S&P Global Inc. (SPGI) Q1 2020 earnings call dated Apr. 28, 2020
Corporate Participants:
Robert S. Merritt — Senior Vice President-Investor Relations
Douglas L. Peterson — President, Chief Executive Officer & Director
Ewout L. Steenbergen — Chief Financial Officer & Executive Vice President
Analysts:
Michael Cho — JPMorgan — Analyst
Toni Kaplan — Morgan Stanley — Analyst
Manav Patnaik — Barclays — Analyst
Alex Kramm — UBS — Analyst
Hamzah Mazari — Jefferies — Analyst
Jeff Silber — BMO Capital Markets — Analyst
George Tong — Goldman Sachs — Analyst
Trevor Romeo — William Blair — Analyst
Craig Huber — Huber Research Partners — Analyst
Presentation:
Operator
Good morning, and welcome to S&P Global’s First Quarter 2020 Earnings Conference Call. [Operator Instructions]
We will open the conference to questions-and-answers after the presentation and instructions will follow at that time. To access the webcast and slides, go to investor.spglobal.com.
[Operator Instructions]
I would now like to introduce Mr. Chip Merritt, Senior Vice President of Investor Relations for S& P Global. Sir, you may begin.
Robert S. Merritt — Senior Vice President-Investor Relations
Thank you for joining us today for S&P Global’s first quarter earnings call. Presenting on today’s call are Doug Peterson, President and CEO; and Ewout Steenbergen, Executive Vice President and Chief Financial Officer. As you expect, we are calling remotely instead of hosting this call together from our headquarters. If you notice any delays, we thank you for your understanding.
We issued a news release with our first quarter 2020 results earlier today. If you need a copy of the release and financial schedules, they can be downloaded at investor.spglobal.com. In today’s earnings release and during the conference call, we’re providing adjusted financial information. This information is provided to enable investors to make meaningful comparisons of the corporation’s operating performance between periods and to view the corporation’s business from the same perspective as management’s.
This earnings release contains exhibits that reconcile the difference between the non-GAAP measures and the comparable financial measures calculated in accordance with US GAAP. Before we begin, I need to provide certain cautionary remarks about forward-looking statements. Except for historical information, the matters discussed in the teleconference may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including projections, estimates and descriptions of future events. Any such statements especially those relating to our outlook and associated scenarios regarding the impact of COVID-19 pandemic are based on current expectations and current economic conditions and are subject to risks and uncertainties that may cause actual results to differ materially from results anticipated in these forward-looking statements. In this regard, we direct listeners to the cautionary statements contained in our Form 10-Ks, 10-Qs and other periodic reports filed with the US Securities and Exchange Commission.
I would also like to call your attention to European regulation. Any investor who has or expects to obtain ownership of 5% or more of S&P Global should give me a call to better understand the impact of this legislation on the investor and potentially the company. Were aware that we do have some media representatives with us on this call. However, this call is intended for investors and we would ask that questions from the media be directed to Dave Guarino at 212-438-1471.
At this time, Id like to turn the call over to Doug Peterson. Doug?
Douglas L. Peterson — President, Chief Executive Officer & Director
Thank you, Chip. Good morning and welcome to today’s earnings call. I hope everyone has adjusted to your new working environment and is staying healthy and safe. The world is in a completely different place than we have ever seen before. I want to start by acknowledging that this is a very challenging time for all of us, and our thoughts are with those most impacted by COVID-19. I want to especially thank first responders and essential employees who are on the front lines of the crisis. Today, I would like to share with you what we are doing at S&P Global to support our employees and serve the market, our communities and our customers in this unprecedented and uncertain time. We’re very proud of how quickly we’ve been able to move to remote work-from-home environment, and I will share some of those examples with you today. We will also share with you how our company’s financials could be impacted for the remainder of the year under variety of scenarios. We are pleased to report strong first quarter financial results. Revenue increased 14% and adjusted diluted EPS increased 29%.
We have a solid balance sheet and ample liquidity. We’ve spent a great deal of time positioning for an event like COVID-19 by enabling nearly all our employees to seamlessly work remotely. Putting our people first and keeping them safe and healthy informs all our decisions. We continue to actively engage with clients, regulators and governments, providing data, analytics, ratings and research in a timely and transparent manner. We are very pleased that we’ve been able to deliver uninterrupted product access across our businesses throughout entire transition to our employees working from home. It’s in uncertain times like these that our data analytics, ratings and research are most important to our customers. Usage of many of our products has surged since early March. While none of our businesses are consumer-facing, our businesses are impacted by the health of both our corporate customers as well as the financial and commodity market.
The health of many of our customers will be tested as the year progresses. Nevertheless, we believe that it’s essential to continue to advance our growth investment and ongoing cost reduction programs. We are proactively analyzing the impact of the pandemic on our businesses and the management actions we need to take. Ewout will review these in a moment. In response to COVID-19, we start with our employees. In putting our people first, we were an early adopter of work-from-home policies in travel restriction. We also retained a dedicated chief medical officer as a consultant, increased mental and emotional health services and even began shipping news to employees in India who were unable to secure them on their own. As of now, it’s not our intention to furlough or lay off employees because of COVID-19. We will, obviously, evaluate that as scenarios play out. We’re successfully operating with over 99% of our employees working from home. We shipped over 3,000 desktops to those employees’ home who did not have company laptops, provided significant technical support and expanded our VPN to accommodate a six-fold increase in usage. We have also reached out to help our communities. We’ve introduced free COVID-19 websites so that anyone can access our special research. We provided complementary access to achieve a supply chain information to hospitals to track essential items. And we’ve donated 100,000 medical grade face masks to first responders in various parts of the world. And the S&P Global Foundation has donated $4 million to support small businesses and other COVID-19 relief efforts. Interactions with governments and regulators are also critical in times of market strain. We’ve had over 40 COVID-19 related interactions with roughly 20 different regulators, discussing our views of markets and economic condition. We have engaged with countless state and local government, public health officials and universities to provide free access to various data platforms with supply chain and credit market information and engaged with central banks to discuss credit market conditions and emergency lending facilities.
We are acutely aware that our clients are facing challenges and working in new ways. It’s been imperative that we continue to serve them during these difficult times. In Ratings, we’ve been deploying technologies, which have helped ensure continuity of surveillance and facilitated the issuance over 2,000 new ratings in the quarter. And since the beginning of the year, we have taken over 1,300 negative rating actions, which included rating downgrades, credit watch changes and outlook revision. In Market Intelligence, our global operation centers remain fully operational, and we’ve delivered uninterrupted availability across our product suite. In fact, we have 90% plus productivity in all core data and tech operations, which based on survey information for locations in India is best-in-class. Platts Market-on-Close process saw our teams from around the world step up to maintain accurate and timely price reporting despite our employees working from home. Indices real-time systems have maintained 100% uptime as it calculated critical market indicators such as the S&P 500 and the Dow Jones Industrial average, all under incredibly volatile market condition.
