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Moody's Corp (NYSE:MCO)
Q2 2020 Earnings Call
Jul 31, 2020, 8:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day and welcome, ladies and gentlemen, to the Moody's Corporation Second Quarter 2020 Earnings Conference Call. [Operator Instructions]

I will now turn the conference over to Shivani Kak, Head of Investor Relations. Please go ahead.

Shivani Kak -- Head of Investor Relations

Thank you. Good morning, everyone, and thanks for joining us on this teleconference to discuss Moody's second quarter 2020 results as well as our outlook for full year 2020. I'm Shivani Kak, Head of Investor Relations. This morning, Moody's released its results for the second quarter of 2020 as well as our outlook for full year 2020. The earnings press release and a presentation to accompany this teleconference is 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 Mark Kaye, Moody's Chief Financial Officer. During this call, we will also be presenting non-GAAP or adjusted figures. Please refer to the tables at the end of our earnings press release filed this morning for a reconciliation between all adjusted measures mentioned during this call and GAAP. 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 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, 2019, our quarterly report on Form 10-Q for the quarter ended March 31, 2020, and in SEC filings made by the company, which are available on our website and on the SEC's website. These, together with the safe harbor statement, set forth important factors that could cause actual results to differ materially from those contained in any such forward-looking statements. I would also like to point out that members of the media may be on the call this morning in a listen-only mode.

I will now turn the call over to Ray McDaniel.

Raymond W. McDaniel, Jr. -- President and Chief Executive Officer

Thanks, Shivani. Good morning and thank you, everyone, for joining today's call. I will begin by providing a general update on the business, including Moody's second quarter 2020 financial results. Mark Kaye will then provide further details on our second quarter performance and also comment on our revised outlook for 2020. After our prepared remarks, we'll be happy to respond to your questions. I want to start off by both acknowledging that the strength of Moody's has always been in our people and reiterating our appreciation for the hard work and dedication of our employees around the world. During this challenging time, we remain committed to our corporate social responsibility efforts as we and the rest of the world deal with both the global COVID-19 pandemic as well as civil unrest. Our mission to provide trusted insights and standards that help decision-makers act with confidence has never been more relevant, and our operating results reflect that. Echoing the first quarter, Moody's strong second quarter was once again driven by robust top line growth at Moody's Investor Service as issuers sought liquidity and opportunistic refinancing amid broadly receptive credit market conditions.

Also aligned with our long-term strategy, we continue to build toward the future as we embrace our sustainability efforts and develop new products and solutions that meet the evolving needs of our customers. As the second quarter exceeded our expectations, we are raising and narrowing our full year 2020 adjusted diluted EPS guidance range to $8.80 to $9.20, while still expecting debt issuance to taper in the second half of the year. Amidst the global pandemic and with the emergence of civil unrest focused on racial equality, the safety and well-being of our employees remains Moody's top priority. We are committed to providing a safe work environment for everyone. As such, we have been conducting awareness and training campaigns and encouraging our employees to speak out and engage with each other on these important topics. We are also building better programs to attract, retain and advance black talent. We pride ourselves on being an inclusive firm where diverse viewpoints lead to better decisions and where everyone's contributions matter. On our prior earnings call, we noted how our early adoption of technology enabled us to transition smoothly to a virtual environment. We are building on this experience by working with our employees to design our future workplace models.

We believe this approach will enable us to attract and retain the best talent, not only in locations in which we have a presence, but potentially anywhere. Moody's strives to be a constructive force in all of the communities in which we operate. We mentioned in our prior earnings call that in response to COVID-19, we made our research, insights and certain products accessible to the public at large, including our customers and policymakers. These offerings within the first half of the year translated into about $12 million of in-kind contributions. In addition, we've committed $1 million to promote equal justice and the advancement of the black community while also increasing financial support for our partners focused on empowering black-owned businesses and enhancing diverse recruiting. Finally, before I get to the results for the quarter, I would like to draw your attention to the recent announcement made on the enhancements to our environmental sustainability program. As part of this effort, we have committed to remaining carbon neutral, agreed to procure 100% renewable electricity and set science-based targets for reducing our greenhouse gas emissions. Through these commitments, we are proud to further Moody's purpose to bring clarity, knowledge and fairness to an interconnected world.

Moving on to second quarter 2020 results. Moody's achieved a robust 18% increase in total revenue, with 27% growth from MIS and 5% growth from MA. Moody's adjusted operating income of $766 million was up 28% from the prior year period. Strong revenue growth, combined with ongoing discipline and expense management, drove 410 basis points of adjusted operating margin expansion. Adjusted diluted EPS of $2.81 was up 36%. I will now provide an update on the credit markets in the second quarter. The pandemic has had a significant negative impact on the global economy, resulting in widespread unemployment, negative global GDP estimates and other recessionary conditions as countries shut down their economies in order to contain the spread of the virus. This morning's reported second quarter U.S. GDP contraction of nearly 33% is a stark reminder of this. To mitigate the economic impact, governments have undertaken unprecedented global monetary easing efforts and fiscal actions which have thus far enabled supportive fundamentals and robust activity in the credit and equity markets. Most recently, we've observed the EU proposal to raise debt to fund the EUR750 billion stimulus plan to aid its member nations hardest hit by the pandemic. In the U.S., the Federal Reserve has extended its emergency support facilities to the end of the year, and the U.S. government is in discussions to extend fiscal stimulus measures. As the credit markets continued to read through severe economic stresses and governments quickly took actions to mitigate them, the dichotomy with the real economy remained. Investment-grade issuers responded to economic uncertainty by shoring up their balance sheets with record levels of bond issuance.

Additionally, after being inactive for most of March, high-yield bond issuance surged as spreads tightened. The leveraged loan market reopened but has been slower to recover. Looking toward the second half of the year, we expect issuance to moderate as many countries and institutions have completed their balance sheet and liquidity strengthening initiatives, and governments may see less of a need to intervene in support of their economies. As I just noted, given uncertain economic conditions, companies look to bolster their balance sheets in the first half of the year while capital markets were receptive. As you can see from the chart, working capital and debt refinancing became more prominent drivers of issuance, whereas mergers and acquisitions has historically been a more often cited use of funds. This rush to liquidity also helped to explain the dichotomy between the performance of the economy and capital markets as many issuers took advantage of low rates to create fortress-like balance sheets to help see them through this period of uncertainty and stress. I'd like to further highlight second quarter issuance, specifically within the corporate finance sector. As you can see, second quarter corporate investment-grade issuance was up significantly, together with solid high-yield supply, but bank loans continued to lag. This mix caused the rate of corporate finance issuance growth to outpace transactional revenue growth due to larger, more frequent issuers coming to market.

