your 48% margin guide for '18? Thank you.

Linda Huber -- Executive Vice President and Chief Financial Officer

Sure. I'll start on this one. It's Linda. And in fact, the MIS operating margin did decline by 110 basis points, despite 19% growth in revenue in the quarter. And on a full-year basis, it's important to note that the MIS operating margin is up 190 basis points. So, we had some unusual activity in the fourth quarter. We would really point you toward the full year as being more indicative. But in the fourth quarter, we kind of saddled Rob with some additional expenses here. As you know, we had very strong performance in the fourth quarter, so we had to increase our performance-based incentive compensation, our stock compensation, and we had profit sharing in 2017. I think the total amount was a little over $10 million, so all of that hit MIS. The second thing that was important is we had a little bit of a severance charge in one of the non-U.S. businesses. All that comes to a little bit less than $20 million or so. So, really just the result of very strong performance and one little item that we right-sized. But I think you should see the margins back to as Rob had described previously, but I'll let him follow up on this.

Robert Fauber -- President of Moody's Investors Service

Yeah. Maybe just to give a little color about what we're gonna do to continue to drive on the margin. You've seen our results over the last several years. We're continuing to look for further efficiency in managing expenses in a disciplined fashion. So, a couple of things I might just point to that I think will support that. First, we just this year completed a reorganization of our junior staff into a dedicated support organization. That's gonna help us manage our staffing more effectively through the inevitable ebbs and flows of issuance and drive up our resource utilization.

Second, we're leveraging technology in a variety of ways across MIS. We just launched our first bots in October as part of our Robotic Process Automation initiative, and these bots are automating manual repeatable tasks that are currently being done by people. We're also developing workflow and analytical tools that are going to help the analysts be more efficient and spend their time focused on higher value-added activities. And the last thing I'd say is we're hiring more staff in low-cost locations, like India, and we're looking to open an office in Costa Rica this year through MIS so that we can make sure we have the right jobs in the right places. In this past year, to give you a sense, about half of our head count growth was at our support center in India.

Anj Singh -- Credit Suisse -- Analyst

Okay, got it. Thanks so much.

Operator

We'll go next to Manav Patnaik with Barclays.

Manav Patnaik -- Barclays Capital, Inc. -- Analyst

Yeah, thank you. My first question was just around guidance. I usually think when you give guidance in the beginning of the year, it's a bit conservative. And I guess there's a few areas where I just need a little bit more help here. I think one of the areas was on the corporate finance group, which I think Rob explained with mix and new mandates, maybe. But similarly, the PPIF group, it sounds like at least in the U.S., it's going to be down quite a bit. So maybe there is an international mix here where it helps you down only low single digit. We would have thought more. And sort of the second part, the guidance part was just around FX, Linda. If you could tell us the contributions you've assumed on the revenue and margin side, I presume that's benefit because your spot -- your guide is above the spot rate, which is unlike prior years, I believe.

Ray McDaniel -- President and Chief Executive Officer

Sure. Why don't we let Rob start off on the outlook around PPIF and corporate?

Robert Fauber -- President of Moody's Investors Service

Yeah. So, keep in mind, our PPIF segment has several rating lines in it. We do have a mid-single-digit revenue decline as our guidance. But we have a significant -- we think that the U.S. public finance issuance is going to be significantly adversely impacted from the changes to the U.S. tax law. That's really around the loss of tax-exempt status for advanced refundings in U.S. public finance, which was, depending on the year, somewhere between 20% and 30% of the market.

Ray McDaniel -- President and Chief Executive Officer

And the pull forward that we saw in the fourth quarter.

Robert Fauber -- President of Moody's Investors Service

That's right. We saw some pull forward activity. I think probably a modest slowdown in infrastructure after a very strong year around the globe and a pretty stable issuance environment in sub-sovereign and all that then kind of builds ultimately to our revenue outlook.

Linda Huber -- Executive Vice President and Chief Financial Officer

It's Linda. On the corporate side, before we move away from Rob, I always encourage him to speak a little bit about what he's seeing in new mandates because analysts have expressed interest in this. So, why don't you go ahead and cover that, Rob?

Robert Fauber -- President of Moody's Investors Service

Yeah, sure. And that also is gonna touch on, I think, one of Toni's questions around the guidance around non-U.S. growth. So, a really good story in the fourth quarter, 260 first-time mandates. That's up about 47% on the year-over-year quarter. So, that took us above 1,000 new mandates for the year. It set a new record. We expect somewhere slightly below that number, but still another strong year for first-time mandate activity. The strength in first-time mandates that we had continued into, we see that into the pipeline. And interestingly, as we look at the mix of first-time mandates and the growth, the European and Asian first-time mandates grew at a rate of growth that was about 2x first-time mandates in the United States. So that then is contributing to that higher rate of growth for non-U.S. revenues, at least in part.