We continue to serve the markets with research and analytics. Depicted on the right are examples of some of the many research papers we’ve made available. Much of this content is available from our free COVID-19 website I mentioned. I would highly recommend you visit the site. We’ve created deep content analysis covering the financial and commodity markets. We’ve seen a significant increase in engagement with our insights through webinars and digital online offerings. You can see some of the usage statistics on this slide. We have endured economic downturns in the past, most notably the recent financial crisis in 2008. This chart depicts our revenue for the past 15 years. We included SNL data for the entire period, even though we didn’t purchase it until 2015.
We’ll also note a jump in revenue in indices in 2013 from the addition of Dow Jones Indices as part of the formation of the S&P Dow Jones Indices joint venture, any year that the declining revenue is depicted in dark blue. The most notable takeaway is that there were no revenue declines in any of the businesses except Ratings. And as a reminder, the vast majority of the decline in Ratings revenue in 2008 was related to structured finance in US RBS in particular. While these may be interesting data points, we’re not suggesting that the current pandemic-related economic downturn will have the same impact on revenue and performance as in past downturns because of circumstances around the global pandemic are new for all of us. Despite our resilience and financial strength, we’re not immune to structural risks arising from COVID-19. These include risks to the macroeconomic environment to bond and credit markets, to equity markets and to oil markets. We could see low volumes in bond issuance, weak new sales and renewals for subscription and data product or further drops in AUMs amongst the many risks that can arise. We’re staying close to the trends. The longer the pandemic continues, the greater the risk.
Now turning to the first quarter results, all four divisions delivered revenue and adjusted operating profit growth. We delivered significant margin improvement as revenue growth and productivity initiatives offset stepped up investment spending associated with our growth initiatives. Our adjusted diluted EPS grew 29% in the quarter. We think that it’s important to continue to invest in growth initiatives such as ESG, China and marketplace despite economic uncertainty as these projects are important elements of our future growth. We also launched several new products during the quarter, which I’ll review with you in a moment. And we named Dan Draper as CEO of S&P Dow Jones Indices, replacing Alex Matturri effective mid-June. Alex has been the anchor of our industry’s business for the past 12 years. His industry knowledge is unparallel and he has been instrumental in overseeing industry’s transformation into the growing and leading global tech provider it is today. Dan joins us from Invesco Distributors where he served as the company’s Managing Director and Global Head Of Exchange Traded Funds.
To recap the financial results for the first quarter revenue increased 14%, almost $1.8 billion, our adjusted operating profit increased 28% and our adjusted operating profit margin 580 basis points to 53.1%. As you know, we measure in track adjusted margin on a trailing four quarter basis, which increased 260 basis points to 51.5%. In addition, we reduced shares outstanding by 2%, which contributed to a 29% increases in adjusted diluted EPS. Each quarter we highlighted COT drivers to our business and important projects underway. This quarter, let’s start with ratings issuance trends. During the first quarter, global bond issuance increased 11% with mixed performance in various geographies and asset classes. We also include bank loan ratings volume. Total global issuance increased 10%. What’s striking was how issuance unfolded with very strong high-yield issuance for the first seven weeks, a two-week lull and then a surge in liquidity-driven investment-grade issuance after the Federal Reserve initiatives several credit facilities to support the economy and companies across industries enhance their cash position.
In the US, bond issuance in aggregate increased 34% as investment-grade increased 54%. High-yield increased 9%. Public finance increased 12%, while structured finance increased 16% with gains in CLOs, CMBS and RMBS partially offset by a decrease in ABS volumes. European bond issuance decreased 14% as investment grade decreased 17%. High-yield increased 20%, and structured finance decreased 20% due to declines in covered bonds and CLOs partially offset by gains in RMBS and ABS. In Asia, bond issuance increased 6% overall. During the quarter, Ratings issued five new domestic ratings in China. Despite working from home, our commercial team actively interacted with issuers, investors and intermediaries we have phoned and other digital media. The pipeline of prospects continues to progress. Bank loan rating activity is not captured in issuance data. However, since it is an important element of Ratings revenue, we like to disclose this bank loan rating revenue each quarter. And the first quarter increased 31% over the prior period to $87 million.
During the quarter, we had some new product launches I want to share with you on this slide. The Platts platform was launched in March. It’s a digital environment that delivers real-time information wherever, whenever and however the user needs it. It consolidates content from companies like Bentek and PIRA that we have acquired over the years into one location. We already have 130 corporate customers actively using the Platts platform, and the mobile app has been downloaded 1,300 times. Platts Market-on-Close is the process market reporters use to assess prices for crude oil, petroleum products and related swaps. Platts has been working with Kensho to accelerate the assessment process, improve efficiencies for Platts pricing reporters while adding analytical value for our customers. The first-ever Kensho-powered price assessment went live to the Platts production database this quarter. ICE has launched a new version of its market data platform, ICE Connect, which is designed specifically for participants in the global oil market. Providing our data onto this site is a way for us to further monetize a rich body existing oil analytics asset.
Indices launched the S&P GSCI Carbon Emission Allowance Index. The new indent, which is the first of its kind, provides investors with a reliable and publicly available investment performance benchmark for European carbon emission allowances and is an expansion of the single commodity series of indices based on the S&P GSCI. Finally, we launched the Market Intelligence Marketplace. Ewout will discuss in a moment. So I want to give you a brief update on our efforts to continue to strengthen our footprint in the ESG marketplace. While there are numerous items on this slide, I’ll just highlight a few. In Ratings, we’ve had 65 ESG Evaluations that have been completed or in process. This is a combination of both published and private evaluation. There’s a considerable appetite for companies to get an independent, forward-looking, qualitative and data-driven assessment of an entity’s ESG performance and preparedness for future risks and opportunities. We largely completed the integration of the ESG Ratings business of RobecoSAM into our Ratings business. This has brought an outstanding addition of talent, experience and expertise. I’m really pleased with the progress. We recently entered into ESG ETF partnership with BlackRock to enable them to create sustainable investing options for US equities based on our indices. And Platts recently expanded its suite of daily hydrogen price assessment to meet the needs of the marketplace and the growing interest in independent price references as the energy sector seeks to understand the dynamics of a clean energy future. Next, I’d like to provide additional information about our evolving outlook for 2020.
The longest US economic expansion on record has ended with another record, the sharpest contraction in economic activity since World War II, where COVID-19 has restricted the movement of more than 90% of the US population. Our economists have recently updated the global GDP forecast in light of the rapidly advancing global pandemic and declining in volatile oil prices. They now expect global GDP to decline 2.4% in 2020. They note that the balance of risk remains on the downside as much can change on the health, economic and policy front. We have compiled forecasts and analysis from our economic credit, oil and other specialists across S&P Global. You can see key drivers of the economy in our business include S&P 500 level, unemployment, issuance default and oil prices. This includes a forecasted drop in US real GDP of about 35% in the second quarter. We’ve used these forecasts to inform the financial scenarios that Ewout will discuss in a moment. In closing, these are trying times for everyone. I can only say that we have a resilient collection of businesses, And I’m proud and grateful to work with a group of exceptionally talented employees who while supporting each other, are helping to navigate rapidly changing societal and economic landscapes.