Despite this headwind, issuance growth was beneficial to our operating results, and MIS exhibited significant top line growth, which Mark will discuss further. COVID-19 has had wide-reaching impact on nearly every sector of our global economy. In the second quarter, the default rate rose, and as Mark will touch upon later, our guidance assumes it will continue to do so through the end of the year. During these turbulent times, the quality and consistency of ratings becomes even more important. Therefore, investors look for transparent methodologies that follow a measured, thoughtful and systematic approach. Moody's processes ensure that we are consistent and rigorous in delivering our rating opinions and research. Our starting point is to assess and rank the impact of an event, such as COVID-19, and what it has on various sectors. This then flows through to the underlying issuers, as shown in the chart on the bottom left, which list the most impacted sectors and the percentage of issuers downgraded within each of those sectors. It is important to note that ratings quality remains MIS' top priority, and we continually strive for exceptional ratings performance. As you can see from the graph on the bottom-right corner, Moody's ratings have performed very well on an ordinal ranking basis with lower-rated debt exhibiting higher default rates for the trailing 12 months as of the end of June 2020.

Through Moody's long history of ratings quality, investors have come to expect our ratings to look through the credit cycle so that in uncertain times like these, investors can compare ratings not just by issuer but also over time. Turning to MA. I want to update you on how the business continues to adapt to the current environment. Last quarter, we discussed how COVID-19 could impact our customer renewals and new sales activity. We are encouraged by the observed trends in both of these categories as they are proving to be better than expected. MA's retention rates remained strong at 94%, demonstrating the relevance of our products during times of stress, while sales grew despite the lack of in-person meetings, providing us with momentum as restrictions begin to ease outside the U.S. Looking toward the sales pipeline for the second half of 2020, we are more optimistic than in our prior outlook as compliance and accounting products have provided better-than-expected growth opportunities despite current headwinds. Throughout this challenging time, we've remained focused on our customers' rapidly evolving needs for integrated and holistic risk solutions. This slide highlights some of our second quarter innovations and enhancements that increase the collective value of our offerings. I will focus on the recent additions and improvements to our ESG and climate product suite as well as the new Pulse tool. Thought leadership in ESG and climate risk remains a key strategic priority for Moody's as its importance for our customers continues to grow, and we are encouraged by the demand for these products. In the first half of this year, Vigeo Eiris completed 29 issuer paid sustainability ratings, 46 second-party opinions and nine sustainability-linked loan assessments.

During the second quarter, Vigeo Eiris launched its enhanced second-party opinion service, which enables more impactful issuer communications and provides increased transparency for investors. We are also excited to announce that through partnerships with Euronext and Solactive, we continue to build our presence serving the index space, including the creation of the new Euronext ESG80 and Solactive VE Developed Markets ESG Quality Indices, which use Vigeo Eiris data to screen its constituents. In addition to these new ESG and climate risk initiatives, we are further integrating Vigeo Eiris and Four Twenty Seven content into multiple MA platforms, including moodys.com and REIS, which should provide additional channels for exposure and monetization. Moving on to Pulse. This tool was launched by the Moody's Accelerator to help our customers quickly consume and digest the ever-increasing news flow. Pulse utilizes machine learning and natural language processing to gauge sentiment around news, such as COVID-19, on a chosen company or sector, enabling investors to more quickly assess the impact of a news article on their portfolios. We continue to invest in these types of product innovations, which allows us to provide better value and insights to our customers to help them make better decisions.

I will now turn the call over to Mark Kaye to provide further details on Moody's second quarter results and our revised outlook for 2020.

Mark Kaye -- Chief Financial Officer

Thank you, Ray. In the second quarter, record investment-grade activity drove MIS revenue growth of 27% from the prior year period as issuers look to ensure sufficient liquidity in addition to opportunistically refinancing their debt portfolios amid ongoing economic uncertainty. High-yield issuance also increased in the quarter as issuers took advantage of broadly receptive credit conditions. Strong activity in the fixed rate bond markets was partially offset by weakness in bank loans as investor demand remain muted for floating rate instruments in a low for long rate environment. Structured finance was the only line of business that experienced an overall decline in revenue, primarily due to a decrease in asset origination. Total MIS rated issuance growth of 53% exceeded total transactional revenue growth of 39%. As Ray noted, issuance mix was skewed toward large frequent issuers in corporate finance, and this was also the case in public, project and infrastructure finance. MIS adjusted operating margin expanded by 390 basis points as revenue growth significantly outpaced the increase in operating expenses. MA's second quarter revenue growth of 5% or 8%, excluding the impact of the MAKS divestiture and acquisitions, along with FX headwinds, demonstrated resilience as customers came to Moody's in search of integrated risk solutions. RD&A revenue grew 16% or 7% on an organic basis driven by strong demand for know your customer solutions as well as credit research and data feeds. In ERS, revenue grew 12% or 7% on an organic basis led by software sales of IFRS 17 products that enable compliance with new accounting standards for banks and insurers as well as credit assessment and loan origination solutions.

In the second quarter, the MA adjusted operating margin increased 50 basis points, primarily due to top line growth and ongoing expense discipline. Before I turn to our full year 2020 guidance, I will mention some of the macro assumptions that have changed since our last earnings call and which continue to shape our outlook for 2020. Notably, we have shifted the majority of our key directional markers from decelerate to accelerate, as shown on the right-hand side of the slide. We consider these markers in our updated base case scenario, which assumes a continuation of the nascent economic recovery into the second half of 2020 and nonlinear improvement in COVID-19 cases. Our macroeconomic assumptions include: 2020 U.S. and Eurozone GDP to decline approximately 6% and 9%, respectively; the U.S. unemployment rate to end the year at approximately 10%; benchmark interest rates to stay low with high-yield spreads remaining in excess of 650 basis points; and the high-yield default rate to rise to approximately 9%. As we head into the second half of the year, we will closely monitor both the macroeconomic backdrop and credit market activity that Ray highlighted previously. Moody's outlook for 2020 is based on assumptions regarding many geopolitical conditions and macroeconomic and capital market factors. These include, but are not limited to, the impact of the COVID-19 pandemic, the responses to the pandemic by governments, businesses and individuals as well as the effects on interest rates, foreign currency exchange rates, capital markets liquidity and activity in different sectors of the debt markets. Our assumptions also include general economic conditions and GDP growth in the U.S. and worldwide, on the company's own operations and personnel and additional items as detailed in the earnings release. 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 end of quarter exchange rates. Specifically, our forecast for the remainder of 2020 reflects U.S. exchange rates for the British pound of $1.24 and for the euro of $1.12. We have raised our full year guidance for most key metrics as compared to the prior forecast and now anticipate that Moody's revenue will increase in the low single-digit percent range. Our upward revenue revision outpaces that of our operating expenses, which we now expect to be approximately flat year-over-year. The resulting improvement in operating leverage supports our upwardly revised adjusted operating margin guidance from a range of 46% to 48%, 48% to 49%. We are reaffirming both the net interest expense and the full year effective tax rate guidance ranges of $180 million to $200 million and 19.5% to 21.5%, respectively. We have increased and narrowed the diluted EPS forecast to now be in the range of $8.15 to $8.55 and the adjusted diluted EPS forecast to now be in the range of $8.80 to $9.20. Free cash flow is now expected to be between $1.5 billion and $1.7 billion. The guidance assumes an anticipated restructuring program in the second half of 2020 around the rationalization and exit of certain real estate leases estimated to result in total pre-tax charges of approximately $25 million to $35 million and estimated annualized savings of $5 million to $6 million, respectively. For a full list of our guidance, please refer to Table 12 of our earnings release. For MIS, we anticipate full year revenue to increase in the low single-digit percent range and for rated issuance to grow in the low double-digit percent range. MIS' forecast assumes investment-grade activity for the full year increases 50%, up from our prior assumption of 10% growth. High-yield issuance increases 5%, up from a 20% decline. Bank loan issuance declines 20%, up from a 40% decline. And structured issuance declines 40%, in line with our prior expectations.

