London Stock Exchange Group PLC

LSE:LSEG

Earnings Call Transcript 2020-Q3

[Operator]

Good morning, ladies and gentlemen, and welcome to the London Stock Exchange Group third quarter results. [Operator Instructions] The presentation is being recorded. [Operator Instructions]I will now hand over to your first speaker today, Paul Froud. Please go ahead.

[Paul Froud, Head of Investor Relations]

Thank you. Good morning, everyone. Thank you very much for joining us here today. It's the normal format. So on the call, we'll hear first of all from David Warren, the group CFO, who will talk through our third quarter results. And then we will hear from David Schwimmer, the group CEO, on recent corporate developments. And then after that, we will open up the lines for Q&A.So with that, let me hand you over to David Warren.

[David Porter Warren, Executive Officer]

Thank you, Paul, and good morning, everyone. Today, we have announced our third quarter results, which show a resilient performance across the group against a challenging market backdrop. Total income for the quarter is up 2% to GBP 600 million. And for the year-to-date, we are up 6% at GBP 1.835 billion. Gross profit after cost of sales is up 4% in Q3 and up 7% for the first 9 months of the year. Now within these headlines, let's mention a few highlights.Information Services saw revenue grow by 1% to GBP 223 million and was up 4% on a constant currency basis, reflecting a weakening U.S. dollar in the period. Recurring subscription revenues at FTSE Russell saw good growth with 4% on a reported basis and 7% adjusted for FX, as the business continues to work closely with customers to build new indices, develop our data offering and partner to create benchmark-linked products and derivatives based on our IP.Asset-based revenue was down 7% in the period, down 3% on a constant currency basis, reflecting the lower asset values for some passive funds in the previous quarter. However, revenue was up from Q2 as the ETF market continued to recover from the start of the year. Real-time data showed growth driven by nondisplay licenses while other information was broadly flat.Moving on to Post Trade. Total income grew 5% on a reported basis to GBP 259 million and was up 6% on constant currency for the quarter. OTC clearing revenues were 8% lower, as we saw quiet summer months at SwapClear, with reduced demand for rates risk compared to the same period last year when volatility in the bond markets led to elevated swap clearing activity. In contrast, we saw strong growth in non-OTC revenues, up 11% across fixed income, equities and derivatives.Performance at UnaVista, our post-trade reporting business, includes back billing revenue catch-ups. Growth would be broadly flat if we remove the one-offs seen in Q1 and Q3.Net treasury income continues to perform strongly, but as indicated at our interim results, collateral levels and returns were lower across the period compared to H1 and are expected to remain at lower levels for Q4. Therefore, we maintain our NTI guidance to be similar to H2 2019, assuming no change in market environment.Turning now to Capital Markets. Revenue was flat at GBP 102 million. The period saw a good number of further issues and a third listing through the Shanghai-London Stock Connect. Growth in primary markets was offset by a reduction in secondary markets with lower equity trading activity as the market was subdued during the summer.Technology Services saw a reduction of GBP 1 million to GBP 15 million, sorry, for the quarter, but is flat on a year-to-date basis for gross profit.And finally, cost of sales saw a 16% reduction in the period as a result of a one-off benefit from SwapClear's revenue share agreement due to the high levels of income in the 9 months to date. Last year, this occurred in Q4, and we expect that there will be a further small benefit in Q4 of this year.So in summary, a resilient performance across the business in challenging markets.And with that, let me turn it over to David Schwimmer.

[David A. Schwimmer, Group CEO & Executive Director]