Linda Huber -- Executive Vice President and Chief Financial Officer

And Manav, on the FX point, you're right. FX, the spots have been moving around quite dramatically. We expect FX to have a 3% positive impact on revenue in '18 and 3% positive impact on adjusted operating income. As you know, our main exposures are to the euro and the pound, and we put a pin in it with the pound at $1.42 to the dollar, as Ray said, the euro at $1.25. And probably for your planning purposes, the rule of thumb here is that €0.01 decline in the euro takes about one penny off our EPS, and the £0.01 decline in the pound basically doesn't move our EPS all that much. So, we're a little bit more sensitive to the euro and hopefully that will help you out. Yes, we do note that the currencies are moving around a bit.

Manav Patnaik -- Barclays Capital, Inc. -- Analyst

Okay, got it. And then if I could just have you give us the expense build that you typically give us going into the fourth quarter and maybe just that three-point revenue growth. I presume MA has more of that, if you could just help us price that out.

Linda Huber -- Executive Vice President and Chief Financial Officer

Let me give you an expense ramp for next year, which is what I think you're looking for. For 2018, we're looking for an expense ramp of $60 million to $70 million. And I'll get somebody to give me a first quarter expense number so we know what we're starting from here in just a minute. The expense ramp, as you know, can be very strongly impacted by timing of expenses, FX movements, and as we saw this year, very strong late-period changes in incentive compensation. So, $60 million, $70 million is given what we know now. But we'll look at that as we go through the year. So, let's use a starting number for first quarter of '18. Maybe sort of 635 might be a good place to start, and then look at $60 million to $70 million increasing ramp as we move through the year.

Manav Patnaik -- Barclays Capital, Inc. -- Analyst

All right. Thank you.

Operator

And we'll go next to Jeff Silber with BMO Capital Markets.

Jeffrey Silber -- BMO Capital Markets -- Analyst

Thanks so much. I hate to go back to tax reform, but I'm going to. Even in your prepared remarks or I think maybe in the bankers remark, you nod about the potential adverse impact of tax reform in a high yield market. I know it's still early. Are you seeing any of that? And then even on the corporate side or the investment grade side, excuse me, I know there was some noise early on about the limits on corporate expense, interest expense deductibility, and I know that we're watered down a little bit, but again, are you hearing anything from your potential customers on that front as well? Thanks.

Ray McDaniel -- President and Chief Executive Officer

Yeah. Rob, do you want to talk about what you heard from people?

Robert Fauber -- President of Moody's Investors Service

Yeah. It's a good question. As you can imagine, we're in very regular contact with the issuers on this topic. And I think the general view is it's still very early days in terms of seeing any kind of change to corporate behavior. The highly leveraged companies that we're speaking with have not indicated that this is a significant issue, at least not yet. And obviously that remains to be seen because that's where the impact could be more noticeable. And I would note, though, that there's an enormous amount of money that's been raised by the private equity firms that needs to be deployed, and we're seeing this in the form of a very active LBO market at this time.

Ray McDaniel -- President and Chief Executive Officer

And I'd just add, in terms of the caps on interest rate deductibility, that is really going to only have an impact for firms that are at the bottom of the speculative grade rating scale, so, say B3 and below. And then obviously, the actual impact will vary by individual company.

Jeffrey Silber -- BMO Capital Markets -- Analyst

Okay, that's helpful. And I'm gonna stick with the tax theme for my follow-up. In terms of the guidance, the 22% to 23% tax rate for this year, is that inclusive of the stock-based comp benefit that you're getting in the first quarter, or that's the number that we'd be using on a normalized basis in second, third, and fourth quarter? Thanks.

Linda Huber -- Executive Vice President and Chief Financial Officer

That's inclusive of the benefits in the first quarter. I think your point is well taken that that may weigh a little bit more heavily toward the first quarter. So, I'd put the majority in the first quarter just because that's when we would expect a heavier exercise of options, and I'd lighten it up a little bit in the second quarter and third quarter, and then we should be pretty much through that. I think we had a number somewhere around in these documents of approximately $40 million for that. So, you can kind of spread it, as I had said.

Jeffrey Silber -- BMO Capital Markets -- Analyst

Okay, great. That's very helpful. Thanks so much.

Operator

And we'll go next to Craig Huber with Huber Research Partners.

Craig Huber -- Huber Research Partners -- Analyst

Thank you. Linda, I just want to say, you did a heck of a job, and you'll be missed.