As Ray mentioned, after a record first half, we expect total issuance to moderate. Many issuers have fulfilled their near-term funding needs, some having come to market multiple times. As COVID-19 has been more impactful on first-time issues than anticipated, we have reduced our first time mandate forecast from 600 to 550. We also anticipate that M&A activity will remain constrained in the second half of 2020. Finally, we believe that there will be a lower proportion of infrequent issuer activity leading to a less favorable mix. The MIS adjusted operating margin is forecast to be in line with the prior year at approximately 58%. We are pleased to reaffirm MA's full year top line growth and margin improvement guidance due to its strong recurring revenue base and renewal activity. MA's revenue guidance reflects two to three percentage points of net unfavorable impact from the MAKS divestiture and FX, partially offset by growth from acquisitions. We continue to expect the MA adjusted operating margin to expand over 200 basis points in 2020 to approximately 30%, primarily driven by the ongoing transition to scalable subscription-based products and expense discipline. I would like to address our capital allocation approach given the current environment. Although performance in the first half of 2020 has been better than expected, there remains significant uncertainty for the remainder of the year. As such, we believe it is in the best interest of our stakeholders to continue to evaluate, at least for the time being, our share repurchase program on a quarterly and opportunistic basis.

As we consider the resumption of share repurchases in the future, we will closely monitor the COVID-19 pandemic and its effect on both our business and the broader economic environment. We will also closely review market indicators and volatility, along with the prospects for and certainty surrounding our free cash flow generation. Our overarching goals remain to concurrently ensure financial flexibility, effective liquidity management, strategic investments in our business and prudent allocation and return of capital to achieve profitable and sustainable long-term growth and value. Finally, our capital allocation levers remain unchanged. Before turning the call back over to Ray, I would like to highlight a few key takeaways. First, Moody's remains committed to investing in our business to support key stakeholders and demonstrating sustainable stewardship. Second, especially in times of uncertainty, the relevance of our rich product and service offerings increases, which is reflected in our second quarter performance. Last, given the strong first half and early signs of economic recovery, we are pleased to be able to upwardly revise our 2020 outlook.

I will now turn the call back over to Ray.

Raymond W. McDaniel, Jr. -- President and Chief Executive Officer

Okay. Thank you, Mark. This concludes our prepared remarks. And joining Mark and me in the virtual format for the question-and-answer session is Rob Fauber, Moody's Chief Operating Officer. We'd be pleased to take your questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question comes from Judah Sokel with JPMorgan.

Judah Sokel -- JPMorgan -- Analyst

Hi, good morning. Thank you for taking my questions. Wanted to start off by asking just about your outlook for MIS and embedded inside of that, your issuance outlook. You gave helpful color certainly on the changes to that guidance. I was hoping that maybe you could pull back the covers a little bit more just in terms of what you're expecting in so far as that tapering down of issuance. To what extent is this just a function of tougher year-over-year comps, how much pull forward you perhaps think that there was into the first half? And then thinking longer term perhaps, maybe that there's some sustainability in those higher liquidity-driven fortress balance sheet increases.

Mark Kaye -- Chief Financial Officer

This is Mark. What we'll do here is similar to what we've done in the past where I'll talk a little bit about issuance drivers that we're hearing from some of the banks, and then I'll turn it over to Rob to follow up with our internal viewpoint. Starting with the U.S. investment grade, the banks have seen record activity in the first half of the year with year-to-date issuance volumes already above full year 2019 levels. Early in the quarter, many issuers that came to market were toward the higher end of the investment-grade spectrum, but access broadened considerably when spreads tightened as a result of the Fed's liquidity programs. The main issuance drivers were liquidity and refinancing, as you mentioned. The latter of which was opportunistic in nature, in some instances, as issuers capitalized on low effective yields. For the remainder of the year, what we're hearing from the banks is that while market conditions remain favorable, many investment-grade borrowers have already issued at least once in the first half, and the M&A pipeline remains relatively light. Furthermore, I'd say the pandemic, the pace of economic recovery, the upcoming U.S. election and relationships between the U.S. and China continue to be prominent concerns as the banks have expressed. Looking forward, the banks are expecting a much lighter second half of the year. Nevertheless, for full year 2020, they expect U.S. investment-grade issuance to be up 40% to 50%.

And then just from my side, one item just to keep in mind is that for comparative purposes, the banks seeing investment-grade issuance are inclusive of financials. Moving on to U.S. speculative grade. Once activity resumed following the slowdown in March due to COVID-19, issuance recovered with a record second quarter. The Fed's expansion in scope of its asset purchases to include high-yield corporate debt was supportive of the market, and that helped spreads narrow considerably from the peak in late Q1. This, in turn, broadened market access and enabled a greater number of corporates at the lower end of the speculative grade to complete transactions. On the other hand, leveraged loans remain weak overall despite some positive bursts of issuance in the second quarter, and this was due to a significantly reduced M&A pipeline, lower levels of new CLO formation and a greater preference for fixed rate debt. Despite the improvements that the banks noted that they saw in the speculative grade market, they did have some concerns that remained around credit quality, default risk and secondary market volatility. For the full year, the banks indicate that U.S. high-yield bonds are expected to be flat to up 10% and that U.S. loans are likely to decline by approximately 20% to 30%.