Thanks, David. The Refinitiv transaction continues to progress well. We have received further merger clearances, including foreign investment clearance from the Italian government under Italy's Golden Power Law.In the summer, we ran a competitive process, which resulted in an agreement for the divestment of the entire Borsa Italiana Group to Euronext for cash consideration of EUR 4.3 billion. We reached this agreement in the expectation that a divestment of the Borsa Italiana Group, or part of it, would be a condition to any European Commission clearance for the Refinitiv transaction. And we believe this will contribute significantly to addressing the EU's competition concerns. I should note, the sale to Euronext remains conditional, amongst other things, on the completion of the Refinitiv acquisition.We intend to use the proceeds to repay a portion of Refinitiv's debt, allowing us to return more quickly to our target leverage ratio of 1 to 2x net debt to EBITDA.On a stand-alone basis, the group has a strong financial position with over GBP 750 million of committed facility headroom available. LSEG's credit ratings from Moody's and S&P are unchanged at long-term A3 and A, respectively. Following our announcement on the proposed sale of the Borsa Italiana Group, both ratings agencies have indicated this is credit-positive. And S&P have reduced their potential downgrade to a single notch.We are also moving further ahead with preparation for Refinitiv's integration with, among other things, organizational design, well advanced; senior roles, identified; culture purpose and strategy for the combined group, developed; and plans for synergy achievement set out in detail. We are drafting a prospectus which will contain more information, and we expect to publish it before the end of the year. In summary, we are making good progress on the highly attractive Refinitiv transaction, and we expect to close in the first quarter of '21.Before we turn to questions, as this is his last set of results, I want to express, on behalf of LSEG, our thanks and also my personal thanks to David Warren in recognition of his significant contribution to the transformation and success of the group over the past 8 years.As CFO, David has led on many acquisitions, overseeing the realization of resulting synergies and value creation, kept a tight control on costs and contributed to the strategy and the development of the group. He has done so with his characteristic professionalism, hard work, resilience, humanity and good humor. He has been a terrific leader of LSEG and a good friend to many here. David, I am sure that all on this call wish you all the best with your next steps.

[David Porter Warren, Executive Officer]

Thank you, David. Look, it really has been a great privilege to be a part of this company over the past 8 years and to just really had the opportunity to contribute to what's been remarkable growth and some significant accomplishments and to work closely with you and my other colleagues, a really talented and dynamic management team. And I leave very, very excited about Refinitiv -- future with Refinitiv and the tremendous opportunities ahead.And for those on the call, I want to say thank you to you as well. I really appreciate your continued support and interest and very valuable research we have had over the years from our analysts. I've enjoyed meeting you and speaking with many of you over the past 8 years, so thank you.And I know that I leave the role of group CFO in the very capable hands of Anna Manz, many of you'll have the chance to meet in due course. So thank you, and I'll turn it back to David.

[David A. Schwimmer, Group CEO & Executive Director]

Thank you, David.

[Paul Froud, Head of Investor Relations]

Now let's move on to Q&A. So operator, could you please open the line for our first question.

[Operator]

[Operator Instructions] And we have the line of Haley Tam for the first question from Crédit Suisse.

[Haley A. Tam, Research Analyst]

Congratulations also to David for moving on. My question -- it seems like [ mundane after on ] with that. But two questions on Refinitiv, please, and one just on the Post Trade business.With Refinitiv, given you think the Borsa Italiana deal should significantly contribute to addressing the commission concerns and competition, is there any comment you can give on some of the other actions you might be able to take or propose to resolve some of the vertical concerns that were raised by the commission?And the second question on just the debt refinancing, given the S&P is reducing your potential downgrade to just 1 notch versus 2, is there anything you can say to us about how that might affect the potential refinancing cost expectations for the potential debt you will take on?And then a question just on Post Trade was just on non-OTC revenues, which were very good, year-on-year growth driver. I just wondered if you could give us any idea how much of that does actually relate to your Italian operations, I think MTS, for example.

[David A. Schwimmer, Group CEO & Executive Director]

Okay. So I'll take your first question and then David Warren can address your last 2 on the debt refinancing and Post Trade.With respect to the Refinitiv transaction and the approval process, we continue to engage with the European Commission, I would say, constructive engagement, ongoing dialogue, and not in a position to talk about anything specific with respect to any of the other issues that might have been raised as part of the review, but we continue to make good progress and look forward to closing the transaction in the first quarter.David, do you want to touch on the debt refinancing and the...

[David Porter Warren, Executive Officer]

Post Trade. Yes, sure.

[David A. Schwimmer, Group CEO & Executive Director]

Yes.

[David Porter Warren, Executive Officer]

Yes. I appreciate your question on that. So look, I think that first thing I would say is all of the arrangements that we put in place with respect to the hedging, the bridge facility still remain very much in place. What we can actually achieve on the refinancing will certainly depend on market conditions at the time we are able to finance -- refinance. We expect to go in with a mix of bonds as well as term loans and having the right mix between euros and U.S. dollar.I can't make any predictions, but I would just say generally that rates have remained low and are lower than where they were when we announced the transaction last -- in August of last year as you all well know, as you follow the market. So I think it's favorable, but it would be impossible at this point to pinpoint it any further than that.I think on your question of the non-OTC, it's clearly a mix of businesses: equities, fixed income and derivatives. We don't break out separately the impact of the Italian businesses down to the asset class. But I think we have generally said that the impacts of -- the impacts of Borsa on the future [ comco ] projections and operations are minimal. And I would focus people on the other asset classes, which are continuing to perform strongly, such as equity clearing.