Linda Huber -- Executive Vice President and Chief Financial Officer

Thanks, Craig.

Craig Huber -- Huber Research Partners -- Analyst

My first question is, Ray, or whoever would like to answer this. On the bank loan outlook for this new year, you've given the strength the last couple of years, can you just talk a little bit further about your outlook for that? I know you said some investment banks you checked in with for this year are down 0 to 10% or something. Just what the puts and takes are to move that number higher or lower this year? What are we looking for there on bank loans?

Ray McDaniel -- President and Chief Executive Officer

Well, I mean certainly to the extent that floating rate debt is relatively more attractive in a more volatile interest rate environment, that could have a positive impact, at least relative to competition from the spec grade bond sector. Beyond that, I think so far, we are seeing good activity in the bank loan sector, reasonable pipeline, but it's very early days.

Robert Fauber -- President of Moody's Investors Service

Yeah, and the only thing I would add to that is that we had an enormous refi wave over the last 18 months. So, the question will be, as we see an expected pickup in M&A, will that offset to some extent what we think will be a decline in the refinancing activity?

Craig Huber -- Huber Research Partners -- Analyst

Okay, then also just real quick, if I could. Linda, what was the incentive comp in the quarter versus a year ago? I might have missed that. And then also, if I could just sneak this in, what percent of your high yield rating is outstanding, Ray, or say B3 and lower, as you talked about earlier?

Linda Huber -- Executive Vice President and Chief Financial Officer

Craig, let me start with incentive compensation. For the fourth quarter 2017, we got about $72 million. That was up from $59.6 million last year, so call it around a $12 million increase, 20% increase or so. And Ray may --

Ray McDaniel -- President and Chief Executive Officer

Yeah. With respect to B3 and below, I don't have a number for you off the top of my head. If we can find a number during the call, we'll be happy to get back on and quote it.

Robert Fauber -- President of Moody's Investors Service

The one thing I might say, though, is that the number of B3 and below credits is a good bit lower now than it was in 2016, which was actually at an all-time high. So we've seen that proportion decline. I just don't have the absolute percent on hand.

Craig Huber -- Huber Research Partners -- Analyst

Sorry, I was just going to ask, so it sounds like, though, you guys don't think this interest expense deductibility issue from the tax reform is going to have a material impact on your high yield piece of your business, is that a fair statement?

Ray McDaniel -- President and Chief Executive Officer

No, I think that is a fair statement. It's a headwind, but it's not a tremendously strong one, in our opinion.

Ray McDaniel -- President and Chief Executive Officer

And Rob was just telling me that B3 and below was about 14%, 15% of our spec grade.

Linda Huber -- Executive Vice President and Chief Financial Officer

And Craig, it's Linda. I just wanted to speak a little bit more about incentive compensation because I think the detail would help. We had some very lumpy quarters for 2017. Incentive comp went $52 million, $51 million, and then the third quarter was $83.4 million, and then about $77 million in the fourth quarter. Within the third quarter, we added to incentive compensation $5 million of profit sharing for the employees worldwide and $5.5 million in the fourth quarter. So, profit sharing requires that we put up some pretty good numbers in order to have that take effect, but again, a total of $10.5 million for profit sharing, which falls into incentive compensation for the third and fourth quarter.

If you were looking to model this for next year, for '18, we're kind of thinking maybe $50 million-ish as incentive compensation kind of returns back to more normal numbers. But again, if we put up really big numbers, the incentive compensation number does move up. Conversely, if we miss, the incentive compensation number comes down as the bonus pools take the first hit. So, just wanted to make sure you understood the lumpiness there.

Craig Huber -- Huber Research Partners -- Analyst

Understood. Thank you.

Operator

We'll go next to Joseph Foresi with Cantor Fitzgerald.

Joseph Foresi -- Cantor Fitzgerald Securities -- Analyst

Hi. And Linda, congratulations on a good run, and best of luck.

Linda Huber -- Executive Vice President and Chief Financial Officer

Thanks.

Joseph Foresi -- Cantor Fitzgerald Securities -- Analyst

Just to be clear about what's in the issuance guidance. So, we're expecting no change to issuance from the tax reform at the corporate level, and you've built in some expectations for at least a couple of interest rate increases. Is that a fair way of thinking about it?

Ray McDaniel -- President and Chief Executive Officer

Yes. We certainly are expecting interest rate increases this year. And there are puts and takes to the tax reform. Obviously, there's going to be repatriation of cash. There are the interest deductibility caps. But at the same time, we think that this is going to support stronger economic activity, possibly mergers and acquisitions activity boost, and investment back in business growth and business expansion. So, it's really gonna depend on how those puts and takes balance out against each other over the year.