Turning briefly to European investment grade. Year-to-date issuance volumes have been robust with record second quarter volumes as the market recovered from the COVID-19-related volatility in March. While monetary policy and increasing fiscal support have helped narrow spreads, they do remain well above pre-COVID-19 levels. Furthermore, low effective yields in the U.S. investment-grade market have made reverse Yankee issuance less attractive. And given the record supply in the first half of the year and the limited M&A pipeline, the banks expect a significant decline in issuance in the back half of 2020. For the full year, the banks forecast European investment-grade issuance to be within the range of flat to up 10%. And finally, European speculative grade has seen a mixed recovery following the market disruption in March, with improvement in high-yield bonds, while loans remained quite weak. Although spreads have tightened, they have not fully recovered from prior widening, and access to the market remains concentrated toward the higher end of spec grade. While there have been a few recent M&A announcements, in general, the banks believe the pipeline remains light. And with that, I'll hand it over to Rob to update you on MIS' issuance expectations.

Robert Fauber -- Executive Vice President and Chief Operating Officer

Thanks, Mark. And Judah, nice to have you on a call. So let me focus on what this means for our full year outlook for issuance, and in particular, what it implies about the second half of the year because I know that's an area of real interest to many people on this call. So as we indicated on the webcast, we're now looking at low double-digit growth and global-rated issuance for the year. And that implies issuance in the back half of the year is going to be down in the neighborhood of mid-teens percent versus the second half of 2019. The outlook that we've got for the second half of the year is pretty consistent with that actually, it's probably slightly more constructive than our outlook for the second half on our last earnings call. So what we've done is essentially taking the excess issuance from the second quarter into the forecast and maintained a fairly consistent outlook for the second half of the year. So let me just break it down by segment. Again, I know there's some interest in this. If you round numbers, we've done about $1 trillion in global investment-grade year-to-date. We expect that, as we said, to be up 50% for the year. That implies essentially flat for investment-grade corporates for the second half of the year. So what that really means then is that we're expecting essentially a business as usual environment like we had in the second half of 2019 for the investment-grade market. That's contrasted obviously to what we saw in several months here in the beginning of the year. There are a few things underpinning that. Obviously, all this significant opportunistic activity we've had.

Mark just took you through the bank outlooks. And I think our outlook is quite consistent with what you're hearing from the banks. And then finally and we've been signaling this since the beginning of the year, just the potential volatility in the second half around U.S. elections and any kind of second wave. On leveraged finance, we're slightly more constructive, as I think you saw from the numbers in the webcast deck, than we were back in the first quarter. But that said, we still expect both markets to be down meaningfully for the back of the year. And that's due to the all that surge in financing Mark touched on as well as the expectation of credit issuance Ray and Mark touched on our view in defaults. So we're looking for high yield to be up 5% for the full year, loans down 20%. On structured finance, looking at down 40%, and that is a little bit we've moderated that outlook a little bit since the first quarter. So we've taken that down just a little bit given what we're seeing in CMBS and CLOs just being very heavily impacted with a much softer investor bid there. And then finally, maybe just to add, U.S. public finance, that's been very active in the first half of the year, and we're looking for that to be up somewhere in the neighborhood of about 5% for the full year. I can talk about the drivers around that later.

Judah Sokel -- JPMorgan -- Analyst

That was great. Maybe just one quick follow-up just around MA margins. Just you guys reiterated your guidance for the top line and for margins, which implies that the back half is going to see a stronger year-over-year impact in terms of that margin. Maybe you could break down the components of what happened in 2Q margins and then really what's going to pick up in the back half as far as those MA margins are concerned.

Raymond W. McDaniel, Jr. -- President and Chief Executive Officer

Mark, do you want to take that?

Mark Kaye -- Chief Financial Officer

Thanks, Ray. In the second quarter, we reported margin expansion of 50 basis points from 28.2% to 28.7%. If I think about the breakdown of that, that's around 130 basis points of growth from core MA, primarily driven by RD&A, 90 basis points of growth from the MAKS divestiture, offset by some of the inorganic acquisitions. And then around 160 basis points of contraction from incentive comp true-ups and FX. As you noted, we have maintained our 2020 MA segment margin guidance of approximately 30%, which represents, I'd call it, around 250 basis points of margin expansion on a trailing 12-month basis from 2019. We do expect continued margin expansion over the longer term, but we may see pressure in the next 12 to 18 months, depending on the duration and severity of the ongoing COVID-19 economic impacts. And I'd go through maybe just a quick a few more points here. The plan for really MA margin improvement is to continue many of the initiatives that are already under way. So for example, first in ERS' ongoing transition to a Software-as-a-Service model, which is multiple benefits beyond just increasing recurring revenue. Second is the synergies between BvD and RDC. We previously mentioned strong growth we're seeing from BvD, and we have already said in past earnings call that we expect a nearly 20% CAGR for those compliant solutions in the combined BvD, RDC business. And then third is the increasing efficiencies across Moody's Analytics, and that's by a combination of new cost savings initiatives, increasing operating leverage as the business scale up, etc. So there are a number of things that we're doing to maintain and continue to grow margin over time.

Judah Sokel -- JPMorgan -- Analyst

Okay, thank you.

Operator

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

Alexander Kramm -- UBS -- Analyst

Yes. Hi, good morning everyone. I guess good afternoon. Just coming back to the MIS, and maybe this is for Rob or maybe for Ray. Obviously, you gave guidance last quarter, and the second quarter surprised a lot of people, right? So you're definitely too conservative, and that's not wrong. I mean unprecedented times. But if you look forward here, I mean, I guess, why should we have confidence in that outlook? And maybe to ask better, like, what are the areas where things could still fall significantly one way or another? Like what are the things that we should be watching the most where it could be different to the outcome?

Raymond W. McDaniel, Jr. -- President and Chief Executive Officer

Well, I'll just begin with a couple of remarks, Alex, and then let Rob jump in. But you're right, we were much too conservative about second quarter activity at the time of our prior earnings call. And that was in part an underestimation on our part of the scope of emergency support that would be coming from the government, extending down into the speculative grade area and really providing a lot of market confidence against what was happening in the real economy. And as we look forward, certainly, the extension of that emergency support and, again, the continuation of market confidence because of that could be one source of upside going forward. And that's in addition to the obvious things like creation of a vaccine sooner rather than later, the recovery of the economy taking on a sharper V-shape and really a return to confidence in business expansion that comes from that. Let me turn it over to Rob for any additional commentary. Rob?