[Operator]

Your next question comes from the line of Philip Middleton from Bank of America.

[Philip David Middleton, Analyst]

Yes. And as one youngster to another, I'd like to again wish David all the best and thank you for all his help over the years. Just as -- I don't know why people are laughing for that.Just on -- just a couple of questions. First of all, on the debt side, do you still feel 1 to 2x is the right leverage for a company with the level of recurring revenues that you will have post Refinitiv, given that your peer universe, following the transaction, can take much more leverage than that?And secondly, and this is much more minor, but coming back to what Borsa return on disposal means for your business. What are the synergies you've always talked about was between the corporate services sales of Refinitiv and the companies you list? Now given that you'll be listing fewer companies [ new thoughts ], are there any implications there?

[David A. Schwimmer, Group CEO & Executive Director]

Do you want to touch on the leverage and then I'll take the synergies.

[David Porter Warren, Executive Officer]

Yes. Philip, thank you. I mean we've had the question before, and it's certainly one that we have had under fairly constant review over the years. I think right now we feel -- we feel like that is the right place to be. Because I think what it does is it definitely imposes a good discipline on us to drive the benefits of the transaction, to delever aggressively and to get ourselves back down into target range.It is certainly something that is continually under review. And I'm not going to make any predictions for the future. I wouldn't do that if even if I was sticking around. But I think right now, we feel like it's the right place to be. We know that, that works well with the rating agencies. And to the extent that we are able to delever quickly, maintain, get ourselves into with a very strong balance sheet, that gives us good capacity for further growth.

[David A. Schwimmer, Group CEO & Executive Director]

And Philip, with respect to your question around any implications on synergies, there's a very modest impact on both the cost side and the revenue side in terms of the Borsa Italiana business leaving the group and having very modest impact on synergies. We do not feel it is a significant-enough impact that it would require us to change any of our guidance around either the cost or the revenue synergies.

[Operator]

And your next question comes from the line of Andrew Coombs from Citi.

[Andrew Philip Coombs, Research Analyst]

It's Andrew from Citi. Just a couple of questions. Firstly, on the Borsa Italiana proceeds. Could you just detail what your expectations are in terms of tax and fees on those proceeds, i.e., the net contribution and therefore how much do you expect to go to pay down the debt?And then second question would be on the net treasury income. Held up slightly better than expected. Can you just clarify, have all the base rate cuts now [ pass ] through, i.e., do you think this quarter is a fair base to extrapolate from?

[David Porter Warren, Executive Officer]

Yes. Look, I think on the first question, I appreciate the question. It's not something we're still working through those calculations, and we don't typically disclose a lot of detail there. But when we're in a position to say more, as the transaction moves forward, we will say more in terms of what we do expect to be the net number that would be available to us. So it's still something that we're working through, but aren't in a position to disclose at this point.I think on net treasury, we did signal at our interims that we expected to see collateral levels come down from the elevated levels they were at. And we also expected that the reinvestment yields would also come down as some of the investments that we made in the first half of the year in a higher-rate environment continue to roll up. That's still very much the trend. We can't predict exactly how that will happen.So it has been -- in certain areas, it's been a little bit better than what we had assessed at the half year. But as I said in my prepared remarks, we still continue to feel good about our NTI guidance that for the second half of this year will be similar to what we achieved in the second half of last year. So we would -- that's what we'd expect for the full year. So fourth quarter will be kind of a continuation of where we are now. But arriving at a total NTI for the second half of the year, that's pretty much broadly flat to where we were last year second half.

[Andrew Philip Coombs, Research Analyst]

Very clear, and all the best, David.

[David Porter Warren, Executive Officer]

Thank you.

[Operator]

And your next question comes from the line of Arnaud Giblat from Exane.