And now I’d like to turn the call over to Ewout Steenbergen, who is going to provide additional insights into our financial performance and outlook. Ewout?
Ewout L. Steenbergen — Chief Financial Officer & Executive Vice President
Thank you, Doug, and good morning to all of you on the call. Let me start with our first quarter financial results. Doug covered the highlights of strong revenue and adjusted earnings per share growth. I will take a moment to cover a few other items. While some of the segments have a difference between reported and organic revenue growth, in aggregate, they are the same, 14%. Adjusted operating profit margin improved 580 basis points based on strong revenue growth and ongoing productivity programs partially offset by the impact of increased investment in growth initiatives. Stock-based compensation activity resulted in a tax benefit of $0.04 during the quarter, down from $0.07 in the first quarter of 2019. Share repurchases resulted in a 2% decline in our diluted weighted average shares outstanding.
In February, we initiated a $1 billion ASR and a springing 10b5-1 stock purchase plan for up to $100 million. During the quarter, changes in foreign exchange rates had a positive impact on adjusted EPS of $0.06. The only meaningful impact was in Ratings, where revenue was negatively impacted by $5 million, and adjusted operating profit was positively impacted by $11 million. There were four non-GAAP adjustments this quarter that collectively generated a pre-tax loss of $36 million: $9 million in restructuring charges in corporate and Market Intelligence; $7 million in gains from the disposition of an IR web hosting business in Market Intelligence; $5 million for Kensho retention-related expenses; and $29 million in deal-related amortization.
This quarter, all four divisions delivered revenue growth with Ratings and Indices delivering double-digit gains. On a trailing four-quarter basis, adjusted operating profit margin increased for all divisions except Market Intelligence, where a large portion of our investment spending is taking place. I’ll provide color on the individual business results in a moment. Now turning to the balance sheet. Our balance sheet has low leverage and ample liquidity. We have cash and cash equivalents of $2 billion, an undrawn revolver capacity of $1.2 billion and no commercial paper outstanding. We also generate considerable free cash flow with cash flow conversion of 75% in 2019.
The first quarter is generally our weakest free cash flow quarter of the year due to the payout of our annual incentive compensation. Depicted on the bottom of the slide is our debt maturity profile. As you can see, we do not have any debt due until 2025, and the amounts are relatively evenly distributed. Looking more closely at the figures, our cash and cash equivalents declined by about $900 million from the end of the fourth quarter due primarily to funding of the $1 billion ASR. And our adjusted gross debt to adjusted EBITDA declined slightly. Free cash flow excluding certain items reached $618 million in the first quarter of this year, an increase of $312 million over the prior year period. Share repurchases totaled $1.15 billion in the first quarter through open-market purchase of $150 million and an ASR that was initiated in February. In addition, $161 million of dividends were paid during the quarter. In these unprecedented times, notwithstanding the strength of our balance sheet and strong cash flow, our Board has determined at this time that it is prudent that the company not initiate any new share repurchase program following the conclusion of our current repurchase programs in July. With respect to the remainder of this year, because the company initiated a $1 billion ASR program in February, we still anticipate achieving close to our 75% return of capital target to shareholders in 2020. The Board anticipates no changes to our existing dividend guidance. Now let’s turn to the division results. You will notice that in each of the businesses, we’re reporting March revenue. Monthly revenue will not be an ongoing disclosure, but because of the dramatic change in the economic environment, we thought that you might find it useful. I would caution, though, that individual monthly revenue has little variability in subscription businesses like Market Intelligence and Platts. In fact, we anticipate that, depending on the duration of the downturn, 2021 will likely be a more challenging year for these two businesses in 2020 Ratings revenue increased 19%. And excluding the acquisition of the ESG Ratings business from RobecoSAM and CRISIL’s acquisition of Greenwich Associates, organic revenue increased 18%. This revenue growth was driven by the increase in issuance that Doug already discussed.
The impact from COVID-19 and the collapse in oil prices resulted in a temporary halt to the high-yield market and a surge of liquidity-driven investment-grade issuance. Adjusted expenses declined 7%. Excluding changes in foreign exchange rates, expenses declined 2%, primarily due to the insourcing of IT resources that we discussed last quarter and reduced T&E expenses from the travel freeze. This resulted in a 41% increase in adjusted segment operating profit and a 1,010 basis point increase in adjusted segment operating profit margin. On a trailing four-quarter basis, adjusted segment operating profit margin increased 400 basis points to 60.2%. Non-transaction revenue increased 6% primarily due to fees associated with surveillance and rating evaluation service. Transaction revenue increased 33% due to very strong bonds rating activity particularly in U.S. corporates and increased bank loan rating activity. This slide depicts Ratings revenue by its end markets. The largest contributor to the increase in Ratings revenue was a 23% increase in corporates. In addition, financial services revenue increased 13%. Structured finance increased 23%. Governments increased 16%, and the CRISIL and other category increased 3%. On the right side of the slide, you can see the changes in revenue within structured products. Most notable is the increase in structured credit that is primarily made up of CLOs. This was driven by a 37% increase in U.S. CLO issuance.
Investors frequently ask what the primary use of proceeds is for corporate bond issuance. This chart depicts the reasons U.S. investment-grade issuers have cited for their issuance. The light blue and dark blue are for general corporate purposes and refinancing. These are routine. Share repurchases, dividends and M&A represent a minority of issuance. These are the same for high yield. Once again, general corporate purposes and refinancing make up the majority of issuance. Turning to S&P Dow Jones Indices. The segment delivered 20% revenue growth with gains in each category. The impact from COVID-19 and the collapse in oil prices resulted in large decrease in AUM and a meaningful increase in exchange-traded derivative activity. In the first quarter, we reported 16% adjusted expense growth primarily due to a $4 million catch-up charge on past royalties, higher royalties driven by increased partner activity; and additional headcount; 21% adjusted segment operating profit growth; and an adjusted segment operating profit margin of 70.6%, an increase of 90 basis points. On a trailing four quarter basis, the adjusted segment operating profit margin increased 170 basis points to 69.7%. Revenue in the various categories was up during the quarter. Asset-linked fees increased 11% due to AUM growth in ETF. Exchange-traded derivative revenue increased 59% on growth in trading volumes. Data and custom subscriptions increased 15% due to a catch-up in real-time customer reporting and ACV growth.