Robert Fauber -- Executive Vice President and Chief Operating Officer

Yes. And Alex, maybe just to now kind of maybe tie it a little more specifically to how we're thinking about the issuance outlook and how you might think about upside and downside to where we are. A few areas, I think there could be some upside. There can be some more runway for non-U.S. issuers, and we've obviously seen enormous issuance in the United States. Very strong in Europe but not as strong as the United States. So there's the possibility we could see something there. Some sort of sustained run of supply in the leveraged finance market, fall in angel issuance, improvement in the outlook for the bank loan sector. M&A, we touched on that, down very sharply. I mean we're seeing levels that we haven't seen for years. Announced M&A is down something like 50% year-to-date. But there's the possibility that we could see some distressed M&A. There are some deals getting done. So any kind of uptick to the M&A environment would provide some upside. And then and this may not materialize in 2020. But if there were an infrastructure bill, if there were ultimately changes to the Tax Reform Act and the refunding restrictions that impacted the public finance market, like I said, that's probably a next year thing rather than this year. And then on the downside, I touched on it, but and Ray did as well. Potential second wave, increased defaults and credit stress that cause slippage in the leveraged finance markets and just, in general, again, more volatility around the elections than we've already anticipated. So that's kind of how we're thinking about the pluses and minuses.

Raymond W. McDaniel, Jr. -- President and Chief Executive Officer

And Alex, one area that could be a plus or a minus is the nature of the borrowing that has been going on and the question of whether it's pull forward or whether it's not. And so I think of that as what we've seen in the second quarter and what we probably will see in the second half of the year is what you might think of as a contingent pull forward in that as companies become more comfortable that they don't need to hold as much liquidity and hoard cash to the degree that they are currently, they could use that cash on the balance sheet to pay maturing debt. If they don't remain confident with the ability to use that cash, if they feel they need to hold dry powder back into the market, We don't know which way that's going to play out, but it's an important potential plus or minus.

Alexander Kramm -- UBS -- Analyst

Okay. Great. Mark, switching to you just very quickly, I guess. The restructuring that you're doing here on the real estate side, I mean, is this already making decisions around where workforce is going to be in the future, how your real estate is going to look coming out of this? And maybe very quickly related to that, what does this mean for REIS? I mean the obviously the real estate business if you're turning more negative on real estate, what is does that impact the business at all?

Mark Kaye -- Chief Financial Officer

Alex, thank you for the question. I would like to maybe first highlight that this real estate-related restructuring program is one aspect of the disciplined cost management that we've exhibited in this challenging environment. As we talked about in our prepared remarks, our adoption of technology and the ability to transition smoothly to working virtually has enabled us to consider by working with our employees to design and develop the beginning of the format of our offices going forward. This will include what we think of as an enhanced capability to attract and retain the best talent, not just in our standard locations, but potentially anywhere. I mean to your point, for those who have not seen it yet in the press release, our guidance assumes an anticipated restructuring charge in the second half of 2020 around the rationalization and exit of certain real estate leases that are estimated to result in total pre-tax charges of $25 million to $35 million. And we expect the majority of those charges to be recorded in the second half of this year, and that's going to result in an estimated annualized saving of $5 million to $6 million. The program is COVID-19-related in that we've assessed our real estate footprint given the success during the pandemic and, of course, the degree to which we can continue to be more flexible on work-from-home arrangements post-COVID-19.

Robert Fauber -- Executive Vice President and Chief Operating Officer

Yes. Alex, I think probably a positive for REIS. I mean we're in an environment of heightened uncertainty. Everyone in residential market is having to really manage risk. Having to connect many, many dots, we're hearing from our customers that there's a desire for integration of the kind of content that we have all across Moody's, not just what we acquired with REIS. So we think we can bring some very interesting solutions to bear for our customers to help them just make better decisions around real estate.

Alexander Kramm -- UBS -- Analyst

All right, thank you.

Operator

And we'll take our next question from Toni Kaplan with Morgan Stanley.

Toni Kaplan -- Morgan Stanley -- Analyst

Great. Thank you. Just looking at margins within the ratings segment, the margins were a little bit below your largest competitor there. Whereas in first half of 2019, they were above. And I understand you can't really comment on their margins. But just looking at your business, I guess how would you like talk about whether are you reinvesting more in ratings now versus last year or maybe just didn't cut back as much? I know it's a comparison, so hard to do that, but just trying to understand the delta between the margins.

Raymond W. McDaniel, Jr. -- President and Chief Executive Officer

Sure. Mark?

Mark Kaye -- Chief Financial Officer

Sure, Toni. I maybe start off by noting that Moody's fully allocates our corporate expenses out to our business segments, which could be different than the approach taken by some of our peers. Now second quarter 2020 MIS expenses were $369 million, which are up actually 5% over the prior year period. However, if we adjust for several one-off expense items this quarter, including, but not exclusively, things like a legal accrual, prior M&A and higher incentive compensation related to strong business performance, then MIS expenses would actually have been down 5% quarter-over-quarter. And that would have translated to an additional 300 to 400 basis points of margin that you would have been able to see in our reported results.

Toni Kaplan -- Morgan Stanley -- Analyst

Got it. That's helpful. And in terms of I know this has been asked in the first question. But Rob, I'm wondering if there's a way to talk us through the bridge of how low double-digit increases in issuance results in low single-digit increases in MIS. And I know you attribute it to mix, but is there some way to quantify or frame the mix impact just so that when we're thinking about our estimates going forward, we sort of have some inputs in terms of being able to understand what the mix impact looks like?

Raymond W. McDaniel, Jr. -- President and Chief Executive Officer

Yes. Rob, are you OK with that? Yes.

Robert Fauber -- Executive Vice President and Chief Operating Officer

Yes. And maybe let me just start with kind of how it worked out in the quarter, and I can talk a little bit about then how we think about that for the outlook. But obviously, this quarter, we saw a less favorable mix. The primary drivers of that were just all this investment-grade issuance, where we've got a greater mix of issuers on frequent issuer contracts. And we also saw some strong issuance from the PPIF segment, including sub-sovereign. And there, we tend to have a little bit lower yields and also infrastructure where we saw some lower-yielding jumbo issuance. So we had said this, I think, earlier in the year that we thought mix was going to be uncertain factor and could actually provide a little bit of headwind for us. And I think our view is that, that is consistent for the back half of this year.

Raymond W. McDaniel, Jr. -- President and Chief Executive Officer

And to simplify it a bit, looking at the relative strength of the investment-grade sector versus the spec grade sector, provide to clue as to whether we are likely to grow ahead of issuance rates or behind issuance rates simply because most of the entities on frequent issuer pricing agreements are in the investment-grade sector. We don't get the same bump when issuance goes up in that sector as we do in the speculative grade sector.