Linda Huber -- Executive Vice President and Chief Financial Officer

And Joe, it's Linda. If you look at the futures, I think the markets are looking, as I said, for three interest rate increases, with the first in March, with an 80% plus probability on that. It's pretty important, though, that potential investors in Moody's take a look at times when this has happened before, and we'd point you back to our investor deck. We've had periods where rates have gone up more than 100 basis points in a year. We often cite 2008 to 2009, when rates went up 100 basis points, and then 2012 to 2013, when rates went up 120 basis points. As Mario Draghi had said, he'd do what it takes to hold the euro together. In both of those periods, MIS revenues went up. So, it's very important to understand, as Ray had said, that growth is a very positive condition for Moody's, and we haven't had the synchronous growth for quite a long time. So, for us, if things move along as they are predicted to do, this could be very, very helpful for us, but we're gonna to see how things pan out, and of course, the present volatility is something we're keeping a close eye on. But as Robert said, the bond market's reaction to all of that has seemed to be relatively subdued as compared to the equity market's volatility. So, hope that helps you a bit.

Joseph Foresi -- Cantor Fitzgerald Securities -- Analyst

Got it. And then as my follow-up, just as a point of clarification, how has issuance been at the beginning of this year with the markets kind of moving around a little bit? And maybe, if I could sneak one more in, how's the competitive positioning of BVD within MA? I think you talked about some takeaway wins last quarter? Thanks.

Ray McDaniel -- President and Chief Executive Officer

I was just gonna say, Rob, do you want to tackle the first part?

Robert Fauber -- President of Moody's Investors Service

Yeah. I think in general, we've seen issuance in line with our expectations, but specifically very recently in regards to the recent volatility. I mean, first of all, many of the issuers are in a blackout period, so this is normally a little bit lighter period of issuance. In general, obviously rates are up, spreads have widened a bit, but I would say that the pipelines look steady and that's -- everything that I'm hearing indicates that, as Linda said, the market, the bond market took this a bit in stride. If you think about the spreads, they did move out about 25 basis points, but they were at kind of four-year tights before they did that. In the U.S., we've seen a deal or two postpone, and I would say those were on the more aggressive end of structures. We've also seen some sizable deals get done this week and in this market, one recently for some acquisition financing. I think the general view is still constructive, at least that's what we're hearing now, and issuers, I think, will continue to come to market if they have a financing need. What we may see is some of the opportunistic issuance taking a bit of a pause to wait on the market to digest some of this volatility.

And in Europe, I think, a pretty similar story. You've got investors with very robust cash levels. The debt markets, I'd say they are perhaps being a bit more selective, but again, a pretty constructive tone, is what we're hearing. The loan market there, a little bit slower to react to this volatility, and we're seeing continued flow of primary issuance in the loan market. And you know that last year was quite a strong year of issuance in the European loan market.

Ray McDaniel -- President and Chief Executive Officer

And unlike 2017, but like earlier years when we get volatility like this, I think it's particularly important to keep an eye on the pipelines, because issuers will wait for relative periods of calm and then they would be poised to go opportunistically, so the pipeline's become a very important indicator for the future health of the market. Mark, did you want to comment on BVD?

Mark Almeida -- President of Moody's Analytics

Yeah. Could you repeat the question, please? I just want to make sure I'm being responsive.

Ray McDaniel -- President and Chief Executive Officer

It looks like we lost Joe. Joe, can you get back on? Oh OK, sorry, go ahead.

Joseph Foresi -- Cantor Fitzgerald Securities -- Analyst

I think last quarter, you had talked about some competitive takeaways now that you had MA and BVD together, and so I was just curious if you could give us an update on what's happening in the competitive environment as you go after some market share with the two companies now together?

Mark Almeida -- President of Moody's Analytics

Sure. It is still -- frankly it's still relatively early days for us to execute on some of the plans we had and what we could do together with Bureau van Dijk, but we're making good progress on some joint product development efforts. Again, there were some products that we had planned to build and launch in Moody's Analytics that Bureau van Dijk already had a reasonably well-developed product in that area. And so, we've been working together with them to complete the build-out of that product and add some of the additional features and enhancements that we had planned to create independently. So, we will be going to market with that product early this year, and we feel very positive about the opportunity and the prospects there.

Joseph Foresi -- Cantor Fitzgerald Securities -- Analyst

Thank you.

Operator

And we'll go next to Tim McHugh with William Blair & Company.

