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Moody's Corp (NYSE:MCO)
Q3 2020 Earnings Call
Oct 29, 2020, 11:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Please standby, we're about to begin. Good day everyone and welcome to the Moody's Corporation Third Quarter 2020 Earnings Conference Call. [Operator Instructions]

I would now like to 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 third 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 third quarter of 2020 as well as our outlook for full year 2020. The earnings press release and the 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 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 referenced during this call and GAAP.

I call your attention to the safe harbor language, which can be found toward the end of our earnings release. Towards -- 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, 2019, our quarterly report form on 10-Q for the quarter ended March 31, 2020 and in other 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.

Before we begin, we would like to comment on the succession plan that was announced last week. Ray McDaniel will retire as President and CEO of Moody's on December 31, after nearly 34 years with the company, including over 15 years as CEO. We are very pleased that the Board has appointed Rob Fauber, Moody's, Chief Operating Officer as Ray's successor. Ray will remain on the Board on his retirement and will assume the role of Chairman effective January 1.

I will now turn the call over to Ray.

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

Thank you, Shivani, and good morning everyone. Before we discuss the company's performance, I want to take just another minute to reflect on the leadership succession plan. As Shivani mentioned, I'll be retiring from Moody's at the end of the year and with the unanimous approval of the Board of Directors, Rob Fauber will succeed me as President and CEO. I will continue to serve on Moody's Board, where I will assume the role of Chairman. Rob has now joined the Board and we will work closely together as well as the senior leadership and our fellow directors to ensure a smooth and successful transition. Leaving a job involving the people you respect is not easy, especially with such a great company.

I'd like to thank our employees for their unyielding commitment to quality and rigor and trust holding Moody's purpose to bring clarity, knowledge impairments to an interconnected world. It has been a privilege working with you all. While it's difficult to leave, I'm confident that this is the right time in the company's evolution for this transition to take place. Moody's is stronger now than ever before and the company is well positioned for the future. Rob's impressive record of achievement during his 15 years in the company combined with a deep knowledge of our businesses and the needs of our customers, make him the ideal leader to take Moody's into it's next chapter.

I think you all know Rob well, since joining Moody's in 2005 he surely felt to be an innovative, strategic and results oriented leader, and someone who cares deeply about our people. He has grown with the company and served many number of leadership roles, most recently as Chief Operating Officer, where he is overseeing both MIS and MA, as well as strategy and marketing for the corporation. I am confident he will continue to maximize our strengths and champion collaboration, innovation and efficiency across the company. Moody's future is in excellent hands.

And with that let me turn the call over to Rob to say a few words.

Robert Fauber -- Chief Operating Officer

Yeah. Thanks, Ray. It's been a privilege to work alongside Ray and have benefited from his mentorship over the past 15 years. I'm also proud to be able to call him a friend. Under Ray's leadership, Moody's has experienced the strongest growth in its history, and during his tenure, Ray implemented some very important enhancements to the company's business, including growing and strengthening the Ratings and Research business, expanding the company's international presence in building the company's Data and Analytics businesses. He's positioned the company for continued global growth and success and as we look forward, I believe we have an enormous opportunity. In this rapidly changing world understanding and managing risk is more important than ever, and we're focused on offering our customer solutions that leverage integrated data and technology, it's grounded in our history of insights and analytical excellence. I thank Ray for his mentorship and support and I look forward to working with him, the Board and the entire Moody's team to continue providing trusted insights and standards to help decision makers act with confidence. We've got an exciting journey ahead.

And with that, I'll turn it back over to Ray.

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

Rob, thanks for the gracious words and congratulations to you again. I'll now move on to provide a general update on the business, including Moody's third quarter 2020 financial results. Mark Kaye will then provide further details on our third 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 commend our employees on their hard work during these trying times. The dedication and focus on delivering best-in-class customer service helped Moody's achieve strong third quarter revenue growth of 9% and adjusted diluted earnings-per-share growth of 25%. Both Moody's Investor Service and Moody's Analytics performed well, despite the difficult environment, within the resiliency of our organization and the relevance for our products, insights and solutions. Underlying this performance were highly active credit markets, which continued to benefit from fiscal and monetary stimulus, coupled with issuers looking to opportunistically refinance debt, inflow of the cash positions. And we continue to innovate and integrate our award winning suite of products in response to increasing customer demands for easy to use unified solutions. Finally, given our outperformance, year-to-date, we have significantly raised and narrowed our full-year 2020 adjusted diluted EPS guidance range to $9.95 to $10.15.

Looking at third quarter 2020 results. Total revenue increased 9%. The 11% growth in MIS and 7% growth from MA. Moody's adjusted operating income of $721 million was up 17% from the prior year period. Solid revenue growth from our two businesses outpaced the relatively small increase in operating expenses driving 370 basis points of adjusted operating margin expansion. Third quarter adjusted diluted EPS of $2.69 was up 25%.

Turning to the credit markets, and as I talked about on prior calls, this year we've experienced a dichotomy between the real economy and the credit markets. The real economy remains in flux as we surge in COVID-19 cases within certain parts of the US and Europe, causing areas to begin rolling back reopening measures. The frictions between China and the US continue to escalate in the third quarter, the geopolitical environment remained largely the same, but with increased focus on the upcoming outcome with the US elections in November. Meanwhile, incremental macroeconomic responses were mixed, with the implementation of the stimulus measures in certain jurisdictions and uncertainty or lack of actions in others. This is a star contrast with credit markets, where fixed rate bond issuance creates new records as issuers posted their balance sheets and opportunistically refinanced debt.

The M&A pipeline showed positive indicators of recovery among investment grade issuers. However, activity is still median in comparison to the prior year. Leverage loans also showed signs of improvement, but remain relatively weak in comparison to bonds as demand for floating-rate debt was limited.

I'd now like to go into more detail on corporate finance, which was a key contributor to MIS' strong performance. The chart on the left shows the percentage of MIS' total rated issuance by line of business over the last seven quarters, with corporate finance issuance in 2020 increasing to approximately 50%. As shown on the right hand side of the slide, activity for this sector grew 10% year-over-year. Favorable mix with more and frequent issuers coming to market resulted in a 23% increase in non-financial corporate for CFG transaction revenue. Over the years we have purposely oriented ourselves toward more transaction-based pricing agreements. Our data shows that the strategy creates greater value over time and you can see that positive dynamic in this quarter.

As I noted earlier, refinancing and liquidity issuance were the main drivers this quarter, similar to the trend we observed in the second quarter. As spreads tightened and overall yield declined, refinancing took a more opportunistic tuck, while activity related to shareholder payments and M&A continue to lag. While refinancing is a key issuance driver this quarter, refunding needs over the next four years for North American and European issuers increased 10% year-to-date to approximately $3.8 trillion. Of that total, approximately 20% is forecast to mature in 2021. Furthermore, of the 2021 maturities, only about a third are in the US, where we have seen the greatest amount of issuance this year. Our view is that a portion of 2020 activity represents what we think of that contingent pull-forward. The company's issued debt fortify their cash positions until they become more confident in future operating environment. The expense which this may then impact the refinancing of some 2021 maturities through cash on hand remains to be seen and depend heavily on how the economic outlook develops. The refinancing needs shown on this slide, represent a robust base of future issuance even though the average maturtiy has lengthened for investment grade. Specifically, due to lower benchmark rates and state spread tightening, US investment grade issuers have been incentivized to lengthen the maturities of bonds to take advantage of lower overall effective yields. This is evidenced by the higher year-to-date average investment grade maturity of 14.5 years, compared to 12.4 years in 2019. This was partially the outcome of the nearly 60% increase year-to-date in 11 for 30-year issuance as shown in the light green bar on the left-hand chart. This is especially pronounced in the third quarter with 50% of investment grade issuance was longer than 10 years. Many have asked us whether longer average bond maturities would have a dampening effect on refinancing needs in the medium term. While this is an important trend to follow, the impact to date has been relatively muted for two primary reasons.