[Arnaud Maurice Andre Giblat, MD & Research Analyst]

I've got a few questions, please. Firstly, if I can start with LCH. So did you have -- how did you understand that the banks take a lower revenue share of LCH revenues as contribution increases there? I'm wondering if you could maybe give us a bit of a feel as to what is the marginal share from here. What marginal share of revenues do they take? So that's my first question.And thanks for the clarification on NII. So we should be expecting quite a step-down in Q4 in [ NII ] if we listen to your guidance?And my third question, sorry, is around Borsa Italiana. So on the divestment of Borsa Italiana, Euronext have highlighted the possibility down the line to break the contract with LCH. I'm wondering if that's something that you've factored in. And what sort of the synergies that, that could entail?

[David Porter Warren, Executive Officer]

Yes. David, maybe I'll take the one on LCH cost of sales. Yes, so I appreciate the question. The reason -- these are -- as we've said before, these agreements with -- these agreements with the banks are confidential. So we have not in the past and certainly not going to be giving any more sort of precise information about the actual splits.But I think the structure of this, the concept of this is that, as you alluded to in your question, and I think you understand this, that we do receive a greater share of the revenues and are receiving the greater share of the revenues in the third quarter, given the activity levels that we've achieved in the first 9 months. When we hit those activity levels, we do get a greater share of the revenues.You will see that without going into the specifics about the percentage of shares. Obviously, you see that benefit in the cost of sales line. So you saw that in Q3. Last year, it occurred in Q4, that change in sharing dynamics. So it was in the Q4 cost of sales. But it was really all part of the overall financial statements that [indiscernible] as part of the premiums. So I can answer -- I really can't answer your question specifically, but I just can tell you that, that concept is, if we've reached a -- when we reach a certain level of activity, we are able to get a greater share of the revenues.

[David A. Schwimmer, Group CEO & Executive Director]

And Arnaud, with respect to your question around the possibility of clearing and breaking the clearing contract, so we do have a clearing relationship with Euronext, constructive relationship, good working partnership. The existing contract runs through 2027. As Stéphane Boujnah has mentioned, to the extent that they would want to try to change some of the clearing and make use of CC&G for some asset classes that it doesn't currently clear, that would require some technology investment, that would require changes in capital requirements, it would require some regulatory approvals.And in addition to that, we do operate in an open access environment with -- also with a lot of interoperability among the various clearing options. So there's a customer behavior or a customer choice [ at moment ] to this as well. So given all of those factors, we don't see this as a near-term issue, and we look forward to working constructively with Euronext in the coming years.

[Arnaud Maurice Andre Giblat, MD & Research Analyst]

David, if I can just follow-up. When you acquired LCH, LME was able to launch their own clearing technology and shifted quite instantly actually all the clearing volume. Could this be the case with Euronext? Or is it -- is it really up to the clients to decide where they're clearing on certain products?

[David A. Schwimmer, Group CEO & Executive Director]

So it's a little bit different asset-class-by-asset-class in terms of how some of the customer preferences will work. But also, there is a significant difference in that we have an existing contractual relationship. There are certain opportunities to terminate that contractual relationship with substantial notice periods, et cetera. So this is not something that is going to be a quick change. Hope that helps.

[Operator]

And your next question comes from the line of Mike Werner from UBS.

[Michael Joseph Werner, Executive Director and Equity Research Analyst]

Just a couple of questions. One, just on the yield, the sets yields, you reported, I think it was 0.76 basis points. That was the highest that we've seen, I think, in over 10 years. I was just wondering if you could provide a little color there. And is that something we can expect going forward on a run rate perspective?And then second, just I guess a quick clarification on the clearing relationship, particularly between MTS and LCH. I was just wondering if there was anything contractual there. Or again, this was just kind of more of a client preference book and access relationship?And then finally, we've certainly seen revenue growth slow a little bit this year at LSC versus some of the growth rates that we have seen in previous years. Just looking forward as to the 5% to 7% guidance for revenue growth for the first 3 years of the combined LSE-Refinitiv entity, I just wanted to see if that's something that you're still very comfortable with.

[David Porter Warren, Executive Officer]

Yes. Maybe David, I'll start. But I mean, on that, Mike, on the sets yield, I don't have the answer to hand. Perhaps Paul does, or we can just come back to you with it. Paul, what would be the [ proposal mix ]. Okay. Okay. I can't. I think he's not -- Paul may be muted. So why don't we just come back to you on that one, okay? I appreciate the question.

