January 9, 2013 / 8:52 PM / 5 years ago

TEXT - S&P revises Janus Capital outlook to negative

Overview
     -- Janus continues to experience net asset outflows.
     -- We are revising our outlook on Janus to negative from stable. At the 
same time, we are affirming our 'BBB-' long-term issuer credit rating on the 
company.
     -- The negative outlook reflects our opinion that lagging longer-term 
investment performance could result in continued net asset outflows, which 
could weaken financial performance in 2013. 

Rating Action
On Jan. 9, 2013, Standard & Poor's Ratings Services revised its outlook on 
Janus to negative from stable. At the same time, we affirmed the 'BBB-' 
long-term issuer credit rating on the company. 

Rationale
The outlook revision reflects the potential weakening in profitability and key 
credit metrics in 2013, should Janus continue to experience net asset outflows 
over the next year. The continued net asset outflows in both fundamental 
equities and mathematical equities are a concern. While the rest of the 
industry is also experiencing negative outflow from actively managed domestic 
equity products, Janus' concentration in equities magnifies the problem. 
During the first nine months of 2012, fundamental equities and mathematical 
equities outflows were $7.7 billion and $4 billion, respectively. As of Sept. 
30, 2012, Janus had $158 billion of assets under management (AUM), of which 
82% were in equities.

We believe that the key hurdle for Janus is improving investment performance 
in fundamental equities in the longer term. Although Janus has significantly 
improved its short-term investment performance, three- and five-year 
investment performance is still lagging. On a year-to-date basis, through Oct. 
31, 2012, 77% of Janus fundamental equity mutual fund assets were in the top 
two Morningstar quartiles. On a three- and five-year basis, only 23% and 34%, 
respectively, of Fundamental Equity mutual funds were in the top two 
Morningstar quartiles through Oct. 31, 2012.

Janus' profitability declined during the first nine months of 2012 as a result 
of a decline in average AUM and an increase in negative performance fees. For 
nine months ended Sept. 30, 2012, Janus' performance fees were negative $61.8 
million, compared with negative $2.5 million in the prior-year period. Because 
Janus might not improve its longer-term financial performance for several 
years, we believe that negative performance fees could persist and dampen the 
company's profitability over the next few years.

Janus posted net income of $71.1 million for the first nine months of 2012, 
compared with net income of $107.2 million in the prior-year period. The 
EBITDA margin was 31.4% in year-to-date 2012, compared with 38.4% for the 
first nine months of 2011. Janus' key credit metrics have also slightly 
deteriorated in year-to-date 2012, relative to 2011, but are still in line 
with other investment-grade asset managers. EBITDA interest coverage, based on 
the first nine months of 2012, declined to 5.95x from 7.2x in full-year 2011. 
Debt leverage, based on annualized nine months 2012 EBITDA, was 2.1x, a slight 
increase from 1.7x as of Dec. 31, 2011, but still consistent with the current 
ratings.  

Despite these difficulties, the rating affirmation recognizes that Janus had 
several positive strategic developments over the last year. The company 
continues to diversify its business by building out the fixed income and 
international platforms. In the third quarter of 2012, fixed income AUM 
exceeded $25 billion for the first time in the company's history but still 
only represents 17% of total AUM. In August 2012, Janus entered into a 
strategic alliance with the Dai-ichi Life Insurance Company, the third-largest 
life insurer in Japan. Although the alliance is still in the early stage, we 
believe it could benefit Janus in its global business development efforts.
 
In our opinion, Janus continues to maintain to conservative financial 
policies, a factor that supports the ratings. During the past several years, 
the company significantly reduced its outstanding debt obligations. The par 
value of outstanding debt declined to $561.2 million as of Sept. 30, 2012, 
down 49% from a peak of $1.1 billion as of Dec. 31, 2008. The next major debt 
maturity occurs in 2014, when the $38.9 million 6.119% senior notes and the 
$170 million 3.25% convertible notes, which can be settled in cash or 
securities at management's discretion, come due in April and July, 
respectively. With $353 million of cash and cash equivalents as of Sept. 30, 
2012, we believe the company should have ample liquidity to service its 
maturing debt. 

Janus' total equity had slightly improved to $1.39 billion as of Sept. 30, 
2012. The company's tangible equity was $112.7 million as of Sept. 30, 2012, a 
considerable improvement from $31.8 million as of Dec. 31, 2011, and negative 
tangible equity in the prior years.
Outlook
The negative outlook reflects our concerns that if Janus does not improve 
three- and five-year investment performance in fundamental equities, it could 
continue to experience net asset outflows. In our opinion, there is a 
one-third probability that Janus' net asset outflows and negative performance 
fees could seriously hamper the company's financial performance in 
2013--possibly warranting a downgrade. If net asset outflows were to 
accelerate and financial performance were to further deteriorate, resulting in 
materially weaker credit metrics (EBITDA cash interest coverage below 5.5x and 
debt leverage above 3x), we could lower the ratings. Alternatively, if Janus 
can improve its longer-term investment performance, demonstrate a sustained 
reversal of net asset outflows, and maintain the financial profile that 
supports the current ratings, we could revise the outlook back to stable. 

Related Criteria And Research
Criteria | Financial Institutions | Other: Rating Asset Management Companies, 
March 18, 2004

Ratings List
Ratings Affirmed; Outlook Action

                                       To                 From
Janus Capital Group Inc.
 Issuer Credit Rating                  BBB-/Negative/A-3  BBB-/Stable/A-3
 Senior Unsecured                      BBB-

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