First, year-to-date. The increase in maturities was limited to investment grade as specular grade bond issuance saw a decrease in average maturity to 7.5 years due to the substantial rise in the use of medium term maturity costs. Second, and perhaps more importantly, while there's been an uptick in longevated investment graded supply, the aversion rise in issuance volume has resulted in a significant increase in one to 10-year bond maturities. Specifically, investment grade issuance volumes with one to 10-year maturities rose by more than $160 billion year-to-date as compared to full year 2019, or more than 42% supporting healthy future funding needs.

Moving to Moody's Analytics. The business continued to show resilience delivering strong sales growth despite the challenging COVID-19 environment. High demand for our insights and analytics supported solid customer retention across both lines of business and an overall retention rate of 94% reflects the relevance and importance of our solutions during uncertain times. Stable retention rates together with growth in subscription sales led better than expected performance in the third quarter. MA continue to successfully convert the existing sales pipeline as our sales force and customers have adapted to the virtual working environment. The pipeline to 2021 margin especially for high-margin recurring revenue subscription products, partially offset by softness in one-time project sales. We have a busy season in the winter months when we provide our 2021 outlook early next year after we examine the sales mix and performance in the fourth quarter.

Maintaining healthy sales pipeline with strong customer retention rates requires ongoing innovation to ensure that we continue to deliver a solution that meet emerging customer needs. By combining new modules with our established products, we provide our customers with the tools they need to make better decisions. This quarter, we launched two new integrated solutions that bring our capabilities together and offer more powerful solutions. Leveraging natural language processing and machine learning, our credit sentiment score provides customers with early credit relevant warning indicators. We are paring the tool with our corporate credit scoring products, credit edge and risk count, together these capabilities deliver a solution that helps customers monitor their portfolios for potential credit deterioration.

Similarly, we've incorporated ESG and climate assets within our flagship product credit view also known as Moody's.com. Using data from Vigeo Eiris and 427 customers are now able to see the sustainable metrics of their portfolio companies along with their credit ratings, providing them with tools and data needed to take a more holistic approach to evaluating credit decisions. In addition to enhancing our current portfolio, organically, we are also investing in the business by acquisitions and partnerships. In the past, we've spoken about our strategic growth priorities of regional expansion and business adjacencies. And we recently made a number of exciting investments in both areas.

Starting with business adjacencies. Our acquisition of Acquire Media, an AI power curated real-time need expands our growing KYC capabilities. The acquisition bolsters our ability to provide customers and counterparty screening and surveillance as well as early warning signals to help them make better decisions. We've also made significant progress on our ESG initiatives. The formation of the ESG Solutions Group in September combines our internal capabilities with our strategic investments in Vigeo Eiris and 427. The team will facilitate coordinated efforts across Moody's as well as unifying innovation and product creation.

Turning to regional expansion. We recently acquired a minority stake in MARC, a Malaysian rating agency, which strengthened Moody's presence in Southeast Asia and positions us as the leader in Guam finance. In China, we created the Commercial Strategies Group to help identify and capture growth opportunities for MA. The team have ensured that our new product development and innovation plans align with market opportunities as well as help support the advancement of China's domestic markets and global economy through data, analytics and impacts. Over to Latin America, we continue to build on our Moody's local platform with the recent acquisitions -- with the recent expansion into Argentina and Uruguay which combines the strengths and expertise of our brand with understanding of the domestic credit markets. As we continue to invest in our capabilities to fulfil customer needs, we're also looking internally at our workplace of the future. We're excited about the level of engagement from our employees helping to define our new working environment, as their input is key to maintaining our strong culture. By leveraging our existing technological capabilities, we are confident, we will not only be able to execute our expense saving opportunities, but also uphold the exceptional level of service, our customers have come to expect.

I'll now turn the call over to Mark Kaye to provide further details in the third quarter results and our revised outlook for 2020.

Mark Kaye -- Chief Financial Officer

Thank you, Ray. As Ray mentioned earlier MIS continued to demonstrate strong operating leverage in part through disciplined expense management. It scored at 11% revenue growth outpaced the 4% increase in issuance due to favorable revenue mix in both corporate and financial institutions lines of business. The largest contributor was corporate issuance which exhibited 18% revenue growth as compared to a 10% increase in global activity, both in investment grade and speculative grade issuance as both liquidity positions and opportunistically finance debt as a potentially volatile quarter.

Annually, financial institutions revenue benefited from favorable mix as the top line grew 12% despite the 12% global issuance decline, It saw GU to a steady 7% increase in activity from infrequent US bank issuance of the larger, more frequent US banks for both dues having issued heavily in prior quarters.

In public project and infrastructure finance revenue rose 11%, mostly due to a 25% increase in US public finance activity we issued took advantage of receptive credit market conditions and historically low all-in coupon rates. Meanwhile, structured finance revenue declined 16% compared to a 20% increase in global issuance, stemming from weakness in CLOs at the lack of new loan supply and wider spreads hidden in the new CLO creation. We are pleased to see an uptick in first time mandates in the third quarter through a combination of increased high yield bond issuance and early signs redemption in the M&A activity. Overall, approximately 500 bond mandates have been signed year-to-date, which is a get about prior expectations. MIS had significant revenue growth in ongoing expense discipline, return expansion of adjusted operating margin by 410 basis points.

Moving on to MA. Third quarter revenue grew 7% or 8% and on -- on an organic constant currency basis. By collaborating with customers to power their decision ecosystems, we helped in measure, manage and understand risk. This is even more important in times of uncertainty and under confined prizes mid 90s retention rates. Furthermore MAs recurring rating base represents 90% of the total, up 6% year-over-year providing balance to Moody's overall revenue mix. Focusing first on RD&A. The growing importance of knowing your customers, suppliers and supply chain helped in a expanded KYC compliance business this quarter. This together with robust sales of research and data feed products had a 22% increase in revenue or 12% on an organic basis. With the ERS revenue grew 8% or 7% on an organic basis. Strong performance in credit assessment and loan origination solutions such as credit lends drove growth with additional support from our suite of insurance products.

In the third quarter, the MA adjusted operating margin increased 220 basis points in conjunction with the growth in revenue, incentive compensation accruals increased but were partially offset through expense discipline and lower travel and entertainment costs.

Turning to Moody's full year 2020 guidance. 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, responsive by governments regulated 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 market. The outlook also reflects assumptions regarding general economic conditions and GDP growth in the US and other areas, the company's own operations and personnel and additional items has 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 in the end of the quarter, exchange rates. Specifically our forecast for the remainder of 2020 reflects US exchange rates to the British pound of $1.29 and for the euro $1.17. The guidance also assumes the previously announced restructuring program around the rationalization and exit the certain real estate leases is make it to result in total pre-tax charges of $25 million to $35 million. Of the total $25 million to $30 million is expected to be recorded in the second half of the year, including the $23 million charge incurred in the third quarter. This program is expected to result in estimated annualized savings of $5 million to $6 million. For full guidance please refer to Table 12 of our earnings release.