For our Indices division, over the past year, ETF net inflows were $101 billion and market declines were $215 billion. This resulted in quarter ending ETF AUM of $1.3 trillion, which is 8% lower compared to one year ago. It’s interesting to note that inflows into ETFs linked to our indices continued in a down market. This occurred during the most recent annual market declines in 2015 and 2018 as well. I want to make a clear distinction between average AUM and quarter ending AUM. Our revenue is based on average AUM, which increased 17% year-over-year. We disclose quarter ending figures because flows and market gains and losses are best depicted using quarter end figures, as shown in the waterfall chart on the right. With first quarter ending AUM of $1.3 trillion and second quarter 2019 average AUM of $1. 5 trillion, we could experience a reduction in ETF-related revenue in the second quarter unless US equity markets continued to recover. Sequentially versus the fourth quarter of 2019, ETF net inflows associated with our indices totaled $31 billion, while market declines totaled $387 billion. Industry inflows into exchange-traded funds were $110 billion in the first quarter. The category with the largest gains was commodities and other. Close into US equity funds were $39 billion. This was an excellent quarter for exchange-traded derivatives volume with key indicators generally exhibiting large increases in volume. S&P 500 Index options activity increased 37%. Fixed futures and options activity increased 51%, and activity at the CME equity complex increased 106%. Part of the gain at the CME was due to the successful launch of the Micro E-mini S&P 500 Futures. Excluding this product, the volumes at the CME equity complex increased 60%. Market Intelligence delivered reported revenue growth of 8% and organic growth of 7%. The impact from COVID-19 and the collapse in oil prices had a negligible impact on first quarter revenue. However, going forward, it will impact the new sales of certain products like the Data Feeds because implementations are much easier with physical presence. Also in an economic downturn, renewals become more difficult as some customers’ financial health deteriorates.
Adjusted expenses increased 9% due to increased investment spending for data Marketplace, China and SME initiatives. Adjusted segment operating profit increased 5%, and the adjusted segment operating profit margin decreased 80 basis points to 30.9%. On a trailing four-quarter basis, adjusted segment operating profit margin declined 100 basis points to 31.9%. Desktop revenue grew 4% excluding acquisitions and divestments, where active Desktop users grew 8%. Data Management Solutions and Credit Risk Solutions continue to exhibit strong growth, each gaining 10%. One of the most exciting events in Market Intelligence this quarter was the launch of Marketplace. This new product allows our customers to access fundamental and alternative data sets and to seamlessly link data from different datasets. The product is accessible at marketplace.spglobal.com. And now turning to Platts. Steady revenue growth continued at Platts, increasing 4%. On an organic basis, adjusting for the sale of RigData, revenue increased 5%. The impact from COVID-19 and the collapse in oil prices resulted in an increase in global trading services during the first quarter. GTS increased 18%, due mainly to increased trading volumes in LNG and iron ore.
Platts delivered a 5% increase in core subscriptions with 4% in price reporting and 13% in analytics. U.S. sanctions on Iran and Venezuela impacted revenue by about $2 million in the quarter. Adjusted expenses decreased 2%, leading to an adjusted segment operating profit margin of 52.9%, an improvement of 320 basis points. The trailing four-quarter adjusted segment operating profit margin increased 200 basis points to 53.2%. Power and gas delivered the largest rate of growth at 12%, as our JKM marker for LNG continues to drive both subscription and GTS activity. Petrochemicals grew 4%, due mostly to growth in subscriptions. Metals and ag grew 11%, due to increased iron ore derivative trading activity. Petroleum revenue increased 4%. On our first quarter earnings call last year, we discussed the launch of our low-sulfur marine fuel assessments. We’re pleased to report that we have become the benchmark as our price is now being widely adopted. As we turn to the balance of the year, we’re carefully managing the financial impact of the economic slowdown on our results. We have a number of management actions that are within our control. We’ve initiated a global hiring freeze with minimal exceptions. Travel and entertainment expenses have been frozen. Since we’ll be hosting and attending fewer events, advertising and promotional spend will be reduced. There will be a reduction in the use of professional services. Incentive compensation and commissions are variable in nature and determined by our results. And we introduced a $100 million three-year cost-reduction program at our Investor Day in May of 2018. We’re now on track to achieve approximately $120 million in run rate savings by the end of 2020, an increase of $35 million over the end of 2019. What we’re not going to do is stop investing in the business. As Doug mentioned earlier, it’s very important to continue our $150 million investment in 2020 growth programs. These will largely continue with few modest adjustments.
There are some expenses that will increase due to COVID-19. They include the expenses necessary to set up all our employees to be able to securely work from home and an increase in bad debt provisions, which will depend on how long the pandemic and low oil prices persist. As we think about the uncertainty that lays ahead, we have developed three scenarios with different time frames for when the economy will begin to recover. The macro and market assumptions of the scenarios are outlined on this slide. We view these as the key metrics which will impact revenue in various parts of our company. As Doug referenced earlier, we have compiled forecasts from across our economic, credit oil and other market specialists across S&P Global. Many of the inputs for these scenarios can be found in our divisional research and analytical platforms and are sourced accordingly.
In addition, there are two items that we are providing at this time to give additional color for the scenarios. The first is build issuance growth. In the baseline, the 9.9% decline in global issuance relates to market issuance in all sectors and issuance types, except for international public finance. Our build issuance forecast eliminates categories that are not major drivers of revenue for the company, such as China domestic, medium-term notes and issuance that is not rated by us. In the baseline, global build issuance is forecast to decline mid-single digits. The second is on exchange-traded derivative volume growth. The baseline of approximately 30% assumes elevated levels in the first half of this year, followed by mid-single-digit increases in the second half. While we’re not predicting when the pandemic will end, we’re using the late third quarter recovery scenario as our baseline and the basis for our new guidance. We think that it is important for our investors that we make a good faith attempt to provide appropriately framed forward-looking information.
This slide attempts to outline the financial sensitivities to the company under the various scenarios. You can see that we depict the impact to revenue for each of the segments as well as potential expense savings from management actions and a few other items. With this modeling, we arrive at a baseline scenario adjusted diluted EPS guidance of $9.95 to $10.15. This slide depicts the scenarios with the typical guidance line items that we normally disclose. The baseline column is our new 2020 GAAP guidance. And this slide depicts our adjusted figures. The baseline column is our new 2020 adjusted guidance. Now let me review our new adjusted guidance. We lowered our revenue guidance to a low single-digit increase. Corporate unallocated expense has been reduced by $35 million due to management actions. Operating profit margin is unchanged as management actions have offset the impact from lower revenue growth. Interest expense net includes both interest income and interest expense. It has been increased by $15 million due to lower interest income on our cash balances. Tax rate has been reduced by 0.5 percent point due to favorable developments with various tax audits. These items result in a new adjusted diluted EPS guidance range of $9.95 to $10.15. Our expectations for free cash flow are a range of $2.4 billion to $2.5 billion.
In conclusion, we delivered a strong start to the year with our first quarter results, but we recognize that the world is changing dramatically. Heading into this uncertainty, we have a solid balance sheet and ample liquidity. Our disciplined approach over the past few years with respect to productivity programs, operating leverage, process automation and other initiatives have further improved our financial strength. While, we can’t be sure about the length or depth of the economic downturn, we’ll continue to actively monitor the macroeconomic environment, further evolve our scenario planning and take proactive management decisions in the best interest of our employees, shareholders, customers and other relevant stakeholders.
With that, let me turn the call back over to Chip for your questions.
Robert S. Merritt — Senior Vice President-Investor Relations
Thank you. Just a couple of instructions for our phone participants.
[Operator Instructions]
Operator, we’ll now take our first question.
Questions and Answers:
Operator
The first question comes from Michael Cho with JPMorgan. You may ask your question.