Tim McHugh -- William Blair & Company -- Analyst

Hi. Just to follow up on that, if you're willing, I guess, any sense for the underlying growth rate of Bureau van Dijk kind of on a pro forma basis, I guess, in the fourth quarter and kind of what you're thinking about going forward into 2018?

Ray McDaniel -- President and Chief Executive Officer

Yeah. Tim, what I'd say is that Bureau van Dijk has historically been growing at high single-digits, low double-digit kinds of rates. And in the back half of 2017, after the acquisition, we saw sales growth at those kinds of rates, and we see that momentum flowing into 2018, and that's sort of inherent in our outlook for the business and its contribution to MA overall. So, we see the business continuing to perform well, at or maybe a little bit above the overall Moody's Analytics growth rate.

Tim McHugh -- William Blair & Company -- Analyst

Okay. Great. And I know it's a smaller piece, but professional services, it's ticked up lately and the guidance is good. I imagine currency is impacting that a bit, but is there a story, I guess, to the improved performance there lately?

Ray McDaniel -- President and Chief Executive Officer

Yeah. The story, Tim, is that we've got two pieces of that business, our knowledge services business, where we outsource our research and analytical staff from our platform in India to our clients around the world, and then our training and education business. Both of those businesses struggled a bit over the last couple of years. But we've done a number of things operationally to get them on track, and early in '17 or mid-year '17, they both sort of turned it around, and we're starting to see good results coming out of both of those product lines. Customer attrition is down, new business production is up. So, we're seeing good progress and good momentum in both of those businesses. You're also quite right. Both of those businesses, particularly the training business, we're seeing some benefit from FX there as well. But generally, we think we have two good turnaround stories there, and we're optimistic going into 2018.

Linda Huber -- Executive Vice President and Chief Financial Officer

Tim, it's Linda. Just a quick follow-up on that. Earlier in 2017, we turned over the Max business, which I had been running for two years, to get it up to SOX compliance standards for U.S. public companies. We turned that over to someone from the sales organization in Mark's organization. And quite frankly, we've seen very nice results on the sales front as we've done that. Now, the business is operating very nicely within the Moody's framework and quite safely with an interesting journey from an Indian -- two Indian private companies to a U.S. public company standard. And then Mark's team has really turbocharged that on the sales front. So, that has been a happy story, and thank you for noting that change.

Tim McHugh -- William Blair & Company -- Analyst

Thank you.

Operator

And we'll go next to Alex Kramm with UBS.

Alex Kramm -- UBS Securities -- Analyst

Oh hey, hello everyone. I'm going to go back to the beginning when Rob, I think, mentioned the strong issuance last year and how that could lead or should lead to higher recurring revenues in MIS this year. Can you put a little bit more meat around that? I think in past years when we've had strong issuance, I've seen that monitoring fees up in like the high-single digits and obviously FX helped that too. So, is high-single digits kind of what we should be thinking about on the recurring MIS side here, or could it even be better? Any color?

Robert Fauber -- President of Moody's Investors Service

Yeah, I don't think we typically guide on that, but we have seen an acceleration of the growth rate of the recurring revenue over the last few quarters. And again, it's the -- yeah, just because we have issuance doesn't necessarily mean we're going to have growth in recurring revenues, because that issuance fee comes from existing issuers. So, you really have to look at the growth of the first-time issuers, first-time mandates, and that really is, I think, the best future indicator of recurring revenue growth.

Ray McDaniel -- President and Chief Executive Officer

Yeah, and you'll recall that we had a little over 1,000 new rating mandates in 2017 and that rolls forward into monitoring a relationship on a going-forward basis.

Alex Kramm -- UBS Securities -- Analyst

Great. Thank you. And then just switching to BVD also for a minute here. Now that you've owned the company for a few months, I guess, you've gone through a few renewals of clients. So, can you just tell us about the pricing opportunities you have seen as you renew? And then related to that, is there actually seasonality in renewals or any seasonality you would call out as we think about modeling '18 for BVD or RD&A combined now?

Ray McDaniel -- President and Chief Executive Officer

Yeah. Well, let me take the first part, or the second part first, Alex. No, there is not any particular seasonality in the underlying business. So, I don't think you need to really think about that too much. And then on the business generally and the opportunities there, the business is performing well. We have a Moody's Analytics executive now running the business and applying some of our processes and practices to the Bureau van Dijk business. But it's a good solid business and it continues to perform very well. It's not as though it was broken to begin with. But we do continue to see some substantial opportunities for us on the cross-selling side, on the product development side, as we share content between Bureau van Dijk and Moody's Analytics and with regard to pricing. So, we have -- candidly, we have not hit that particular lever real hard just yet, but we'll continue to look at that, and we'll look at that in the context of the other work that we're doing on the product development side.