We have raised our full year 2020 guidance for most key metrics as compared to the prior forecast and now anticipate that Moody's revenue will increase in the high single-digit percent range. Accreditation outpaces that of our operating expenses which we now expect to increase in the low single-digit percent range. The resulting improvement in operating leverage supports our upwardly revised adjusted operating margin guidance for a range of 48% to 49% to approximately 50%. We are reaffirming both the net interest expense and full year effective tax rate guidance ranges of $180 million to $200 million and 19.5% to 21.5% respectively. The diluted EPS forecast has been significantly raised and narrowed to a range of $9.30 to $9.50 and adjusted diluted EPS to range of $9.95 to $10.15. Free cash flow is now expected to be approximately $1.8 billion. In prior quarterly earnings calls, we noted uncertainty surrounding the impact of the pandemic, as a result Aguero reports share repurchases as we monitor the effects of COVID-19 on our business. After careful evaluation, we are pleased to announce that we expect to resume share repurchases in the fourth quarter and we are providing guidance of approximately $500 million in buybacks for the year.

Our full year 2020 guidance is underpinned by the following macro assumptions. 2020 US and euro area GDP to decline approximately 6% and 9% respectively. US unemployment rate to end the year at approximately 8%. Benchmark interest rates to stay low with US high-yield spreads of approximately 500 basis points and the global high yield default rates to rise to approximately 8% by year-end. We continue to closely monitor both the macroeconomic backdrop and credit market activity as we head into the fourth quarter.

Turning to the operating segments. For MIS with the surging issuance year-to-date, we now anticipate full year revenue to increase in the low double-digit percent range with the rated issuance growing in the high teens. MIS guidance assumes investment grade activity for the full year increases 60%, up from our prior assumption of 50%. High-yield issuance increases 25%, up from 5%. Bank loan issuance declines 10%, up from a 20% decline and structured issuance declines 35%, slightly higher than our prior expectation of 40% decline. Additionally with the increase in first time mandates in the third quarter, we have raised our full year expectation from approximately 550 to a range of 600 to 700. As a reminder, first time mandates are an integral part of MIS' future growth, enabling us to generate incremental revenue not only to issuance, but also to future and monitoring series. Given the likely contingent pull-forward activity that we've discussed, we believe that the majority of issuance that we're looking to refinance will raise liquidity in 2020 have already done so. Furthermore, we anticipate that M&A, the one positive trend compared to activity earlier in the year will remain relatively limited in the fourth quarter.

Turning to MIS' adjusted operating margin. We are also raising our guidance by 2 percentage points to approximately 60%. This is driven by both year-to-date revenue growth continuing to outperform and disciplined expense management, inclusive of our incentive compensation accruals.

With over 50 quarters of consecutive growth in MA we are pleased to reaffirm full-year 2020 revenue growth guidance in the mid-single digit percent range. Our guidance reflects a net unfavorable impact of approximately 2 percentage points from the divestiture of MAKs and FX partially offset by growth from targeted acquisitions including RDC, RiskFirst, ABS Suite and Acquire Media. We expect RD&A revenue growth in the fourth quarter to mainly driven by KYC and compliant solutions as well as research and data feeds. Similarly, continued strength from ERS from lending and soft -- lending software and analytics, which is quite perdurance in IFRS 17 solutions supports steady growth in 2020. Let me just reaffirm the adjusted operating margin guidance of approximately 30% is driven by operating leverage created by the ongoing transition to scalable subscription-based product and focused expense management initiatives.

Before turning the call back over to Ray, I would like to highlight a few key takeaways. First we are pleased to raise guidance metrics for the full year, due to better than expected performance in the third quarter, driven by the high demand for Moody's to augment suite of products, insights and solutions. Second, we continue to innovate and reinvest in our business to further enhance our relevance and meet our customers' evolving needs additionally it needs sustainable long-term success. Third, with increasingly complex environment, we remain committed to all of our stakeholders, our thoughtful approach to expense management, our future workplace environment and prudent capital allocation is designed to ensure ongoing operational and financial flexibility. I'm also personally excited and energized by Rob Fauber's appointment as the incoming, President and CEO of Moody's giving the impressive record of achievement, and his deep knowledge of our businesses and the needs of our customers. I also wanted to sincerely thank Ray for his leadership, guidance and friendship over the past several years. I thoroughly enjoyed working and learning from him.

And with that let me turn the call back over to Ray.

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

Thank you, Mark. This concludes our prepared remarks. So without problem, Kaye and I would be happy to answer any questions that you might have. So please operator if we can open this up for questions.

Questions and Answers:

Operator

[Operator Instructions] And we'll first hear from Kevin McVeigh of Credit Suisse.

Kevin McVeigh -- Credit Suisse -- Analyst

Great, thank you. Hey, congratulations to you Ray, Rob as well. And really just really, really good results. It's good to go out on top Ray and you said a tough bar for Rob, but lot of good work there. Hey, I wanted to start with just the margins in Moody's Analytics, really nice improvement. I wonder if you could help us frame that out a little bit in terms of what drove it and how sustainable it is going forward?

Mark Kaye -- Chief Financial Officer

Thank you for the question. And perhaps before I address the question directly, I thought for context, it's worth noting that we've had over 500 basis points of margin expansion in Moody's Analytics over the past three years, a very impressive results on a continued trend. For the third quarter, specifically we reported MA margin, expanded by 220 basis points to 31.4% this quarter. And that was primarily driven by over 300 basis points of core expansion. And so I think about RD&A being 200 basis points of that and maybe we are already seeing around 100 basis points of that. And that was offset in part by incentive compensation trips during the quarter. We have maintained out 2020 MA segment margin guidance of approximately 30% that represents over 200 basis points of margin expansion on a trailing 12 month basis from 2019. We do expect continued margin expansion over the long term. We may see some pressure in the next 12 to 18 months depending on the up -- depending on the ultimate duration and severity of the ongoing COVID-19 economic impacts. But we do feel very positive about this business.

Kevin McVeigh -- Credit Suisse -- Analyst

That's great. And then, Mark, maybe just within the context to MA as well, almost 95% retention rate in this environment seems really, really impressive. Maybe some puts and takes around that in terms of what's driving that and then ultimately even within the context of bankruptcy is a little bit better, client losses, anything like that because really just a really, really nice outcome?

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

Rob, do you want to address that?

Robert Fauber -- Chief Operating Officer

Yeah, sure.

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

Yeah. The overall retention rate across MAs as you say has remained very strong in fact probably kicked up slightly. That's led by our research products in 96% retention there. Very, very strong. I think what you're seeing is in an environment of uncertainty, our customers really, really value the insights and expertise that we're able to offer them. So I think that's supporting the retention. But you also see the retention rates in our ERS and BvD businesses. We have that in the webcast and I think that goes to the fact that these are embedded into customer workflows and viewed as kind of must have solution. So when you think about the ERS suite of solutions, these are being used for loan origination, regulatory capital reporting, accounting, all sorts of things. So that supports those retention rates. And just like with BvD, a lot of that data is being used to support the compliance solutions, which again, really supports those retention rates.

Kevin McVeigh -- Credit Suisse -- Analyst

Thank you.

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

Thank you, Kevin. And thank you for your comments at the beginning also.

Operator

Next we'll hear from Manav Patnaik of Barclays.

Manav Patnaik -- Barclays -- Analyst

Thank you. And my congratulations to both Ray and Rob as well. The first question I had was just to try and think about some of the moving pieces, particularly on issuance in the fourth quarter. Clearly there is going to be some election volatility and that depends on how the markets react. But what I wanted to ask was the surge in investment grade in high yield issuance that we saw that surprised a lot of us after the first set of lockdown. In your sense, so you think a lot of the IG companies have raised cash in terms of maybe what they anticipate they needed or do you think if there is another lockdown you could see some kind of a repeat of that coming?