Michael Cho — JPMorgan — Analyst
Hi, good morning. Thanks for taking my question. I certainly appreciate all the detail around the 2020 outlook scenarios. I guess I’ll just start there. My first question is around Ratings revenues. When I look at the base case scenario of the $270 million COVID-19 impact for Ratings, is there any of that included in the first quarter? And just given the strength of first quarter Ratings revenue, I mean, how can we frame the primary sources of that revenue headwind for Ratings?
Douglas L. Peterson — President, Chief Executive Officer & Director
Michael, this is Doug. Let me take that question. First of all, welcome to the call. I hope everybody is safe, as I said at the beginning of the call, and finding ways to be able to work from home. So when we look at the full year issuance, as you know, we had a very, very strong first quarter. April has also had some interesting trends, especially when it comes to investment-grade issuance and some high yield of the companies that had just recently been downgraded. When we look at the full year, we take into account a whole series of factors. As you saw on slide 20, we gave you some of the information about the forecast that our Chief Economist for the U.S. has looked at for the U.S. market, as well as other markets around the world. We think that the GDP is the main driver of issuance in the long run. And we see a lot of headwinds.
We see — we ask the question, is there going to be major capital expenditures? Is there going to be major M&A taking place? Is there going to be business expansion? Are people going to be financing dividends? Are they going to be financing share repurchases? Will there be structured finance business? What’s going to happen with the leveraged loan market and the CLO market? So based on, taking a look at all of those different markets under what we believe are going to be stressed scenarios, we have lowered our different forecast for the rest of the year issuance. And that’s what you see flowing through in these different scenarios, which Ewout just went through.
Michael Cho — JPMorgan — Analyst
Okay. Great. That’s great color. Just for my second question, just more on Market Intelligence and Platts specifically. I mean, when you talk about economic disruptions impacting the end markets, I mean, just outside of fewer companies, I mean, can you talk through the nuances of how subscription renewals would impact revenue growth?
Douglas L. Peterson — President, Chief Executive Officer & Director
Yes. Michael, let me take that one as well. So when we look at the subscription businesses, of course, one of the advantages of subscription businesses is that they’ve got some steadiness to their performance. And you can see the top line growth, very steady. And you saw this quarter and through the rest of the year, a more steady approach to those businesses. But at the same time, when you think about some of the stress that the clients are going under right now; as an example in Platts, you’re going to see both the oil side, the oil producers, the oil and gas producers as well as many of the users, companies like airlines, et cetera, are also under a lot of stress.
And so, we think that the sales cycle is lengthening, in Platts, in particular. There’s customers that are already under stress that are approaching us to see if there’s ways we can negotiate throughout the year as we look at their contracts, renewals, et cetera. In Market Intelligence, we haven’t seen as much of the customers coming to us to start ask about considerations on the contracts, but we’re expecting it. They also have a lot of corporate customers. They do have oil and gas customers. We have financial institutions customers. And so we’re expecting that throughout the year, there could be interaction with the customers that could lead to slower sales to lower renewals. It could flow into later periods this year. It could flow into next year.
In addition, selling by the phone, selling remotely is not as easy. Renewals is not as easy. We also have some types of products which require training or installations, and those are also much harder to do when we’re working in this kind of work-from-home environment. But we’re very pleased with the performance last quarter. These are strong businesses. We’ve seen very strong increase in the usage of both Platts and MI over the last few weeks as people are working from home. And they’re also looking for knowledge about what they see happening in the markets. But anyway, back to the — your core question, we do think that there’s going to be some slowdown in sales and renewals. It’s a longer cycle, and we expect that to flow through the rest of the year.
Michael Cho — JPMorgan — Analyst
Perfect. Thanks, Doug.
Douglas L. Peterson — President, Chief Executive Officer & Director
Thanks, Michael.
Operator
Next question comes from Toni Kaplan with Morgan Stanley. Your line is now open.
Toni Kaplan — Morgan Stanley — Analyst
Thank you. Congrats on the strong quarter and glad to hear you’re all safe. Wanted to ask a follow-up on issuance. On IG, very strong quarter and very strong start to April. Just wanted to understand if you think that there’s any sort of pull-forward as companies look to gain liquidity right now and sort of how you see IG strength going forward. And also just from the ratings that we’ve seen from — the impact we’ve seen in the Fed actions, is that already in your Ratings results? Or how much of a tailwind should we expect from that going into the next quarter?
Douglas L. Peterson — President, Chief Executive Officer & Director
Yeah. So, first of all, you saw that the first quarter ended with a really strong issuance from investment grade. In fact, the U.S. investment grade is up almost 50% quarter-on-quarter. Financial institutions is up 40%. While Europe at the time wasn’t nearly as strong, Europe corporates were down 16% in the first quarter. But we’ve seen very strong issuance in investment grade coming back to market in April, and that’s partially because of the liquidity facilities from the Fed as well as the ECB in Europe, although Europe isn’t as strong as the U.S. We see right now that most of the issuance that’s undertaking in the investment-grade space, it’s for liquidity purposes. We don’t see as much necessarily being used for M&A or as investments as it might be in the future.
We did — as you saw, overall, I can’t speak specifically to investment grade. But we do expect the corporate issuance for the entire year will be down for the rest of the year. We do, as you see in our latest forecast for issuance, we see that investment grade corporate, investment-grade is going to go down for the rest of the year. So I think that when we look at this, we’re very conscious that investment-grade had been very strong for us this quarter, but overall, though, it’s going to be an area that we’re watching very closely. But one fact, which we can share with you is that in the most recent surge at the end of March, there are about 20 nonfinancial corporations that issued over $3 billion in March. The total of those 20 companies was $121 billion and that was twice as much as the debt they had coming due this year. So clearly, if they did raise this for pre-financing, it they raised much more than that. But anyway, investment grade has been on fire. It’s been very hot, but we don’t expect that for the rest of the year.
Toni Kaplan — Morgan Stanley — Analyst
Got it. Great. And then just as a follow-up, just wondering how you’re thinking about long-term impacts on business in the aftermath of COVID-19. Would you expect anything to change meaningfully in terms of either industry trends or any changes strategically within your company as a result of the situation? And this could be corporate real estate-related, or any sort of other just maybe less obvious changes as well?
Douglas L. Peterson — President, Chief Executive Officer & Director
Let me start on the business side and then have Ewout address a little bit kind of the real estate and some of the operating aspects to it. On the business side, in fact, we see this as the time when a company like ours can really shine. Clearly, we could be impacted. There’s a lot of risks out there and a lot of negative factors which could impact us. But when it comes to the source of knowledge that we’re providing about ratings, about the credit markets, about what’s happening with oil markets, with oil risk, et cetera, we see that our traffic to our website is way up. We don’t see any need for us to pull back on the strategic investments we’re making now in China, in marketplace, in ESG and other technology areas. We think this is a time for us to continue to invest. So we don’t see any major impact to our business going forward. In fact, we see this as a time for us to take advantage of the strength of our businesses, the quality of our people and continue to grow and invest. Let me hand it over to Ewout because we’ve also been doing some thinking about what could be some impact on our longer-term operating model.