[David A. Schwimmer, Group CEO & Executive Director]

And then on clearing in the MTS-LCH relationship, that is, I don't believe, and we will come back to you if I'm getting this wrong, or Paul feel free to speak up if I'm getting this wrong, I do not believe that, that is a contractual relationship. I believe that is a customer preference and a, call it, an asset class-driven destination. Meaning that the product, mainly the fixed income product that is coming off of MTS LCH has particular liquidity strength, market presence in that area where it would make sense for customers to clear that product within LCH, get the benefits of netting, et cetera. So that's a key driver there.And then on your final question with respect to revenue growth targets, no change in our guidance with respect to revenue targets or any of the other metrics that we put out when we announced the transaction last August. So we continue to feel comfortable with those targets.

[Operator]

[Operator Instructions] And your next question comes from the line of Chris Turner from Berenberg.

[Christopher Myles Turner, Senior Equity Analyst]

It's Chris Turner from Berenberg. Just a couple of questions from me, please.Firstly, regarding the Information Services division. I guess we spent a lot of time talking about FTSE Russell. But actually the strongest growth this year has come from your real-time data business. You delivered 11% revenue growth there despite terminals falling 3%. So please, could you provide some color on the types of firms that are buying that data? Why they are buying more of that data than in the past? And then perhaps, if it's not too much of a stretch, what that tells you more broadly about demand for data and data feeds generally?And then secondly, the agreement that you've signed with Singapore Exchange seems actually to be quite broad in scope. Could you perhaps share some of your strategic thinking behind that partnership? And then specifically, in terms of the timing, I know Singapore are due to lose their MSCI indices early next year. So is that the kind of time frame we could think about having these FTSE Russell alternatives up and running? Or will it take a little bit longer than that?

[David Porter Warren, Executive Officer]

Okay. Thanks, Chris. Perhaps I'll take the first one. Look, we are pleased with the growth we're seeing in real-time data. We've had a really -- we've had a good new business performance there. There certainly are some new customers here. But a lot of this is our ability now to -- because we are increasingly shifting away from terminals as the primary method of delivery and pricing to an enterprise license, where more of the information and the data products that are being requested, that are being supplied are going in into our customers through feeds, that. Has been and continues to be a very growing trend.So given the way we're now distributing the data, it gives us the opportunity to broaden out the range of products that we're able to distribute. So a lot of this is responding to new demand that's coming from existing customers as well as some new customers. So again, good growth in nondisplay data. And also, I think the ability to capture on the opportunities that are now available to us, with enterprise packages now shifting away from terminals to a more enterprise license approach to each customer, a lot more flexibility for us to customize delivery enterprise accordingly. So this is clearly a trend we're seeing.And as we've talked about in the past, it's very similar to the trends that we're seeing at Refinitiv, and we think also very much a part of the trend going forward that customers will consume data and analytics in a variety of distribution channels that are beyond the desktop. They're going to be -- they're going to be in the cloud, and it will be through partnerships. They're going to be through feeds. And that's a very important part of the opportunity we now have with Refinitiv.

[David A. Schwimmer, Group CEO & Executive Director]

Thanks, David. And Chris, I'll take your question on the Singapore relationship. FTSE Russell has a strong relationship with Singapore, the Singapore Exchange, as we do with a number of other exchanges around the world. I think it's -- as you know very well, it's one of the strengths of our open access model and working with partners who can use our products.In August, we did enter into a long-term strategic agreement with the Singapore Exchange for the development of really comprehensive Asian and emerging markets-focused multi-asset index derivatives products. The -- I should just mention the FTSE China A50 derivatives, which are traded on Singapore Exchange, have seen strong quarter-over-quarter growth in Q3. It's up over 50% to, I think, something along the line of 29 million contracts traded.So we do have a lot of confidence in our offering. We have a lot of confidence in that relationship. And to your specific question in terms of the timing of rollout of new product, that is in process. And a great example is the launch -- we launched over the summer the FTSE Taiwan Index Futures on SGX. That's grown over 3 months to be trading over $1 billion per day and over 1.1 million contracts traded to the end of September. So a good sign there and more to come in that space, I would say. Can't give you specific timing on product rollouts, but more coming there. So hopefully, that addresses the question.

[Operator]

And your next question comes from the line of Ian White from Autonomous Research.

[Ian White, Research Analyst]

I'll just add one question, please. I noticed that some of your peers are exiting the regulatory reporting business on the grounds that it basically has questionable economics for them. Why is the group better positioned than those peers to remain in the regulatory reporting business, please?

[David A. Schwimmer, Group CEO & Executive Director]

Yes. David, do you want to...