Toni Kaplan -- Morgan Stanley -- Analyst

Thanks a lot.

Operator

And we'll go next to Kevin McVeigh with Credit Suisse.

Kevin McVeigh -- Credit Suisse -- Analyst

Great, thank you very much. I wonder if you could talk a little bit about RDC synergies and also the acquisition that you alluded to kind of across synergies, across BvD and what that can mean to the enterprise longer term.

Raymond W. McDaniel, Jr. -- President and Chief Executive Officer

Yes. I'll let my colleagues address this, but Kevin, I just want to welcome you to the coverage and the call. So let me turn the subset of that over to my colleagues.

Robert Fauber -- Executive Vice President and Chief Operating Officer

Yes. Kevin, so let me talk a little bit about how we're working together between BvD and RDC and the kinds of synergies that we're seeing. Obviously, we've got a challenging sales environment. But the sales teams at both companies have been working together have an opportunity to offer a more complete solution, even though we haven't fully integrated those solutions yet, can still offer those solutions together, and we're doing that for our customers. And we think that ultimately, that's the most compelling end-to-end offering in the market. We're also cross-selling into the existing relationships at one or the other companies. And as you know, BvD had a bigger European customer base, historically, RDC, a bigger U.S. customer base. So there's a very concerted sales effort there and lots of demand. And so we're building a pipeline for that. We've talked about out in the past, there's a myriad of use cases for all of the BvD and now RDC data and maybe give you an example of that. We're seeing more and more companies, and I'm talking about very large corporations who are looking to address financial crime and reputational risk concerns. This is basically trying to understand who they are doing business with, and it's not just the banking community. So they're looking to use our beneficial ownership data, our adverse media tools. And COVID, I think, has actually prompted the need to get this work done through automation rather than just relying on manual back-office functions. And that again is really playing to the opportunity that is in front of us. So we're seeing some very nice opportunities both in sales and in terms of pulling the products together to meet emerging needs of our customers.

Kevin McVeigh -- Credit Suisse -- Analyst

That's super helpful. And then just switching gears real quick to ERS. Just any thoughts in terms of any change in the competitive landscape with nCino recently going public?

Robert Fauber -- Executive Vice President and Chief Operating Officer

Yes, Kevin. That's a great question. In fact, it's something that we, as a management team, have been quite focused on. Just because, obviously, this company went public recently with an IPO. They've been valued, I think the market capitalization is something like $6.5 billion. So I think it actually helps to illuminate the value of our ERS business. I think everybody in the call knows we've got a pretty similar SaaS-based software business that sells to financial institutions. But I would say, our business is a lot bigger. I mean, just looking at the numbers, if I recall right, we generated over $500 million in revenue in 2019. I think they were something under $100 million. And our strategy over the last few years has been to shift to more subscription-based revenue models. And that means that almost 80% of our revenue in ERS is recurring. And we've got, as you saw, very high retention rates given the business-critical nature of the software. So that our ERS business is really selling a broader range of solutions to a broader set of financial institutions, right, it's not just banking, it's also insurance, to help them make better decisions around credit and risk. And specifically, in regards to kind of thinking about the competitive landscape and the overlap, we've got an offering called CreditLens in ERS. It's a SaaS-based platform. It helps lenders by pulling together our datasets, our analytic tools, our software. And we have some common customers with nCino, but nCino is really focused more on end-to-end workflow. And what we found is that in some cases, our solutions are actually complementary or part of their broader offering. But a very interesting comp, I think, for our ERS segment versus the more traditional business information companies.

Kevin McVeigh -- Credit Suisse -- Analyst

It's very helpful, thank you so much.

Operator

Our next question comes from Manav Patnaik with Barclays.

Manav Patnaik -- Barclays -- Analyst

Thank you. Good afternoon. I guess I wanted to focus just on ESG. Clearly, there's a lot going on in the world out there. Seems like there's a lot going on in your company as well. You've got the majority stake in Vigeo Eiris. It sounds like they're partnering with Solactive and so forth. Are there any limitations to the angle you can come at ESG from? And is the ultimate goal more around partnerships or actual acquisitions and so forth here?

Robert Fauber -- Executive Vice President and Chief Operating Officer

Yes. Manav, I'll take that one. So I don't think there's any limitations. I'd say it's still a relatively nascent market but certainly growing quickly. There's a lot of demand across the financial markets and certainly across our customer base. And we've talked about this before. We don't have the operating leverage that's afforded by the index business. You did hear that we are starting to partner with index businesses to provide them with the data. So that's a way for us to get access to the index space without actually owning an index business. So I think there, you would look for us to build our presence through partnerships and partnering with index players who don't own ESG businesses. We've done a few things here, and I think you'll see that a lot of this is organic. We're doing a lot of organic investment because we have the capabilities in-house. We bought some assets that bring some very valuable domain knowledge. We just recently appointed a new head of ESG and climate business internally. Before that, she was running all of our moodys.com business, a very big business for us. So it gives you a sense of how important we think this is. We're integrating these ESG considerations into our credit work. Subscribers are starting to see that on moodys.com. This past quarter, we began featuring ESG and climate content from Vigeo Eiris and Four Twenty Seven on our flagship CreditView platform. And then Ray talked about some of the numbers around rating products for issuers. So there's an emerging opportunity to provide the sustainability ratings and second-party opinions on labeled bond issuance for issuers, paid for by issuers. This is still a we've given a number before that we're expecting something like $15 million to $20 million of revenue for the year. It'll take some time for this business to grow and scale, but there's certainly demand, and we're certainly making investments in it.

Manav Patnaik -- Barclays -- Analyst

Got it. That's helpful. And just obviously, you have those SPO, second-party opinions of bonds. Is that in addition to what you already do on the ratings side? So is that kind of like a consultancy or something?

Robert Fauber -- Executive Vice President and Chief Operating Officer

Yes. Certainly, I don't use the word consultancy, but think of this as a natural complement. So as you're issuing a green bond or a social bond, it's going to most likely get a rating from Moody's, and we have an opportunity to provide a second-party opinion on the use of proceeds and its consistency with the green bond framework. So it's a natural thing for us to be offering to our issuers alongside each other.

Manav Patnaik -- Barclays -- Analyst

Thank you, that's helpful.

Operator

We'll take our next question from Bill Warmington with Wells Fargo.