Ewout L. Steenbergen — Chief Financial Officer & Executive Vice President
Yes. Good morning, Toni. If we think about our expense saves, definitely, there is an underlying assumption that going forward, there will be a change with respect to the way we work, behaviors, the way we need to think about travel going forward and less need for travel, different needs for office-based requirements. If you look at the expense saves in the sensitivity table that we showed to you, you see that there is a number that we called permanent incremental. That’s actually in our view perhaps a modest assumption, a conservative assumption because we have put an assumption in that 15% of our discretionary savings in this period will continue in the future because of the different way of working. But that impact might potentially be larger, depending on how things will play out and the redesign of the company and the way we work in our operational processes and all those elements going forward. So definitely from that angle, we think there’s going to be a permanent benefit that will come out of this.
Toni Kaplan — Morgan Stanley — Analyst
Thanks a lot.
Douglas L. Peterson — President, Chief Executive Officer & Director
Thank you.
Operator
Next question comes from Manav Patnaik with Barclays. Your line is now open.
Manav Patnaik — Barclays — Analyst
Thank you. Good morning, gentlemen. I just — my first question was today in terms of at the beginning, you talked a lot about your economic forecast and you mentioned the balance of risk to the downside. And I was just wondering, was that incorporated in your baseline scenario? Or could that — if that materializes, would that tilt you towards that late-4Q recovery? Just some color on that, please.
Douglas L. Peterson — President, Chief Executive Officer & Director
Yes. We decided that it was very important for us to eat our own cooking. And so when we have economists and research analysts that are some of the best in the world, of our U.S. economists, global economists, they’re doing forecast; our oil economists; and other people looking at equity markets and ETF issuance, et cetera, that we wanted to take the best knowledge of that entire team and incorporate that into our forecasting.
Ewout’s finance team, along with all of the presidents of our businesses and their finance teams really worked hard to incorporate forecasts. We went back to see what had been some of the impacts on prior periods when we’ve seen disruptions in the market before. It’s rare that we’ve ever seen so much disruption at once across so many different markets. And so the teams came together with these forecasts.
As the word means, they are forecast. These are not predictions. And we’ve put these together in a way that we can understand it’s our best effort to come up with an approach to this. And as we put these together, we’ve used our own information. But since these forecasts were put together in a way that they have a lot of different assumptions. Let me hand it over to Ewout, who can give a little bit more color on the forecasting itself.
Ewout L. Steenbergen — Chief Financial Officer & Executive Vice President
Yes. Good morning, Manav, I just want to be clear that our updated guidance and baseline is middle of the road. It’s a good faith attempt to show you the different sensitivities and the different scenarios. The ranges of outcomes could be either higher or lower. So I don’t think you should only look at the downside risk. There are also upside risks. So this is middle of the road, and it could be either higher or lower with the same level of probability.
What we have tried to do is clearly show you those sensitivities for the most important assumptions that we put in there but also to make sure that all of our investors can pick and choose the elements they think is most likely. If you believe that certain elements in an early third quarter recovery are more likely or you believe that some late fourth quarter recovery assumptions are more likely, you can take those elements and build your own assumption. But again, with respect to the risks, either higher or lower, I think the probability is even.
Manav Patnaik — Barclays — Analyst
Okay. That’s helpful. And then just in terms of your energy exposure across your verticals, you already sort of addressed the customer stress on the Platts side. But I was hoping you’d just help us understand how much in Market Intelligence and Ratings and so forth has that exposure and the risks there, please.
Douglas L. Peterson — President, Chief Executive Officer & Director
I don’t have that number off the top of my head. I know that we do have ratings exposure from some. We’ve got some Market Intelligence, corporate Treasurers, CFOs, et cetera. But overall, it’s very little. The most important exposure of the company to oil and gas industries is in Platts.
Robert S. Merritt — Senior Vice President-Investor Relations
And Manav, you may recall, back in 2015 and 2016 when oil prices declined pretty dramatically, that was a profit question back then. I don’t recall the exact percentage, but the reality is from an issuance perspective, there’s no one particular sector that’s dominant from issuance perspective in the Ratings business either.
Manav Patnaik — Barclays — Analyst
Thank you guys.
Douglas L. Peterson — President, Chief Executive Officer & Director
Thanks Manav.
Operator
Next question comes from Alex Kramm with UBS. Your line is now open.
Alex Kramm — UBS — Analyst
Hey good morning everyone. Just wanted to get a little bit more into the high-yield outlook here, I mean that seems to be on the Ratings side, the biggest swing factor. So just flesh out, little bit why you’re looking for such a significant drop in issuance? I mean if you look at April, high-yield actually has come back. There’s obviously some of these set programs apply to high-yield as well.
And then obviously, please, also on the levered loan side, is that included in your high-yield forecast? Or is this just on bonds? Because if not, can you just talk about the leverage loan side a little bit as well?
Douglas L. Peterson — President, Chief Executive Officer & Director
Yes. So thanks, Alex. When you look at the high-yield market, I’m going to break it up into two pieces. I’m going to oversimplify it. But one is that recently, there were a set of BBB companies that were downgraded into being non-investment-grade. And so those companies, which are now the single — BB-range companies have been accepted into liquidity programs by the Fed and the ECB. So for example, last week, Ford issued $8 billion worth of securities on Monday. Delta — yesterday, Delta Airlines issued $3.5 billion of bonds and another $1.5 billion of secured loans to the markets. And both of them have recently been downgraded from the BBB range into the BB range.
And so that type of high-yield is having a lot of activity. It’s supported by the ECB and the Fed programs. There’s actually a lot of appetite for that risk. It’s a similar risk that was priced recently, and now it’s at a much higher level. So those types of securities are now being very active. Now there’s another side of high-yield, which is the leveraged loan market. The leveraged loan market has become quite slow. There’s very little activity in it right now. We have seen a few days here and there where leveraged loans are moving and there is some leverage loan activity, but it’s actually very weak. We’re expecting that leverage loans, which have been very high for a while had been active.
And the leverage loan market had been include — had been up, had been quite — have been very active last year into the first quarter. But right now, the leverage loan market is really looking for repricing, probably higher level of covenants, maybe more collateral, etcetera. So I think that leverage loans market is going to be down about 5%. We’re seeing that it’s a — the market is probably going to be much weaker. So that’s kind of an overall look. I’d split the market into a couple of different pieces.
Alex Kramm — UBS — Analyst
Okay. Thank you. And then I guess, secondarily, more for Ewout. On the index side, can you just help me a little bit with the cost of that business? I mean at the beginning of the year, you actually raised your margin expansion for that business. But I view that as a pretty fixed cost base. And maybe just remind me if there’s some variability on the cost at work could come from. And in particular, I’m asking because when I look at your scenarios, you’re kind of assuming the AUM side is down, but then it’s all getting offset by derivatives trading, which obviously we’ve seen in the first quarter. But there’s also a scenario where at some points, trading dries up and you get the double whammy, where AUM is low and actually trading slows down, too. We’ve seen this in some parts already in the second quarter like in VIX. So just curious what opportunities on the index cost side they are, if you’re getting into a pretty poor revenue environment which could happen?