[David Porter Warren, Executive Officer]

Yes, sure. The regulatory reporting space is one that, as you know, over the last few years, the regs have changed quite a bit. A bunch of our peers or competitors got into that space in response to some of the regulation over the last few to several years. And for some of them, they just have not achieved scale or has not been a productive use of capital.And we can't comment on others' decisions to exit, but I think it is not surprising that given the competitive dynamic and given the number of players that did originally go into it, it does feel as if that space is consolidating a little bit, which is probably a healthy consolidation. So we feel comfortable that the business, we think, its results are solid, and we have no plans with respect to our own business.

[Operator]

And your next question comes from the line of Johannes Thormann from HSBC.

[Johannes Thormann, Global Head of Exchanges and Analyst]

Good morning, everybody. And thank you, David, for all the helpful discussions. Johannes from HSBC. Two questions I had left. First of all, previously, you were targeting double-digit growth in FTSE Russell revenues. Now you're seemingly happy with 4%. What has changed in your views?And secondly, I have to come back to the NTI from LCH. How much are you playing -- how much is the duration mismatch which was so far successful? Will this run down? Or do you expect to increase it over the next years to keep a healthy level of NTI from this business?

[David Porter Warren, Executive Officer]

Sure. So I wouldn't necessarily agree with the premise of your question that we're satisfied with 4% on a reported basis. That's certainly where it is. We're pleased that, that business, I think this year, that business, as we said at the beginning of the year, in terms of new sales was going to be in a bit of a challenging environment, particularly in the first half of the year. And we talked about that in our Q1 call. But we're pleased to see that business continuing to build.There certainly are some FX effects on this business on a reported basis, but if we look at it like-for-like sequentially, we're very pleased with the growth. We're pleased with the work that we're doing on new product development. We're pleased with the work that we're doing on strengthening our research, analytics and sales forces. So we continue to feel very good about that business.Sort of a difficult market right now, I think, to make future decisions. But we did talk about a shift where we were going to move more from a sales model to a customer partnership model. And we're very pleased with how that progress is going. We're rolling out a number of new products in ETFs and ESG. We've got a number of good research projects going on. So we're very pleased with the development there. And we definitely have strengthened both the leadership as well as the people working in our areas of research, sales and product development.So overall, I think, pleased with that and definitely can see it as a continuing growth business. But I think in this market, difficult to say. But I would certainly bring you back to the point that sequentially it has been building this year in a very challenging environment.I think the second question you asked was around NTI. Look, I think on NTI, this is really not about reaching for yield. We earn NTI, as you know, through really 2 plays. About 2/3 of our NTI is really basically a fee, a handling charge, if you will, which is -- which is the agreed -- the overnight rate that we agreed to return to our customers minus an agreed spread, which is kind of a handling charge. We then can earn, depending -- we then can look to invest that. But that's invested in, as you know, secured, highly liquid, short-term products that are sort of 30 days, 60 days, 90 days.So whatever we can earn on that goes as an addition to that. So this is not a situation where we, in any way, look to take yield. We're not about -- we have to manage this within very tight risk parameters around liquidity and investor concentration. So really, we have made good strides, I think, in terms of expanding the range of counterparties and the -- and the investment opportunities that we can have for placing this cash consistent with our risk parameters, and we'll continue to do that.But it is not something where we're going to be looking to do anything. We're not going to do anything different on the yield environment. We're going to take opportunities that present themselves with different instruments in different markets, but very consistent with our risk parameters.

[Johannes Thormann, Global Head of Exchanges and Analyst]

Okay. All the best for you.

[David Porter Warren, Executive Officer]

Thank you.

[Operator]

And your next question comes from the line of Kyle Voigt from KBW.

[Kyle Kenneth Voigt, Associate]

Just two questions for me. The first is on Borsa Italiana. You made it clear that the potential divestiture would happen after the Refinitiv deal closure, and those proceeds would go towards debt repayment. So assuming no other remedies are required by the European Commission, is it also fair to assume that you will not be exercising that $2.5 billion equity to cash consideration swap that's available at the Refinitiv deal closure? Second question, just on Refinitiv. You've given an update on the cost plan, which seems to be progressing pretty well. Just considering -- or just wondering if you could provide an update on how those conversations are going on the revenue side with Refinitiv customers to potentially migrate pricing more towards enterprise fees.