Mark Kaye -- Chief Financial Officer

Manav, this is Mark, and good afternoon. I think given the nature of your question. What I would do here is maybe a little bit different from what we have done in the past. And I'll start really by talking about what we're hearing from the banks and then we'll open it up even further with the follow-on questions from that. So starting with the US investment grade, the banks have seen record issuance which was increasingly driven by opportunistic issuance, looking to take advantage of the start in low rates and tight spreads in the third quarter. Fiscal end monetary sponsors have facilitated market stability but companies continued to build liquidity reserves in case of uncertainty. And as a result, the cash balances have surged over the last two quarters.

The banks have deployed in 2021 and business fundamentals normalized the majority may be used to fund near-term debt maturities, contingent upon the future operating environment. Specifically, the banks have also seen strong interest in longer 40-year bond durations and a notable increase in ESG and sustainablity bond issuance. For the remainder of the year, the banks believe that actually it will slow as many companies have completed their necessary funding for the year. However, some may continue to take advantage of favorable low rates and tight spreads.

I mean, to-date, M&A activity -- M&A related issuance has been significantly returned. The pipeline looks relatively muted. However, there are indications that M&A volumes maybe bottoming and further uncertainty around the occurrence and timing of fiscal stimulus, arriving infection with vaccine trials, election results and incentive rates are also going to continue to weigh on the market based given their views for investment grade issuance to be up 50% to 60% for the full year.

Moving on to US spec rate, similar to the investment grade market, active high yield bond issuance has been driven by record low rates and tightening spreads. The volume of high yield bond issuance year-to-date has positive full year 2019, as well as the yearly totals for the last 10 years. Conversely leverage loan issuance have lagged and with technical backdrop slowing CLO formation and low demand. For the remainder of the year our yield bond and leveraged loan issuance is expected to slow in the fourth quarter. Given that most refinancing needs were funded ahead of the uncertainty for next weeks election and obviously a second wave of potential COVID-19 cases.

Turning to European investment grade, despite the recent spike of COVID-19 cases, Central Bank support in strong investor demand have continued and spread narrowing with investment grade spreads recovering to about 80% of their levels before the pandemic. ESG issuance continues to increase with around 10% of corporate bond issuance in 2020 labeled with ESG bonds. Banks issuance for maintenance and with falling down more than 20% year-to-date and that's due to the favorable rates in the US. For the full year, the banks forecast European investment grade issuance to be up 5% and then finally for European in spec grade issuance has been similarity supported by proactive monetary and fiscal policies as well as returning investor demand for high-risk investments. This has allowed the leveraged finance markets to remain relatively healthy with the fuller pipeline looking more robust than previous months. And so far, October has been a busy month and obviously augmented the patient volatility and that may be closed by your selection. And with that let me pause here to see if there are any further questions.

Manav Patnaik -- Barclays -- Analyst

Okay. Thanks for that. I guess I'll just ask more but maybe just a follow-up would be, just on the KYC business. Could you just help frame with the competitive landscape there looks like and perhaps also that means there could be many more tuck-ins coming here for you guys?

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

Yes, Rob, I think this is for you.

Robert Fauber -- Chief Operating Officer

Yes. I'd be happy to take that. And Manav, what I might also do is maybe provide you a little bit of color on kind of what we're seeing in the KYC space. So, as you know, we've got a leading position in that market. We're competing against players like Refinitiv, LexisNexis Dun & Bradstreet and a number of others. But there is some interesting trends going on in the KYC space. So first, COVIDs really accelerated digital transformation in KYC and customer onboarding. And I think lockdowns have made the old fashion way of doing all this stuff quite challenging. Companies are looking for more precise filters and ways to focus what and when they look at individuals and entities. And we actually had a very large bank tell us recently that for the first time their legal and compliance teams are pushing for their KYC teams to use external vendors and solutions that better leverage data and technology than what they're doing in-house. So, automation not only brings efficiency, but also improves reliability and quality control. And you see what happened in the market, from these headlines when these banks get this stuff wrong, the fines can be in the billions.

The second regulation continues to develop and evolve in this space and it's requiring companies to know more about their customers than ever before. So you've got new regulations that expand the number and nature of offenses that must be screened for. So things like reputational risk, social risk, tax crime, cyber crime, environmental issues. And to be able to screen and monitor for risks like that customers need more sophisticated platforms around adverse media, like what we've got with RDC in which we further enhanced with our acquisition of Acquire Media. So we're very excited about that.

I think the third thing is that, financial crime is getting more and more sophisticated, and that requires more intelligence solutions. So you've got institutions increasingly trying to understand their exposure, not just to their customers, but for their customers' customers. And again that's where we're merging banks own internal data with our external entity in hierarchy and risk data from BvD and RDC and we can give a deeper understanding of risk and these institutions can get on their own. So we're really focused on offering smaller content to existing solutions, create -- providing new insights in some of these new areas and providing the market with really trusted sources of insights and analytics that we think is best-in-class and really positions us well in that competitive landscape.

Manav Patnaik -- Barclays -- Analyst

Got it.

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

And I would...

Manav Patnaik -- Barclays -- Analyst

Thanks guys.

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

Yes, I'd just add real quickly that all firms wanting to be able to jump straight to the risk committees or their Board's directors or their regulators that they are taking a robust approach to knowing their customers and others using a standard is very valuable in demonstrating that robustness. And we are very much a standard in this area. So just add that in as a positive networking effect to our position.

Operator

Next we'll hear from Toni Kaplan of Morgan Stanley.

Toni Kaplan -- Morgan Stanley -- Analyst

Thank you. Rob, congrats on the new role and Ray, congrats on your retirement.

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

Thank you.

Toni Kaplan -- Morgan Stanley -- Analyst

And thank you for the update on the 2020 issuance and all the color earlier in the call. I know you don't like to give the forward year at this point, but and there's a lot of moving pieces in the next few weeks, potentially with stimulus and the election, but just help us preliminary -- on your preliminary thoughts on 2021 issuance scenarios. I think your closest competitors forecasting issuance at about down 3. So just hoping to understand if you'll take the over under on that one.

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

Toni. Hi. I'll take that. And appreciate the well-wishes. 2021, I think remains uncertain, just like the balance of 2020. So we're going to give -- as you noted, we're going to give our guidance on the fourth quarter earnings call like we normally do. I think in particular, this year it's going to be very important to see how 2020 ends in terms of issuance, because that's going to be a material factor in pulling together, our 2021 outlook. If we see a real drop off in issuance after the elections, then we may have some pent-up demand starting off in 2021.

I guess, I would say in general from where we sit right now, I think the headwinds probably outweigh the tailwinds, and very importantly, because we had two -- and I'm including this year, two very strong issuance years. And that obviously creates a very tough comps for issuance and in particular for corporate issuance and investment grade issuance. In terms of kind of thinking about the supporting factors going into next year, I maybe highlight a few things, one, obviously, the potential for improving economic growth and an increase in M&A activity, we've certainly seen an uptick in M&A activity this past quarter, and I think we could see more sponsor driven and distressed activity next year.

Sustained Central Bank support along with potentially another round of stimulus and obviously I think a continued low rate environment and that's going to be supportive of refinancing those maturity walls that we showed in the webcast deck. And that means that we may see growth in some areas like our weighting assessment service that works with companies around M&A activity. I think we could see an improvement in bank loans off of a very low base this year, various parts of structured finance. We could see ongoing US public finance and infrastructure issuance taking advantage of very low rates. When we weigh that against the potential headwinds, and starting with like I said a very elevated issuance that we've seen this year particularly in investment grade, which as we said, we expect to be up around 60% versus 2019. That's a hard act to follow. And we've talked about the elevated liquidity lot of issuers, you heard that from Mark in terms of what the banks are thinking that raises the potential for cash rich companies to defer issuance or pay down debt depending on how next year unfolds.