Ewout L. Steenbergen — Chief Financial Officer & Executive Vice President
Good morning Alex. We definitely have many levers in the index business as well to offset any pressure on the revenue line. So let me first take your question about how much variability is there. There is many different elements there. There is, of course, discretionary spend. There is, of course, a variable spend with respect to cost of sales, commissions, variable compensation, and then we also have royalties. Royalties are approximately 16% to 17% of the overall expense base. Actually, royalties were the largest driver of the expense increase in the first quarter. So the expenses were up $11 million, of which $3 million were royalties. And $4 million was actually a onetime catch-up in royalties that we don’t expect to recur due to an administrative matter with one of the partners.
So $7 million out of the $11 million in the first quarter was due to royalties. So definitely, the index business is working very hard to offset any revenue pressure on their expense line. We expect a modest reduction in margins during this year as what has been assumed in the scenarios. With respect to your question about the overall top line and the exchange-traded derivatives, we have as an assumption in our models 30% increase year-over-year. First quarter was 60% up in exchange-traded derivatives. We expect also elevated levels in the second quarter. And then indeed, it will level off in the second half of this year because we don’t expect that to be elevated for the full year. So, yes, there will be a bit of decline on exchange derivatives. But again, we expect that we have many opportunities also to manage the expense line in the index business.
Alex Kramm — UBS — Analyst
All right. Very helpful. Thank you.
Operator
Next question is from Hamzah Mazari with Jefferies. Your line is now open.
Hamzah Mazari — Jefferies — Analyst
Hey, good morning. Thank you. Hope you are safe and healthy out there. My first question was, just a follow-up on Platts. If you look at the last downturn, it grew in the last downturn, but it shaved a couple of basis points off of the growth rate that was coming in, the growth rate that you had going into the downturn. Could you maybe talk about — could that business be negative this year given, this loyal downturn seems pretty different. Any thoughts on what your customers are saying today, I know you touched on this a little bit and also you’ve diversified that business relative to few years ago. Does that diversification help you in this downturn or it’s still very much levered to petroleum.
Douglas L. Peterson — President, Chief Executive Officer & Director
Yes, Hamzah, good morning. I hope you are well and safe too. With respect to the Platts topline, we have about 80% of the top line is subscription-related. 10% is analytics and 10% is global trading services, which actually saw a nice increase of 17.5% in the first quarter. So clearly, because it is largely subscription-based, there is a nice protection with respect to the revenue line for Platts in the near term. So we expect Platts, if you look at the sensitivity table that we provided and the original direction that we mentioned during the fourth quarter earnings call, of mid to high — sorry, mid-single-digit revenue growth for Platts this year, we’re still at a level of mid-single-digit growth in terms of revenue for 2020. And again, that’s because of the basis of the revenue components that are largely subscription-based. I do have to say that if the duration of the downturn takes longer that there might be a larger pressure on the revenue line for Platts next year in 2021. But this year, we expect still mid-single-digit revenue line under the assumptions that we have laid out.
Hamzah Mazari — Jefferies — Analyst
Okay. Very helpful. And just a follow-up question on Market Intelligence. How are you thinking about execution risk in that segment in this environment? There’s been a lot of competitive changes in the landscape. You’ve had a move towards enterprise-wide contracts from a commercial side. You have higher investment spend. Sales cycles pushed out. Is that going to be disruptive at all? Or how are you thinking about just execution risk in that segment in this environment? Thank you.
Douglas L. Peterson — President, Chief Executive Officer & Director
Hi, Hamzah. We don’t see those as factors which could end up slowing down our development and our deployment of the new MI platform. We’ve got — our teams are dedicated. As I mentioned in my earlier remarks, we have 99% of our employees working from home. They’re very engaged. They’re working hard.
We’ve got really good acceptance of our customers of the new systems and new capabilities as they see it. We’ve been able to move the capabilities of Cap IQ, data services, modeling, different capabilities over to the MI platform. And we have a plan during the year to be moving over to customers so that they can have dual access throughout the year. Our development programming is on track. So we don’t have any — that’s not a concern of ours right now.
Hamzah Mazari — Jefferies — Analyst
Okay. Wonderful. Thank you so much.
Douglas L. Peterson — President, Chief Executive Officer & Director
Thank you.
Operator
Next question comes from Jeff Silber with BMO Capital Markets. Your line is now open.
Jeff Silber — BMO Capital Markets — Analyst
Thanks so much and also glad to hear everybody is doing okay and I just wanted to thank you all for the detailed guidance. It’s actually really appreciated. One of the slides you had in your presentation, I think it was slide 43, talked about some of the management actions that you’ve taken and will take. What are you looking for to either increase these kind of actions or on the flip side, ratchet them down if the environment improves?
Ewout L. Steenbergen — Chief Financial Officer & Executive Vice President
Jeff, most of these actions are already put in place. So obviously, there isn’t a lot of travel that anyone can do in the current period of time. We have already stopped hiring, although, of course, currently interviewing any candidate is also hard to do in a virtual environment. And then several of the other elements as well, all of that is already put in place.
So the impact in the modeling and in the sensitivity is really dependent on the duration of the actions. If the duration takes longer, the economic downturn lasts longer, then also the impact is going to be larger for the company. If you’re looking at what does it mean in terms of recovery and when we expect things to start to look better and some of these actions might go away, I think we are looking at restart of economic activity, increase of demand, if we see more people going back to the employment market, drop of unemployment, pick up with GDP, all of these elements will look at in terms of when are we going to relax on some of those actions.
But otherwise, all of these actions have been put in place. If you’re asking what could be the next step in terms of layer of actions, we hope you don’t need to go there because we believe that with all the actions we have taken over the last few years with respect to productivity programs and efficiency and process automation and capturing the operating leverage, we believe we have already managed the company in a very disciplined way. And we are taking clearly the benefit in current environment out of that.
Jeff Silber — BMO Capital Markets — Analyst
Okay. Great. That’s helpful. And then switching gears, you talked about the strength in both Platts and Market Intelligence being more of a subscription-based focus. Can you just remind us the cadence of subscription renewals when they typically occur throughout the year? Is it back-end loaded? Is it more even? Any color would be great.
Douglas L. Peterson — President, Chief Executive Officer & Director
Yes, Jeff, this is Doug. Yes, the subscription renewals are really throughout the year. They range from one year to two year to three year contracts. There’s no rhyme or rhythm that I could really give you about those. They’re all — it’s sort of an ongoing process.
Jeff Silber — BMO Capital Markets — Analyst
Okay. Great. Thank you so much.
Douglas L. Peterson — President, Chief Executive Officer & Director
Thank you.
Operator
Next question comes from George Tong with Goldman Sachs. Your line is now open.
George Tong — Goldman Sachs — Analyst
Hi, thanks. Good morning. You expect a mid-single-digit decline in global build debt issuance volumes this year. Can you talk about how much pricing you expect to add to Ratings revenue performance? And also discuss any mix impact from various debt categories that could affect how industry issuance translates into Ratings revenue performance at S&P?