Alex Kramm -- UBS Securities -- Analyst

Very helpful. Thank you.

Operator

We'll go next to Vincent Hung with Autonomous.

Vincent Hung -- Autonomous Research US -- Analyst

Hey. Just one for me. So if the sales around high rates persist, would you expect maybe an acceleration of issuance from pre-funding of late '18 and '19 maturities?

Ray McDaniel -- President and Chief Executive Officer

No, we're not counting on a lot of pull forward from '19 into '18. It's -- in our view, the positive side of the story is really going to be around economic growth, business expansion, borrowing for business expansion, and around M&A. So, that's where we look for the upsides more than pull forward from '19 or even '20.

Vincent Hung -- Autonomous Research US -- Analyst

Thanks.

Operator

We'll go next to Conor Fitzgerald with Goldman Sachs.

Conor Fitzgerald -- Goldman Sachs -- Analyst

Good afternoon. Just one on the potential impacts of an infrastructure bill to your business, as we potentially at least maybe see a bill make its way through Congress. What will be the key provisions you'll be watching that could indicate whether it's gonna have a meaningful impact on your business or potentially not much at all?

Ray McDaniel -- President and Chief Executive Officer

Yeah. I mean, we've certainly seen the media coverage on the infrastructure bill. It should have a potential positive impact on our PPIF business. But of course, that depends on how the final legislation is actually structured. And to the extent that it would allow for use of tax-exempt bonds to finance infrastructure projects, that could increase the sale of debt. So, that would be a positive. Rob, do you have anything to add on that?

Robert Fauber -- President of Moody's Investors Service

Yeah. I have a few things to look for, I mean, obviously, there's been some discussion about the infrastructure bill. Talking about $1.5 trillion, not large in the overall scheme of the U.S. economy, but it would be an increase, I think a significant increase over the current level of infrastructure spending in the United States. And I think we've done well to look at the mix of federal versus state and local funding to understand how that will have an impact on how that translates into issuance. And then another topic is around regulatory approvals and timeframes, and how long will it take this infrastructure investment to actually make it to the market. I know there's been some discussion about shortening those approvals, but some are at the federal level and others are at the state and local level.

Conor Fitzgerald -- Goldman Sachs -- Analyst

That's helpful color. Thanks. And just wanted to ask on the cash position and how to think about the leverage in the business. Just post tax reform, any thoughts around changing how you think about how levered Moody's should be, just given you convert a higher percentage of your EBITDA into actual cash income? And then just on the debt pay-down, I was looking at your guidance for $1.6 billion of free cash flow, looking at $500 million for dividends and buybacks, $500 million for debt pay down, and then CapEx another $120 million, it still feels like you've got some extra dry powder there. So, just wondering how to think about how that could get deployed?

Linda Huber -- Executive Vice President and Chief Financial Officer

Yeah, it's Linda. I think we intend to proceed, as we had said, on our ratings level and our leverage levels. We don't like to be right at the edge on any of those things. But your observation is correct. We probably have a few hundred million dollars of potential additional dry powder if things continue as we're seeing now, which we could potentially use in another way. In terms of what we're gonna do with interest pay down, and then I'll let Ray add some further observations to this, we've got an additional $39 million in interest expense from BD throughout 2018. That addition is $11 million in the first and second quarter, and it kind of ramps down to $9 million and then $8 million in the third and fourth quarter. So, probably going to prepay the most expensive debt first, as you would probably imagine. So, that's how you can probably take a shot at modeling that. But it was sort of like our leverage levels. We like to remain consistent and with a little bit of luck, we'll do perhaps a bit better than we had expected. We could de-lever a bit more quickly or have a little bit more dry powder, and maybe Ray would like to expand on that.

Ray McDaniel -- President and Chief Executive Officer

No, the only thing I would add is to the extent that we are able to de-lever ahead of what we had previously been anticipating, we certainly would go back and look at our capital policy and how we want to handle that.

Conor Fitzgerald -- Goldman Sachs -- Analyst

That's helpful. Thank you for taking my questions.

Operator

We'll go next to Shlomo Rosenbaum with Stifel.

Shlomo H. Rosenbaum -- Stifel, Nicolaus & Co., Inc. -- Analyst

Hi, good morning. Thank you for -- or good afternoon, thank you for squeezing me in here. First question, just, Linda, would you be able to bracket the tax impact on free cash flow through the tax legislation?