And then I think in addition, the virus is obviously a wildcard. That's likely going to impact the trajectory of any economic recovery in both consumer sentiment and corporate investment and balance sheet management. So hopefully that gives you some insight into our thinking today, but I can assure we will provide a firm view next quarter.

Toni Kaplan -- Morgan Stanley -- Analyst

Very helpful. And then MIS margins, there is an incredibly strong quarter-over-quarter acceleration. And I would have expected cost returning, following the 2Q lockdowns, etc. And so just maybe a continued increase in incentive comp given issuance has been so strong. So just maybe talk a little bit more about the strength in MIS margins and maybe parse out some of the more permanent versus temporary savings, could some of the COVID related reductions eventually return. Thanks a lot.

Mark Kaye -- Chief Financial Officer

Toni, good afternoon. You're absolutely correct. MIS margins this quarter were very strong. 64.2% result was up around 410 basis points compared to the same period last year. And there were two very strong underlying drivers to that. The first was very strong revenue performance and obviously in the quarter. And the second was very strong cost discipline that we showed throughout the quarter. As I think through what the potential temporary in the permanent related items could be in the quarter, we looked at it variety of factors, and that include activities, management team is taking around restructuring and increased automation within MIS, the utilization of lower cost locations, procurement efficiencies and obviously real estate optimization. And a good portion of that that we believe will carry through into future quarters.

On the other hand, we do want to make sure that we are sufficiently and adequately staffed with the right expertise and so there are definitely elements of the leverage that we've created this quarter that we are going to use to reinvest back into the business. So that puts us at more stable in 2021.

Toni Kaplan -- Morgan Stanley -- Analyst

Thank you.

Operator

Next we'll hear from Alex Kramm of UBS.

Alex Kramm -- UBS -- Analyst

Yes. Hello everyone. Appreciate that you want to look at 2021 yet or provide a lot of color. One thing I would ask about 2021, Rob, you just mentioned the loan business having some very easy comps next year and I guess that makes a little bit more bullish on that business next year, but what other factors should we be thinking about in the loan business in particular, is it just about the rate picture near term rates or are there other reasons where that -- why that business could actually make a nice come back next year?

Robert Fauber -- Chief Operating Officer

Yes, with respect to loans in particular, I think we have to acknowledge that generally the borrowers are at lower end of the credit continuum, and as such are more susceptible to the pace and strength of the recovery, whether we have a second wave that forces closings of the economy that have been able to open. So again, this whole -- there is really a set of interdependencies between what's happening politically and what's happening with the disease and what's happening in the economy, more broadly and they play off of each other. And I would say the loan market is particularly sensitive to both positive or negative developments around that set of interdependencies. So hopefully that's helpful to getting to your question.

Alex Kramm -- UBS -- Analyst

Yes, no, that's fair. And then just a quick one here also again sorry that I'm thinking about '21, but to me 2020 is already over, I think. But when I think -- well I think everybody hopes it to the over right. So if you think about the recurring side of the MIS business, I think year-to-date, you've grown at 5% and you cited the strong issuance over the last couple of years. Is it fair to assume that given the strong issues that we had this year that the recurring revenue is the monitoring fees and continue to appreciate it at that pace?

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

Yes, Rob do you want to take that? Sorry.

Robert Fauber -- Chief Operating Officer

Yes. Hey, Alex. I think so, I mean obviously, we've had a little bit of slowdown from the rate of recurring revenue growth that we saw in the second quarter. I think it was something like 5% and that's typically what's contributed to that is ongoing pricing initiatives. I think that remains intact. As you know we had a little bit lower first time mandates, while we were in the height of kind of the pandemic that has obviously picked back up. So I think that improvement in mandates will continue to support our growth rate that looks something like what we're seeing now.

Alex Kramm -- UBS -- Analyst

Okay, very good. Thanks and also -- go ahead.

Robert Fauber -- Chief Operating Officer

Alex, just real quick, I just wanted to add, do keep in mind that the growth in this year related to first-time mandates where the first time mandates we brought onboard last year, those will be somewhat higher than the number of first time mandates we get this year. So there is a bit of a headwind, even though we will continue to have growth. I just want to make sure, you were able to model that correctly.

Alex Kramm -- UBS -- Analyst

Absolutely. Thanks for the reminder, and then again also congrats to all the new roles and enjoy I guess semi-retirement from here. Take care.

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

Thank you.

Operator

Judah Sokel of JP Morgan.

Judah Sokel -- JP Morgan -- Analyst

Hi, thank you. I'll also just echo those congratulatory messages to both you Ray and Rob. Looking forward to continuing the great work with you guys.

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

Appreciate it.

Judah Sokel -- JP Morgan -- Analyst

Just wanted to ask a couple of questions about free cash flow. You touched on the cost expense management that will help free cash flow. It seems like while things have been strong and obviously guidance has taken out generally, it seems like that maybe there is a little bit of a slippage, a little bit of a disconnect in that conversion from EPS to free cash flow details taking up a little bit more. So maybe you could just touch on what's going on there? And then also just touch on the rationale for restarting the share, repurchase program, how are you guys thought about the timing and the amount for getting back into that? Thank you.

Mark Kaye -- Chief Financial Officer

Thanks for the question. Let me start with the first question on free cash flow. So this morning we raised both our full year adjusted EPS and free cash flow guidance by approximately 12%. And based on those midpoints, we are expecting our full year adjusted EPS to grow approximately 21% and our free cash flow to grow approximately 12% for the year and that's really the numerical disconnect that you're highlighting. And the primary driver behind that is very simply due to working capital headwinds that we mentioned earlier this year. So it's specifically the Q1 retirement pension plan funding, the higher 2019 incentive comp payments that were paid earlier this year and then capex. If we adjust for those items, our growth in free cash flow this year is very much in line with our adjusted EPS growth for the year. And then I would simply add to close this out, our forecast of free cash flow conversion of net income is expected to be around 100% at this year.

On your second question around share repurchases, we have not changed, I think it's important for me to say it upfront that we've not changed our long-term strategic approach to capital allocation. We did take several steps earlier this year to ensure that we were very robust working capital available to us under any sort of stress environment and we paused share repurchases, just added in abundance of caution. And I'm obviously very pleased to announce this quarter that we are recommencing our share repurchase program. And we are guiding to a full-year 2020 amount of approximately $500 million subject to available cash market conditions and obviously other ongoing capital allocation decisions.

Longer term, our plan remains to optimize our balance sheet. We're going to obviously lock proceeds with excess cash to invest for growth, after which we'll continue to look to return capital to shareholders by growing the dividends and continuing to repurchase shares. And each of your question around why now, and we feel very comfortable with our very strong financial performance year-to- date. And we are very successful opportunistically, early refinancing our 2021 debt in August. And that really means that we've got a clear pathway for 2021.

Judah Sokel -- JP Morgan -- Analyst

Okay, that's great, thank you guys.

Operator

Craig Huber of Huber Research Partners.

Craig Huber -- Huber Research Partners -- Analyst

Thank you. Rob congratulations as well. Ray, I just want to say as well I think you've done a fabulous job here for the last 15 years if there was a Hall of Fame out there for CEOs, you'd be in it my friend.

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

Thank you. I got to appreciate that.

