Moody's Investors Service on Tuesday raised its ratings outlook on NYSE Euronext to "positive" from "stable" after the parent company of the New York Stock Exchange said it plans to combine with Deutsche Boerse, the operator of the Frankfurt stock exchange.
The ratings agency said the deal, which will create the world's largest exchange operator by revenue and market cap, will improve NYSE Euronext's credit profile by strengthening its ability to generate cash flow. Moody's maintained its investment-grade rating of "A3/Prime-2" on $2.5 billion of the company's debt.
The combined, still-unnamed company will operate dual headquarters in New York and Frankfurt. It will own exchanges in those cities, as well as Paris and Amsterdam, among others. Deutsche Boerse shareholders will own 60 percent of the new company and NYSE Euronext Inc. shareholders will own the remaining 40 percent.
NYSE Euronext will gain a larger footprint in the more lucrative business of trading in futures and options contracts with the help of Deutsche Boerse's technology, customer relationships and expertise, said Alexander Yavorsky, Moody's vice president.
"With the Deutsche Boerse merger, NYSE Euronext creditors would benefit from the combined entity's broader and strategically better-positioned franchise and stronger cash flow generation," he said in a statement.
Moody's added that if the merger wins approval from the U.S., Germany and European Union — a process that could take several quarters — it would likely be eligible for a rating boost.
Other stock exchanges have combined in order to save costs. The NYSE Euronext-Deutsche Boerse merger is expected to lead to $400 million in savings, mainly from technology and clearing costs.
Under the agreement, NYSE Euronext's CEO Duncan Niederauer will be CEO, and Deutsche Boerse' CEO Reto Francioni will become chairman. The boards of both exchange owners have signed off on the deal, but it must still be approved by shareholders and regulators.
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