Bill Warmington -- Wells Fargo -- Analyst

Good afternoon, everyone. So a question for you on the China domestic rating business given the political tensions that we're seeing. I'm not sure if today they're getting a little better, a little worse. But I wanted to ask what your thoughts were in terms of the opportunity there, whether you're feeling a little better about that, a little worse about that? And what would you need to see evolve there for that opportunity to really start to take off?

Raymond W. McDaniel, Jr. -- President and Chief Executive Officer

Yes, Bill, it's Ray. I would say in the near term, we're probably in more of a holding pattern than we would have anticipated six to 12 months ago. We're still very satisfied with our joint venture investment in CCXI. CCXI continues to grow nicely and is the largest and most profitable of the domestic Chinese rating agencies. Clearly, the tension between the U.S. and China is not encouraging business activity between the two countries, is not encouraging favorable decisions on a whole range of things. And so what I think for the short term we're going to be doing is continuing to support CCXI, continuing to provide the range of services on the cross-border market and through Moody's Analytics that we're already providing, grow those businesses and wait for tensions to hopefully ease, which may not come until we get through the election, but then see how much the friction reduces and how quickly we can get back to thinking about other ways to expand the business in the domestic market.

Bill Warmington -- Wells Fargo -- Analyst

Got it. So my follow-up, I was going to ask about the U.S. public finance market there. You've hinted at the strength there. Maybe you could talk a little bit about what's driving that and what's behind your outlook for that.

Raymond W. McDaniel, Jr. -- President and Chief Executive Officer

Sure. Rob, do you want to take that?

Robert Fauber -- Executive Vice President and Chief Operating Officer

Yes. Sure. You're right. We've seen very strong issuance out of the public finance sector in the United States and actually the public finance sector around the world. And I think that's not surprising. A lot of issuers have used this as an opportunity to mitigate revenue shortfalls. So that's really been a catalyst for issuance and combined with the fact that you've got very conducive market conditions. And I think, ultimately, if the sector experiences further credit stress, the nature and amount of Fed and other stimulus programs is going to be very important in terms of mitigating the impact and thinking about market access. Obviously, to date, the Fed has rolled out the muni support program, and I think that runs through early next year, and that's been very important in terms of supporting investor confidence. The other thing is that ultra low rates have meant that the taxable financing market has been more favorable. And you might remember a couple of years ago, coming out of the Tax Reform Act of 2018, there were restrictions on the fundings. And that really reduced some of the volume in the public finance market in the subsequent quarters. But with rates being so low, taxable deals have now become more economic. So we've seen a lot of that activity that's continued to support the public finance market.

Bill Warmington -- Wells Fargo -- Analyst

Got it. Thank you very much.

Operator

We'll take our next question from Jeff Silber with BMO Capital Markets.

Raymond W. McDaniel, Jr. -- President and Chief Executive Officer

Please check your mute button. We are unable to hear you. Maybe Jeff can dial back in.

Operator

We'll take our next question from Craig Huber with Huber Research Partners.

Craig Huber -- Huber Research Partners -- Analyst

Yes, hi. Thank you. My first question, maybe you could touch a little bit further on the strength you saw in financial institutions in your ratings business and what your outlook is there for the second half of the year. It's obviously not normal to see this segment jump this much one way or the other this way positive. But do you think this is sustainable as we get further into the second half of the year?

Raymond W. McDaniel, Jr. -- President and Chief Executive Officer

I think we're expecting to see some tapering in the financial institution sector in the second half of the year just as we've talked about it in other sectors. It's not going to be as material because it is a pretty stable line of business in terms of revenue generation and has because financial institutions are generally investment-grade, has a high proportion of recurring revenue in the form of frequent issuer pricing agreements. So we do expect to see a reduction as against the second half of last year, but again, not as material as we would see in some other LOBs.

Robert Fauber -- Executive Vice President and Chief Operating Officer

And Ray, I think to build on that, I think also you saw these financial institutions tapping the market and getting their funding needs earlier in the year. So we benefited from some excess issuance above and beyond those relationship-based pricing constructs in the insurance and banking sector. And I think Ray is exactly right, I think some of that has been just pulled forward in terms of the calendar year.

Craig Huber -- Huber Research Partners -- Analyst

That's helpful. And then I also want to ask on the cost side, maybe if you could just, anything out of the ordinary that we should be aware of in the third and fourth quarter costs and also be curious to hear what the incentive compensation was in the quarter, please.

Raymond W. McDaniel, Jr. -- President and Chief Executive Officer

Sure. Mark?

Mark Kaye -- Chief Financial Officer

Yes. Second quarter incentive compensation number was approximately $60 million. We are expecting incentive compensation to be approximately $40 million to $50 million per quarter for the remainder of 2020, and that would compare to the prior $25 million to $30 million we had previously guided given strong performance. On your point around unusual items, maybe I'll talk about this in the context of our outlook for the adjusted EPS result for the year. And we've guided at the midpoint to $9 primarily due to the reflection of the actual operating performance in MIS in the second quarter. And if I think about at $9, this is not necessarily an exhaustive list, but just a list of considerations for items that we have not adjusted for within that number. And that would include things like the prepayment penalty from the early calling of the June 2021 notes, the increased bad debt allowance for COVID-19-related exposures, the legal accrual or even things like the opportunity cost of forgoing share repurchases, at least on a temporary basis in the first and the second quarter. And if I add up those sort of items as non-exhaustive list, they get to around $0.30 on an adjusted EPS basis, which is worth around three to four percentage points of growth that we are not adjusting for.

Craig Huber -- Huber Research Partners -- Analyst

Thank you.

Operator

And we'll take our next question from Owen Lau with Oppenheimer.

Owen Lau -- Oppenheimer -- Analyst

Good afternoon and thank you for taking my questions. I just want to get a better understanding of your margin guidance. So what does it take to get to your high end or even exceed your 48% to 49% margin guidance? What kind of expense assumption you have baked in? For example, do you assume some kind of reopening and maybe bank loan will come back in the second half of 2020?

Raymond W. McDaniel, Jr. -- President and Chief Executive Officer

Owen, I'd again just like to welcome you to the call, and I'll let Mark Kaye try to address your question.

Mark Kaye -- Chief Financial Officer

Our full year adjusted operating margin guidance is in a range of 48% to 49%. And at the midpoint, that means we are increasing our 2020 adjusted operating margin guidance by approximately 100 basis points to 48.5%. And that's 100 basis points higher than the 2019 actual results of 47.4%. The majority of that is driven by organic activity. We do have a slight offset from inorganic or the net impact of inorganic acquisitions. I would also say that the increase versus the April investor call is really because of the creation of incremental operating leverage. And that's given our primarily because of our updated outlook for issuance in the low double digit but also the strong performance in the second quarter. On the operating leverage side, certainly, scalable revenue growth is a critical driver, and we also benefited a little bit this year from the reset of incentive comp accruals. On the efficiency side, we spoke a little bit early in the call about restructuring benefits. And then, of course, there's increased automation, the utilization of lower cost locations for more routine operational matters, procurement efficiencies and then ongoing real estate. And all of that coupled together means that we've built a good basis from which to grow operating or adjusted operating margin.