Craig Huber -- Huber Research Partners -- Analyst

Yes, that's the truth. It's a high bar you put in place for Rob and for the team there. I guess, as we think about the election here, a lot of people, obviously think there is a potential for blue wave here as Democrats sweep in everything here. What do you and Rob, think Ray, that's the implications of potentially higher taxes on the consumer as well as corporations more regulations out there, etc. What that could mean for debt issuance? If you think in the coming years after that, maybe put in place?

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

So Craig, I'll start, maybe Rob might want to add on. But as a starting point, we recognize that there are not going to be identical policies and priorities depending on whether there's a blue wave or whether the Republicans win, hold the Senate, win the Presidency. It's a number of combinations, none of which will produce exactly the same set of priorities and policy elements that will have to address just as our business as well. That being said, we've done very well in both Republican and Democratic administrations as well as in unified and divided government. So in a lot of ways, what we think about is accommodating what the policy priorities are in terms of managing our own business and I think we'll be able to do that usefully. I think we are viewing particularly during this pandemic period as having then a very constructive force in the markets with data analytics information. And so I'm pretty optimistic whichever way this goes, that we will have a successful business.

Now what that means in terms of debt issuance, the devil is going to be with the details there. And I'll pass this over to Rob for a couple of his thoughts on this.

Robert Fauber -- Chief Operating Officer

Craig, it's interesting because this is really the converse to the questions that we were getting just a few years ago with the lowering of corporate tax rates and recall [Technical Issues]

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

Sorry, we lost Rob and so, yes, let me just step in because I think Rob is going to discuss the fact that when we were looking at lower rates a few years ago, there was a lot of speculation and questioning about what it means for -- what happens with, not just lower rates but interest deductibility, tax shields, the pre-fundings of municipal debt, a host of details, that really ended up in some cases being pretty immaterial compared to what had been anticipated in terms of debt issuance, but in other cases caused debt issuance to either be accelerated in the case of part to the municipal sector. Or we did have some effect at the margin. And so again it sounds quite cliche, but the devil will be in the details in terms of the drivers on debt issuance for 2021 and probably beyond.

Craig Huber -- Huber Research Partners -- Analyst

Another question Ray, your outlook -- given the importance of M&A out there historically for debt issuance and obviously it is very weak this year that M&A can have? Why cannot that part of debt issuance not kick up significantly here. Obviously in the next 12 to 18 months as soon as virus gets under control, economies keep picking up in Europe and US. What's your thoughts on M&A here given the interest rate environment, etc for the next 12 plus months?

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

Yes, we've seen an uptick in M&A pipelines just recently. And so that's what we had back in the second quarter is showing signs of getting up off the Kansas. So I'm actually reasonably optimistic about M&A driven debt issuance over the next 12 to 18 months, and it could take a couple of different flavors. This could be a fairly rapid and strong recovery -- economic recovery in which case you'll have businesses pivoting to thinking about how to grow and secure beachheads in attractive adjacencies etc through inorganic activity. Even if that doesn't happen, if the recovery is slow, there are going to be firms that are increasingly distressed. And stronger firms are going to be looking to a distressed M&A market and I think are going to be more inclined to pull the trigger. So I can see a couple of pathways to a more promising M&A environment in 2021 than we have this year, but I'm not sure which path is going to eventuate.

Craig Huber -- Huber Research Partners -- Analyst

If I could also just ask Mark the incentive comp number for the quarter. If you would please, how it's done year-to-date?

Mark Kaye -- Chief Financial Officer

Sure. The incentive compensation for the third quarter was at $77 million. We are now expecting incentive compensation to be approximately $225 million to $235 million for the full year. And I will compare against the initial guidance the beginning of the year around $50 million per quarter or $200 million for the full year.

Craig Huber -- Huber Research Partners -- Analyst

Great. Thank you.

Operator

Next we'll hear from Jeff Silber with BMO Capital Markets.

Jeff Silber -- BMO Capital Markets -- Analyst

Thank you so much. And Ray, let me add, my wishes to you and Rob, congratulations and Ray I just want thank you again for all your help over the years. I know in the previous question -- I know we had a previous question that about the 2020 was over. But we do have a couple of months left, so I just wanted to ask about your 2020 guidance. If I look at the implied 4Q guidance for MIS, I think it's implying a low-single digit revenue decline, but pretty adverse decremental margin impact. Is there some spending going on in the quarter that we should know about or is my math off?

Mark Kaye -- Chief Financial Officer

You're right. You're math is correct. And specifically for the fourth quarter, our guidance would imply sort of a low-double digit decline in MIS revenue and on the expense side, would imply, sort of a high-single digit to the low end of mid single-digit increase in expenses. Specifically if I think about the expense ramp really from the first to the fourth quarter that's really now expected to be around $50 million and that's related to costs associated with the incentive comp, other charitable contributions and then specifically ongoing investments in technology to support our infrastructure to enable better automation, innovation, efficiency as well as business growth. So I think that gives you a little bit of color on your question.

Jeff Silber -- BMO Capital Markets -- Analyst

Yeah, that's actually very helpful, Mark. I appreciate it. And just shifting gears over to what your company is doing or planning on doing in ESG, we're getting a lot of questions from investors, a lot of companies that have different strategies. Can you just give us a little bit more color on what your strategy is there? Thanks.

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

Sure. Rob, do you want to kick it off?

Robert Fauber -- Chief Operating Officer

Yeah, I'd be happy to take that. I think you might want to think about it, we've got three ways that we're thinking about ESG. One is integrating ESG considerations into our ratings in research, and that's really, really important to the Ratings business to ensure that our ongoing relevance and thought leadership, I think you'll also see that eventually be commercialized with our Research business in MA. Speaking of MA, we've got a broad customer base of financial institutions, banks, insurance companies, corporates, who have a increasing demand and need for ESG and climate content to be integrated into the various risk management offerings that we have today. So if you think about whether it's loan origination, now there climate stress testing, you can imagine our commercial real estate platform where we've started to put our fiscal risk scores related to climate from 427. So I think you'll see a good bit of integration and commercialization of our ESG and climate content through our existing and new MA products and services.

And then lastly, we've got stand-alone ESG and climate businesses with Vigeo Eiris and 427. We recently put all that together into an ESG Solutions Group. And so there we are -- we've got scores on thousands and thousands of companies around the world. We're selling those to investors and financial institutions and others. But I think you'll also see us start to develop, and we are developing the sustainable finance offerings for issuers. And there, we've got a sustainability rating through Vigeo Eiris as an issuer paid rating and we've done close to [Indecipherable] year-to-date and we have a second party opinion on labeled bond issuance. So this started in the green bond market, it is moved. Now there is all sorts of labeled issuance transition bonds, green bonds, blue bonds, social bonds and so on, and so we're providing second party opinions on that issuance through Vigeo Eiris.

I'd also note that our affiliates are starting to do the same thing. So CCXI has a green bond offering and our affiliate in Korea has just gotten its first mandate. So I think you'll see us monetize this a variety of ways. And maybe one last point on indexes, because we get this question a lot, how are you going to be able to monetize ESG through indices? We obviously don't have a scaled index business. And so what we're doing is working to partner with other index providers to provide them the data to power their indices. And so a good example of that, Euronext are so active our two index providers that we partner with. We just recently launched a very interesting index with Euronext around energy transition. So I think you'll see us monetize that index opportunity in a different way.

Jeff Silber -- BMO Capital Markets -- Analyst

That's really helpful. Appreciate the color.

Operator

Jake Williams, Wells Fargo Securities.