Linda Huber -- Executive Vice President and Chief Financial Officer

Sure. We were able to, for '18, add about $150 million to free cash flow from the reduction in the tax rate, which is helpful. Might be interesting, Shlomo, to take a look at the increase in our '18 adjusted diluted EPS guidance. And we're moving from, if I've got this right, about $6.07 to a midpoint of a little over $7.70. I think what we have there is about $0.65 of that from U.S. tax reform, about $0.40 each from BVD and the business, and maybe $0.15 coming from FX and other things. So, $0.80 of our increase there is really coming from our business and the acquisition, $0.55 from tax reform, and the rest from FX. In terms of the operating margin expansion, we've still got the question about how much of that is from FX. So, if you look at that 70 basis points, only 10 basis points is from FX. So we're doing most of that the hard way. So, I hope that all of that is helpful to you in thinking about where we're going with 2018.

Shlomo H. Rosenbaum -- Stifel, Nicolaus & Co., Inc. -- Analyst

Okay, great. And thanks, just as a follow-up, just a little on BVD. They're -- a prime competitor of theirs in Benelux was DNB, and they sold that business to a private investor about a year and a half ago. Was there any change in competitive environment back then? I mean one of the reasons they sold was because they were being challenged by BVD. I wanted to know if the old DNB business has become more competitive for you guys over there.

Ray McDaniel -- President and Chief Executive Officer

Bureau van Dijk has a terrific market position in Europe and has for a very long time. We have not seen any meaningful change to the competitive situation there, which is not to say that there isn't competition, but we feel that we're very, very well positioned. We feel good about where we are.

Shlomo H. Rosenbaum -- Stifel, Nicolaus & Co., Inc. -- Analyst

Okay, great. Thank you very much.

Operator

And we'll go next to Bill Warmington with Wells Fargo.

William Warmington -- Wells Fargo Securities -- Analyst

Good afternoon, everyone. So, Linda, I just wanted to say phenomenal run, congratulations, and I look forward to when our paths cross again.

Linda Huber -- Executive Vice President and Chief Financial Officer

Thanks, Bill.

William Warmington -- Wells Fargo Securities -- Analyst

I wanted to ask a question on RD&A. You'd talked about the strong organic growth there and some of the drivers, a nice pickup in the core research business. You also highlighted two to three points coming from one-time projects, and you also mentioned the BVD deferred revenue adjustment. So I'm trying to weigh those pieces and I want to ask for your help in terms of how I should think about the constant currency organic revenue growth for RD&A, normalized for all these things kind of going forward.

Ray McDaniel -- President and Chief Executive Officer

Yeah, I guess, Bill, going forward, I think you can think about the underlying legacy business performing at high single-digit kinds of rates. We've got a number of things that boost the overall results. We've got the addition of Bureau van Dijk. We've got the FX, impact which takes us up from there.

William Warmington -- Wells Fargo Securities -- Analyst

Got it.

Ray McDaniel -- President and Chief Executive Officer

Is that helpful?

William Warmington -- Wells Fargo Securities -- Analyst

So, well, not to put words in your mouth, but it sounds like once you've normalized for the factors, kind of as you're exiting 2018, it sounds like you're going to be like low-teens, maybe mid-teens, as kind of an organic growth on that piece. Is that the way to think about it, or am I missing it?

Ray McDaniel -- President and Chief Executive Officer

That sounds a little high, Bill. I'm not sure how you did that.

William Warmington -- Wells Fargo Securities -- Analyst

Okay. Fair point. All right. And then on the -- one last question there for my follow-up on the low single-digit growth on ERS. Maybe give us some color there in terms of what's driving that.

Ray McDaniel -- President and Chief Executive Officer

Yeah, a continuation of the story we've been talking about for a while there, and I guess there are really two pieces to it. There's the very intentional product strategy that we're pursuing, where we've -- we're moving away from a business that was driven rather substantially -- where growth was driven rather substantially by lots of one-off project works that we were doing as large customers were asking us to install our software and configure it in a highly bespoke manner for them. We were moving away from that business. Now that we've established what I think is a pretty strong market position, moving away from that very customized kind of business to delivering much more standard product, where we can sell a larger number of units, ideally on a subscription basis, and reduce the amount of low margin services work that we're undertaking. So, we've got the services business declining, very intentionally. We're taking on less and less of that work, and the product business is growing at a good clip. But as we make this transition from a services-led business to a product-led business, we have this period where the decline in services is offsetting the growth in profit. As we work through that more this year, that situation will start to stabilize, and then we'll be growing off of a more stable base as we move into '19.