Raymond W. McDaniel, Jr. -- President and Chief Executive Officer

And Owen, it's Ray. I would just add briefly to that, that remember, we're also in a period where MIS is growing at a faster rate than Moody's Analytics, and MIS is the higher-margin business. So when the higher margin business is growing at a faster pace, that provides lift for the margin for the corporation as a whole. I realize that's probably obvious, but just wanted to get it in.

Owen Lau -- Oppenheimer -- Analyst

That's very helpful, Mark. And then maybe ERS, I got some questions about this segment as well. I think you mentioned some strength in the software and analytics sales, but some delays of IFRS 17 and CECL. I just wonder like from a modeling perspective, how should we expect this line item for the rest of 2020 and also maybe 2021? Should we expect higher growth in BvD and RDC but lower growth in ERS?

Raymond W. McDaniel, Jr. -- President and Chief Executive Officer

Sure. Rob?

Robert Fauber -- Executive Vice President and Chief Operating Officer

Yes. So obviously, we haven't changed our guidance. And I would say that in general, the impact from the social distancing and the challenges to sales have impacted our ERS business a little bit more than they have our RD&A business. And that is all reflected in the guidance that we've got today. So the other thing I might say is that just in general across the portfolio that the retention has been quite good. It's been a little bit better than we had expected back in the April earnings call. And our sales performance has been a little bit better than back in April as well. So both of those things have helped, not enough to change where we are in the guidance range, but that sales experience and retention has been pretty consistent across really most of the product line, and that includes ERS. And again, part of the reason for that is, these are business-critical software applications that are difficult to turn off.

Owen Lau -- Oppenheimer -- Analyst

Thank you. That's helpful.

Operator

And we'll take our next question from George Tong with Goldman Sachs.

George Tong -- Goldman Sachs -- Analyst

Hi, thanks. Good afternoon, Mark, I want to take another crack at your margin and expense commentary. Obviously, your upwardly revised margin guidance assumes flat opex. So could you provide some additional color around perhaps expense assumptions by segment, including what planned cost savings and investment spending is baked in to achieve your target?

Mark Kaye -- Chief Financial Officer

Well, I would start maybe by commenting, George, that we're very pleased to highlight that disciplined expense management continues to create operating leverage and investment capacity for our business. We've mentioned previously that we have evolved our selling approach, and we've adapted to meeting formats to be more virtual rather than in person. That naturally results in lower T&E and marketing costs. In addition, we've also been very active in reducing expenses through procurement activities, and as I mentioned a moment ago, through the use of, I'd say, lower cost locations for more routine operational activities. Structurally, we have taken a number of cost actions, including the 2018, 2019 restructuring program, which resulted in around $60 million of run rate savings this year. We also created an additional $30 million in efficiencies that we outlined back in February to support our 2020 operating income and investment back into the business. And if you take that together with the $5 million to $6 million in run rate real estate savings that we spoke about this morning in our earnings release, that creates an almost $100 million in ongoing savings from actions that the management team has taken. If I specifically look toward our updated guidance for full year 2020 operating expenses of approximately flat, the comparison vis-a-vis 2019 shows around 1.5 to two percentage points related to ongoing expenses to support the company's initiatives to enhance technology infrastructure, to enable automation, innovation, efficiency, etc., and business growth. Probably 0.5 percentage point to acquired and divested companies or the net of, and then we get a small offset through a restructuring charge that doesn't reoccur quite to the same extent this year and FX.

George Tong -- Goldman Sachs -- Analyst

Got it. That's helpful. And Mark, earlier on the call, you'd indicated that you would be revisiting share repurchases from time to time opportunistically. If you look at your share repurchase program or just capital allocation in general from a philosophical perspective, how has the pandemic changed your views from both the near-term and intermediate-term time frame?

Mark Kaye -- Chief Financial Officer

I think maybe I'll give a little perspective, and I'll answer your question, George. I think from 2015 to 2019, free cash flow conversion of net income has been approximately 115%. That's adjusting for the 2017 DOJ settlement. We are expecting 2020 to be slightly above 100% despite what I think of as some working capital headwinds, like, for example, the higher 2019 incentive comp payments that came through in the first quarter this year, the retirement pension funding from the first quarter or even higher capex. And the growth in the 2020 free cash flow adjusting for some of those items is going to be greater than 10%, which is better than the full year adjusted EPS growth at the midpoint. I'd say specifically to your question, we are a capital-light business. Investment would have to ramp up considerably in order to change the dynamic between adjusted net income and free cash flow over an extended period. And that's why I really wanted to focus our guidance around share repurchases again, really looking at it on a quarterly and an opportunistic basis as we have more clarity on the economic outlook.

George Tong -- Goldman Sachs -- Analyst

Thank you.

Operator

And it appears there are no further questions at this time.

Raymond W. McDaniel, Jr. -- President and Chief Executive Officer

Okay. Before ending the call, I'd like to reiterate my gratitude to our employees. You've done a phenomenal job adapting to the evolving environment, and your dedication and support have been vital during these challenging times. So thank you all for joining today's call, and we look forward to speaking with you again in the fall. Have a good summer.

Operator

This concludes Moody's Second Quarter 2020 Earnings Call. As a reminder, immediately following this call, the company will post the MIS review breakdown under the Second Quarter 2020 Earnings section of the Moody's IR homepage. Additionally, a replay of this call will be available after 3:30 p.m. Eastern Time on Moody's IR website. Thank you.

Duration: 73 minutes

Call participants:

Shivani Kak -- Head of Investor Relations

Raymond W. McDaniel, Jr. -- President and Chief Executive Officer

Mark Kaye -- Chief Financial Officer

Robert Fauber -- Executive Vice President and Chief Operating Officer

Judah Sokel -- JPMorgan -- Analyst

Alexander Kramm -- UBS -- Analyst

Toni Kaplan -- Morgan Stanley -- Analyst

Kevin McVeigh -- Credit Suisse -- Analyst

Manav Patnaik -- Barclays -- Analyst

Bill Warmington -- Wells Fargo -- Analyst

Craig Huber -- Huber Research Partners -- Analyst

Owen Lau -- Oppenheimer -- Analyst

George Tong -- Goldman Sachs -- Analyst

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