Jake Williams -- Wells Fargo Securities -- Analyst

Good afternoon. Wanted to pass along my congratulations to both Ray and Rob as well. My question is related to the RDC and I was wondering if you could provide an update on how those synergies are trending? And maybe any discussion around absolute margin level in the RDC business [Technical Issues]

Robert Fauber -- Chief Operating Officer

Yeah, I would be happy to, I'll take that. We're working...

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

Sorry, Rob. Jake just wanted to welcome you to the call. I know I believe this is your first time on [Indecipherable], just wanted to say hello and welcome. I will turn in a substance over to Rob now.

Jake Williams -- Wells Fargo Securities -- Analyst

Thank you very much.

Robert Fauber -- Chief Operating Officer

I appreciate that. But we feel good about RDC in the combination with BvD. It's a great business. Super group of people, and really a good set with the MA portfolio and I was talking earlier about those trends that we're seeing in the KYC market. So I think this was a timely acquisition. So far this year, we've really focused on a joint sales program between BvD and RDC and that I think has been successful. We've seen I think some tangible sales wins that neither BvD nor RDC would have closed without this combination. We've got an initial phase of our integrated compliance offering that's going to be released next month. So that's a key milestone in the integrations of our product offerings. And then we've got the acquisition of Acquire Media, and that further strengthens our capabilities, specifically with RDC. So Acquire Media is a very important supplier to RDC and the Moody's overall, and if that's going to be an opportunity to leverage, there are sophisticated AI driven news aggregation engines to build new early warning signal offerings that are going to further enhance our KYC business as well as actually they have some benefits to our credit and ESG offerings.

In regards to maybe how it's performing slightly better than expectations from a revenue standpoint through the momentum that we had coming into the year with subscription growth, current sales maybe a little bit behind expectations, but that's really just the same overall challenges we've had caused by social distancing. So I think that's very much a temporary issue.

Jake Williams -- Wells Fargo Securities -- Analyst

Got it. Thank you very much.

Operator

Shlomo Rosenbaum of Stifel.

Shlomo Rosenbaum -- Stifel -- Analyst

Hi. Thank you, Rob, I'm going to congratulate you also. But I do want to tell Ray that he just seem little young to be put out to pasture. So...

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

I don't feel young.

Shlomo Rosenbaum -- Stifel -- Analyst

You are seeing energetic on these calls. The questions I wanted to ask you, just some of the strength in our RD&A. Are you -- is the strength going to a 12% organic growth, how much of that is new sales versus the strong retention. Are you seeing a pickup in sales over there as well or is it really just [Technical Issues] Just a little bit more color there.

Robert Fauber -- Chief Operating Officer

Yeah. Hi Shlomo. Yes we are not -- Ray has not been put out to pasture by any means. Thanks for the well-wishes. Just maybe three primary drivers of that RD&A organic constant dollar growth that we're seeing and it's really research, data feeds and these compliance solutions that the KYC solutions in the BvD-RDC business. In Research, I touched on, there is really strong retention rates that 96% in Research is actually slightly up over the last 12 months. That's a remarkably good figure, and the yield on this existing base from upgrades in price related to our enhanced credit vies platform is, I think what's driving that growth. In data feeds, it's interesting. We did some things around sales deployment to get both new logos, but also to sell more product into existing customers to serve a little bit broader range of use cases at these customers so we are seeing really nice growth in organic growth in data feeds.

And then of course BvD-RDC, I think I've talked about that a good bit but to give you a sense the BvD revenue is low-teens this quarter and as you've heard from us, we think there's good ongoing demand in the KYC space.

Shlomo Rosenbaum -- Stifel -- Analyst

Okay. And then maybe this one is for Mark. If we counter a situation in 2021 where you're dealing with the confluence of -- we feel much year-over-year issuance just because of what we saw the strength in this year together with the fact that we will hopefully have more of an opening up in the economy in general in terms of people traveling and more expenses creeping in, what are the main levers that you have to go ahead and kind of manage the margins. And just like philosophically when you manage the business, is that something that you focus on in a heightened way in the near term or is there something that, like you know, hey, the margins, can just go down year-over-year and that's just the nature of the business. How should investors be thinking about that?

Mark Kaye -- Chief Financial Officer

Shlomo it's a very interesting question and it's certainly one that the management team and I think about on a fairly regular basis. Maybe the way I'll address this is by talking through some of the extreme action we've taken this year are implementing now and with the idea that you could infer that doesn't carry through to 2021 to create the financial flexibility that we need as a firm. After this quarter itself, you could see that the adjusted operating expense growth was 1% for MCO and that's again 39% revenue growth for the quarter and that maybe just in early signal demonstrating how strongly we're managing against our expenses. If I carry that forward to the full year and you can see here that our guidance again is for low single-digit percentage growth against a high single-digit NCR revenue number. So that same sort of theme carries forward to the full year, and that's despite absorbing expenses this year related, for example, to COVID-19 bad debt reserves, highly stated comp M&A activity, etc.

Then if I carry that forward a little bit further into 2021, we are targeting to manage our core expenses down with the idea of self funding between $80 million and $100 million of reinvestment back into the business to support underlying business growth, promotion activities, strategic investments like KYC, ESG etc. And that's going to be achieved through some of the cultural expense discipline around again managing those core expenses down to self-fund and that we're going to achieve those savings from procurement activities, IT efficiency, travel and entertainment, real estate etc. So I think that gives you a little bit of color around how we're thinking of managing our expense base to create that financial flexibility in 2021.

Shlomo Rosenbaum -- Stifel -- Analyst

Okay, thank you.

Operator

Next we'll hear from George Tong of Goldman Sachs.

George Tong -- Goldman Sachs -- Analyst

Hi, thanks. Good morning, Ray you will be missed. Congrats on a great run. And Rob, congrats on the new role.

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

Thank you.

George Tong -- Goldman Sachs -- Analyst

So, you noted that you're continuing to increase your mix of transaction-based pricing within MIS. Can you talk about where you are in this process and which of your debt categories you expect to be more focused on with this change?

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

Yes, so I'll just start George but Rob may have additional thoughts. I would really say it's not so much that we have a target ratio or percentage between the recurring and the transaction. But we are noting that a lot of the growth we're seeing is coming from speculative grade issuers and those tend to be less frequent issuers and more inclined to pay on a transaction basis. If we believe and I do that that trend will be continuing, that is going to be pushing in a transactional direction over time in terms of the mix. And Rob, Mark, please weigh in.

Robert Fauber -- Chief Operating Officer

Yeah, I think that's exactly right Ray. Nothing really to add to that.

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

Yeah, OK.

George Tong -- Goldman Sachs -- Analyst

Okay, got it. That's helpful. And then looking forward to the remainder of the year. How would you expect the mix of issuance between investment grade and high yield to change? Especially given the strong rate of high yield issuance we saw in the third quarter.

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

Yeah, Rob?

Robert Fauber -- Chief Operating Officer

Yeah, I'd be happy to kind of take that and maybe let me just talk to you about kind of what we're seeing right now. We -- given how strong investment grade has been year to date, we are seeing some, I'd call it headlines impacting the investment grade market similar to the equity markets. It's elections, earnings and sections, stimulus. I would note that fund flows into investment grade continue to be strong. We've had something like 28 consecutive weeks of inflows and the Fed continues to be a small buyer in the secondary market, and that provides some support. Meanwhile, the conditions in the leveraged finance markets are very conducive to issuance and that's interesting because usually that doesn't happen when we see this kind of equity market volatility, but up until very, very recently, we've seen some relatively aggressive deals, dividend recaps, LBOs and that's even corresponded with an uptick in leveraged loan activity. So we may see the balance of issuance a little bit weighted to leverage finance. But I think some of the strength that we're seeing in the activity, it's just been issuers trying to get ahead of the election related volatility. And as we've talked about, right now, I think we're going to see that activity slow to the end of the year. The last thing I would say is with the upcoming holidays there just there are fewer and fewer windows for issuance for the remainder of the year.