[David Porter Warren, Executive Officer]

Sure. I think I can say pretty cleanly, as we've made it clear in our announcements, we expect to use the proceeds to reduce Refinitiv debt. So no expectation at this point that we would use the term that you referred to in our contract in terms of reducing the -- utilizing that $2.5 billion bucket, if you will. So no expectation that we'd be using that.And then on the -- sorry, remind me, your second question was around...

[Kyle Kenneth Voigt, Associate]

Just on Refinitiv and the -- an update on how their -- the migration of pricing towards -- more towards enterprise fees [indiscernible] basis.

[David A. Schwimmer, Group CEO & Executive Director]

Yes. Sorry, so that process is ongoing. And as we had mentioned when we've talked about this in the past, this is a -- really a customer-by-customer conversation. And Refinitiv continues to have these conversations with their customers as they work through new contractual relationships and particularly in this environment, where a number of the customers are also feeling the challenges of the environment. That kind of model is continuing to get good reception.So we're not in a position today, especially given we haven't even closed on the transaction, to give more specificity or more color on that or any particular contractual agreements with their customers, but that approach continues to gain traction.

[Operator]

And our last question comes from the line of Bruce Hamilton from Morgan Stanley.

[Bruce Allan Hamilton, Equity Analyst]

Thanks, and congratulations to CEO -- to CFO. Two questions. Just following up on the debt, the reduced sort of debt that you're likely to bear on the Refinitiv deal. Sorry, I may have missed this earlier, but can you give any indication on the improvement on the credit rating that you expect, at least 1 notch better. Should we expect that 30, 40 bps lower on sort of blended cost of debt going forward?And then secondly, given that we think your, in our calculations, your net debt leverage will be comfortably in your range, probably by year 2. How should we think about the ability to do further substantial strategic moves? Would there be too much of a limitation on management bandwidth, given the integration of the Refinitiv deal? Or would you feel perhaps at that point after, say, 12 months? I'm just trying to think about, obviously, even maybe jumping the gun given you still have to close this deal. But thinking ahead, how quickly will you move on to think about all the sort of strategic options beyond this?

[David Porter Warren, Executive Officer]

Well, thanks, Bruce. I think maybe I'll answer the first one, and it's probably more appropriate for David to answer the second one.But we're obviously -- we obviously note the report that S&P put out. And if we are able to achieve a rating on the new [ comco ] credit of a low A rating, obviously, that's favorable. You can do -- you can certainly do your own analysis about credit spreads between a BBB+ and an A-. But I think -- and I think as I said in response to a question, a related question that I got in this earlier, rates are definitely favorable. I think we've said in the past that we had assumed -- I think there was -- I think the Refinitiv debt has in our modeling, I think, about 6%. We had assumed for our initial modeling somewhere in the range of 3%.The market has definitely improved, lower from a yield perspective -- from a yield and rate perspective now than it was back in August of 2019. So directionally, it's all positive, Bruce. But I think until we actually get into the market and test different maturity levels and different mixes of currencies, we're not going to really know and also the mix between fixed and variable. But just directionally, it is definitely favorable from where our earlier projections have been.

[David A. Schwimmer, Group CEO & Executive Director]

And on your second question, Bruce, you're obviously correct. We'll -- if we use the proceeds to pay down Refinitiv debt, we'll get closer to our target range more quickly. We have committed to our investors and to the rating agencies that we want to do that as a priority. Having said that, a couple of other things. We have a lot to do as part of our Refinitiv integration, and we will be very, very focused on that. But we also have to keep our eye on the outside environment.So we are -- I think we will be pleased when we are in a position with lower leverage that we can continue to consider strategic options. But to the extent that we do consider anything, we will apply the discipline that you have seen us apply in the past, and we'll be very focused on attractive returns situations that make sense from a strategic perspective.But again, none of that is near-term urgency. We are very focused on bringing down our debt and very focused on executing on the integration. So we will have that optionality a little bit sooner in the future.

[Operator]

And there are no further questions at this time. Mr. Paul Froud, I'll turn the call back over to you.

[Paul Froud, Head of Investor Relations]

Great. Thank you very much. So that was the last question. Let me just thank everybody on the phone lines. Thank you for your questions. Thanks for those joining on the webcast as well. And finally, thanks and congratulations to David on the completion of your last quarterly conference call.For everybody else, please do reach out to IR team if we can be of any more assistance during the course of today. Otherwise, we're going to end the call now. Operator, back to you. Thank you very much.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.