So, that's one part of the story which I guess I would characterize as the idiosyncratic part of the story. And then the market part of the story is that ERS was growing very, very well over the last number of years through 2016, driven heavily by new regulation that banks were dealing with around capital adequacy and liquidity and stress testing, etc. That regulatory wave has matured. We don't see nearly as much new regulation being placed on banks with respect to those kinds of issues. So ,the regulatory driver of demand has dissipated. And so, we're also dealing with a softer market environment at the same time that we are executing the shift in product strategy. So, we have two things going on that is constraining growth in the ERS business.

Linda Huber -- Executive Vice President and Chief Financial Officer

Hey Bill, it's Linda. Also, in terms of other things we're doing to make Mark's life a little bit more tricky, you may've heard about the new accounting standard, Revenue Recognition Standard 606. We have to bifurcate software subscription licenses. That requires a lot of accounting work to reclassify some of these things. And near term, that's going to add a little bit more volatility, maybe a 1% negative, on MA's overall results in 2018 as we move through that. That should smooth out as we get later on in the year, pretty technical set of changes, but just wanted to let you know that that is going on, and it's something that all software companies have to adopt. You'll be seeing more of that, detail on that as we release our 10-K.

William Warmington -- Wells Fargo Securities -- Analyst

Got it. Well, thank you very much.

Linda Huber -- Executive Vice President and Chief Financial Officer

You're welcome.

Operator

And we do have a follow-up question from Craig Huber with Huber Research Partners.

Craig Huber -- Huber Research Partners -- Analyst

Yes. Hi. Can you just flesh out a little bit, if you would, this very strong growth here in the fourth quarter in financial institutions, and obviously for the year as well in 2017, you're looking for, I guess, up mid-single-digit revenue growth in that segment this upcoming year. So, decent growth on top of a stellar year, just what's going on there, please? Thanks.

Ray McDaniel -- President and Chief Executive Officer

Yeah, I mean, a large part of the story was the interestingly titled issuance from infrequent issuers in the fourth quarter, and that was -- there was strength in that outside the U.S. as well as inside the U.S. Rob, I don't know if there's more detail you have on that.

Robert Fauber -- President of Moody's Investors Service

Yeah, that's right. I mean, in the U.S., it was across banks, insurance companies, cards, securities brokerages. In Europe, really driven by this continued issuance as part of the move toward building levels of available capital as part of TLAC and the resolution regimes in Europe. So, that's been kind of a full year trend. And in Asia, we saw some good issuance from Chinese asset management companies, ASEAN. And we even saw some good issuance activity from our affiliate in Korea, where there was a good bit of issuance from subsidiaries of foreign banks. So, like Ray said, a lot of issuance that tended to come from issuers who aren't hitting the markets frequently. As you know, Craig, there's a more relationship-based construct. And we expect the -- you can see in our guidance, we would expect to move back to something that looks more like that in 2018.

Craig Huber -- Huber Research Partners -- Analyst

Thank you.

Operator

And that concludes today's question-and-answer session. Mr. Ray McDaniel, at this time, I'll turn the conference back to you for any additional or closing remarks.

Ray McDaniel -- President and Chief Executive Officer

Okay. Just want to thank everyone for joining the call today and we look forward to speaking with you at Investor Day on February 28th. Thanks again.

Operator

And this concludes Moody's fourth quarter and full year 2017 earnings call. As a reminder, immediately following this call, the company will post the MIS revenue breakdown under the fourth quarter and full year 2017 earnings section of the Moody's IR homepage. Additionally, a replay of this call will be available after 3:00 PM Eastern Time on Moody's IR website. Thank you.

Duration: 84 minutes

Call participants:

Steve Maire -- Global Head of Investor Relations and Communications

Ray McDaniel -- President and Chief Executive Officer

Linda Huber -- Executive Vice President and Chief Financial Officer

Mark Almeida -- President of Moody's Analytics

Robert Fauber -- President of Moody's Investors Service

Toni Kaplan -- Morgan Stanley -- Analyst

Peter Appert -- Piper Jaffray -- Analyst

Anj Singh -- Credit Suisse -- Analyst

Manav Patnaik -- Barclays Capital, Inc. -- Analyst

Jeffrey Silber -- BMO Capital Markets -- Analyst

Craig Huber -- Huber Research Partners -- Analyst

Joseph Foresi -- Cantor Fitzgerald Securities -- Analyst

Tim McHugh -- William Blair & Company -- Analyst

Alex Kramm -- UBS Securities -- Analyst

Vincent Hung -- Autonomous Research US -- Analyst

Conor Fitzgerald -- Goldman Sachs -- Analyst

Shlomo H. Rosenbaum -- Stifel, Nicolaus & Co., Inc. -- Analyst

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