George Tong -- Goldman Sachs -- Analyst

Got it. Very helpful, thank you.

Operator

Next we'll hear from Owen Lau of Oppenheimer.

Owen Lau -- Oppenheimer -- Analyst

Good afternoon and thank you for taking my question. So first of all, very congratulations on your successful career at Moody's and also Rob, congratulations on your well deserved promotion. So for my question, I want to go back to buybacks. If I'm doing my math correctly, dividend and share repurchases, although it's about 50% of free cash flow this year. Is there any room to be more aggressive given that you have a target of 80% in the past and where the share is trading? Thank you.

Mark Kaye -- Chief Financial Officer

Owen, thank you for the question. We target to really manage our capital and that is with an anchor maybe that's the place where it previously was anchoring really around the BBB plus rating. We don't propose, we don't set targets based on percentage of free cash flow return. And with that said, over the past several years and specifically 2015 to 2019, our free cash flow conversion of net income has actually been a 115% when adjusting for the DOJ settlement. This year we expect as I mentioned early on the call, the number to be slightly over 100% or approximately 100%.

In terms of the year to date, the expectation for dividends have been around $350 million year-to-date and share repurchases has been around $253 million. If we hypothetically carry forward the dividend rate since year-end, that will put dividends exactly to $420 million and share repurchase guidance of approximately the $500 million we spoke about earlier, which would be about 50% of our approximately $1.8 billion free cash flow guidance. You're absolutely correct there.

Owen Lau -- Oppenheimer -- Analyst

Okay, got it. And then finally for ERS. I think ERS had a pretty strong quarter and you mentioned the credit assessment loan origination solutions and IFRS 17, maybe, could you please find more color on the reason of that strength and in particular why it happened in the third quarter and also the sustainability of these products going forward? Thank you.

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

Rob?

Robert Fauber -- Chief Operating Officer

Yes, I'll touch on this. Overall ERS growth has been supported by obviously RiskFirst. And as we've said, strong sales of credit lines and in IFRS solutions and insurance solutions, so we've seen as we've done that one of our origination products, we've seen a very good kind of renewal cycle around that. And it's active subscription growth for our credit origination credit assessment origination, has been something like north of 30% year-over-year. And that's again driven by that -- this year-to-date sales of the credit lines, software, but IFRS 17 continues to just to contribute to that as well.

Owen Lau -- Oppenheimer -- Analyst

Okay, got it. Thank you very much.

Operator

Simon Clinch of Atlantic Equities.

Simon Clinch -- Atlantic Equities -- Analyst

Hi, thanks for taking my question. I wanted to just follow up with -- just on the KYC business opportunity that you have and obviously I was just wondering in terms of the data sets that you have and the assets you've acquired, are there any natural ancillary kind of opportunities for the use of that data beyond the sort of KYC market that you're currently talking?

Robert Fauber -- Chief Operating Officer

Yeah, good question. So I think what we're likely to see the broadening of KYC to go beyond simply serving regulatory requirements at financial institutions. You heard me talk a little bit earlier about -- in addition to increasing regulation you got institutions who also just want to have a better understanding of who they're doing business with and going beyond for instance financial crime in the same light reputational risk, data security, social issues around modern slavery and things like that. So I think what that means is, in addition to drivers for KYC, I think we may start to see customers that start to look at this kind of data to understand their supply chain risks. We've talked about on calls before kind of a Know Your Supplier use case. So I think you're going to see this broaden over time.

Simon Clinch -- Atlantic Equities -- Analyst

Okay, interesting. And just in terms of other areas within sort of regulatory tech or compliance tech. Are there any opportunities there as well.

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

So going beyond for instance, our KYC offering is that...

Simon Clinch -- Atlantic Equities -- Analyst

Yes, within the space of regulatory tech beyond KYC?

Robert Fauber -- Chief Operating Officer

I think [Speech Overlap]. It is I think more broadly, we've shown before that the broader regulatory and accounting drivers for our MA business. So there's a whole host of different kinds of regulation, not just KYC, but things around stress testing, regulatory capital calculations, Basel, solvency, a whole range of things that I think are driving demand for both the existing MA products as well as opportunities for us to fill product gaps to meet more and more of these regulatory requirements as they evolve.

Simon Clinch -- Atlantic Equities -- Analyst

Okay. That's interesting. Thanks. And maybe if I could just follow-up on the ESG comments you had before. Just in terms of, across all these different opportunities you have, how do you think monetization of those will develop over time. And I'm thinking because over the next decade I would imagine that a lot of the ESG data that were -- companies and -- investors and companies using would ultimately become just part of the existing process that we have today. So I was just kind of curious as to how you view that opportunity to monetize that beyond what you have today?

Robert Fauber -- Chief Operating Officer

Yes, great question. I think that's right. It's what you're getting at is eventually the data which right now is hard to get, right? So there is real value in good high quality data. But over time, as there are standards around disclosure requirements, as there is automation on through XBRL, the data itself I think will become more commoditized and what will really be valuable is the insights. So I think you're going to see part of the industry evolve. I talked about the sustainability ratings and second party opinions. I think that is going to grow over the medium to long term. We're already seeing a pickup in demand there. And then I think you're going to see like I talked about earlier, the integration of this content into risk management offerings, right? So every financial institution, bank, insurance company in the world is going to have to be really thinking about these non-financial risks ESG, climate and they're going to have to be integrating them into their origination platforms, their monitoring of their portfolios. I talked about stress testing. We're seeing Bank of England with a climate stress test and banks are going to have to comply with that. So I think you're going to see the monetization of that yes new content through the risk management segment.

And back to my point around indexes, we don't have a big scaled index business. But we do have a big scale risk assessment business serving financial institutions.

Operator

And that concludes our question-and-answer session for today. At this time, I would like to turn the call back over to Ray McDaniel for additional closing comments.

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

Okay, thank you. By the way Simon I forgot to welcome you to the call as well. So before ending the call, I would like to reiterate my gratitude to our employees. The resilience, dedication, support really amazed me. I'd also like to thank all of you who have joined on these earnings calls over the years, I think this will be my 63rd. And for those of you who've been long for some or all of the journey, I very much appreciate the interactions we've had. So thank you everybody and enjoy the last two months.

Operator

This concludes Moody's third quarter 2020 earnings conference call. As a reminder, immediately following this call, the company will post the MIS revenue breakdown under the third quarter 2020 earnings section at the Moody's IR homepage. Additionally, a replay of this call will be available after 3:30 PM Eastern Time on Moody's IR website. [Operator Closing Remarks]

Duration: 89 minutes

Call participants:

Shivani Kak -- Head of Investor Relations

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

Robert Fauber -- Chief Operating Officer

Mark Kaye -- Chief Financial Officer

Kevin McVeigh -- Credit Suisse -- Analyst

Manav Patnaik -- Barclays -- Analyst

Toni Kaplan -- Morgan Stanley -- Analyst

Alex Kramm -- UBS -- Analyst

Judah Sokel -- JP Morgan -- Analyst

Craig Huber -- Huber Research Partners -- Analyst

Jeff Silber -- BMO Capital Markets -- Analyst

Jake Williams -- Wells Fargo Securities -- Analyst

Shlomo Rosenbaum -- Stifel -- Analyst

George Tong -- Goldman Sachs -- Analyst

Owen Lau -- Oppenheimer -- Analyst

Simon Clinch -- Atlantic Equities -- Analyst

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