Ewout L. Steenbergen — Chief Financial Officer & Executive Vice President
Good morning, George. We normally don’t really speak about pricing for obvious reasons. But I think you can put the elements together if you look at the original guidance that we provided in the fourth quarter earnings call with respect to mid- to high single-digit revenue growth expectation for ratings, the current sensitivity. And then you look at the overall issuance expectation of build issuance, I think you can probably put those pieces together and make an estimate of that.
The other guidance and direction I can provide to you is look at our list pricing that is all being published, and you can take some elements out of that as well. So if you put those pieces together, you probably get a good insight in what is assumed with respect to pricing for this year. But specifically, I would like to avoid giving you those numbers at this moment.
George Tong — Goldman Sachs — Analyst
Got it. You’ve indicated plans to make $150 million in investments in 2020 growth programs. Can you elaborate on which segments and products those growth investments will be going to and when you’d expect to see returns on those investments?
Douglas L. Peterson — President, Chief Executive Officer & Director
Yes. George, this is Doug. Good morning. First of all, the $150 million that we’ve talked about in the past, this is, for us, we believe, very critical for our long-term growth. It builds the ability to have new products, which are relevant to the marketplace. It also allows us to invest in new technology, which would be a combination of processing, data linking and delivery mechanisms to our clients. They’re really spread out across the businesses. China is one of those that we’re very pleased with the progress on. That’s one that’s important, and it’s principally right now a Ratings opportunity. There will be some follow-on for Market Intelligence. There’s also going to be an investment in ESG. ESG is across all the divisions, all the geographies. And this is one that you saw recently, we completed the integration of the RobecoSAM’s business into the Ratings business.
So we have a much stronger ESG business there, But all of the businesses benefit from things like RobecoSAM’s Ratings business, when we have Trucost on board, et cetera. So these are intended to be investments that benefit all of our divisions. They benefit all of the geographies, and visible ones. But across the board, this is going to be benefiting the entire company.
George Tong — Goldman Sachs — Analyst
Very helpful. Thank you.
Ewout L. Steenbergen — Chief Financial Officer & Executive Vice President
If I may build on the answer of Doug, approximately half of the investments are going to Market Intelligence. And the returns will see different by different category, by different projects over time. Some might be more short term, some might be more mid or long term. Think about China Ratings, we have said from the beginning that, that is a long-term investment. So this will come in at different points in time.
George Tong — Goldman Sachs — Analyst
Very helpful. Thank you.
Operator
Our next question comes from Andrew Nicholas from William Blair. Your line is now open.
Trevor Romeo — William Blair — Analyst
Hi. Good morning. This is actually Trevor Romeo on for Andrew. Thanks for taking my call and for all the details that you provided on the slides. First, I just wanted to ask on Ratings margins in the quarter. I know Ewout called out a couple of factors such as the in-sourcing of IT and the T&E freeze.
But just given the magnitude of the improvement there in the quarter, I thought I would just ask if there were any other one-time items that helped such as maybe incentive comp accruals; as in, did the accruals grow less than they might have in a normal environment because of the uncertainty in the outlook for the rest of the year?
Ewout L. Steenbergen — Chief Financial Officer & Executive Vice President
Good morning, Trevor. No, there was not an impact in the first quarter with respect to incentive compensation. We are accruing at 100%, the same as a year ago. So that didn’t have an impact in terms of the expenses for Ratings during the first quarter. Two main elements I would like to call out: the first, the impact of FX. The expenses came down 7%, including foreign exchange. And it was down 2%, excluding foreign exchange. Still 2% down is, of course, a very strong result in terms of expense reduction for Ratings.
The other reason is what we already mentioned during the prepared remarks. This was the insourcing of certain technology, engineering capabilities that were previously outsourced to a provider. We have set up a technology talent center in India. And we are taking there a clear benefit, not only from a talent perspective, but also from a cost perspective. So those are the main items. But clearly, I’m happy — I’m very happy to see the results of the Ratings business in the first quarter. And indeed, the margin improvement is quite impressive.
Douglas L. Peterson — President, Chief Executive Officer & Director
And just to add one quick thing. The point that Ewout was making about the changes in headcount. You may remember on our fourth quarter earnings call, we showed you that slide with headcount and alluded to those changes.
Trevor Romeo — William Blair — Analyst
Okay. Great. Thank you. That’s very helpful. And then, just wanted to follow-up, I guess, on the index business. I believe you guys recently announced a collaboration with IHS market to develop multi-asset class index benchmarks. I just wondering if you could discuss the strategy there and how that partnership came together, maybe how you view the potential size and growth of the opportunity for multi-asset class indices?
Douglas L. Peterson — President, Chief Executive Officer & Director
Trevor, let me — I’m going to give you a little bit broader answer. Thank you for that. First of all, we have — as you know, the fixed income area and there’s other types of blended funds, blended ETFS, blended indices, et cetera. And we felt that IHS Markit, they have some very attractive indices, some data and analytics that were not being deployed into some different types of indices and that we could work together with them to really attack some of the market opportunities that we see emerging.
In the same way that we have recently signed an agreement last year on Earth Day with BlackRock for ESG indices. So we see that there’s many opportunities for us to partner. We don’t always have to go alone to build indices and market-relevant products. And so in both cases, with IHS Markit and now with BlackRock on the ESG front, we believe that there’s opportunities for us to address market growth and market needs not just on our own. So this was something that we’re very pleased with both of those. And something that we’re going to be working on. And we’ll report going forward how we do.
Trevor Romeo — William Blair — Analyst
Okay, great. Thank you very much for all the color.
Operator
We will now take our final question from Craig Huber from Huber Research Partners. Your line is now open.
Craig Huber — Huber Research Partners — Analyst
Yes, hi. Thank you. If I heard you right, I think you said the debt issuance market forecast for yourselves for the year is down mid-single digits; build revenues lined up that way, down mid-single digits. I’m curious, embedded within that, what are you expecting the two middle quarters to be down year-over-year? And what’s the number — maybe you said this, but what’s the number in the first quarter that lines up with that?
Douglas L. Peterson — President, Chief Executive Officer & Director
Craig, this is Doug. I don’t have something that is by quarter in terms of our issuance outlook. This is something that our teams, our economists and our credit specialists, they go out and they look at what is the amount of debt which is maturing? They look at what’s happening when — in the market with M&A, with debt repayments for bridge loans, companies that want to pay out and pay back drawdowns on revolvers, etcetera. So I don’t really have a forecast that I could give you by quarter.
Craig Huber — Huber Research Partners — Analyst
You have the number — the comparable number for the first quarter?
Douglas L. Peterson — President, Chief Executive Officer & Director
The first quarter issuance was up. Let me give you the full precise amount…
Robert S. Merritt — Senior Vice President-Investor Relations
Craig, if we’re getting to build issuance, we’re not going to share build issuance numbers with you. We share with The Street, the actual issuance numbers and Doug put that chart out. Build issuances, this is a onetime shot. We’re sharing some information with you, but we’re not totally in the kimono and telling you build issue this quarter for any quarter. So sorry about that.
Craig Huber — Huber Research Partners — Analyst
All right. Fair enough. And then the question I want to ask you, the cost within your Ratings area here, if this environment gets worse, worse than what we’re forecasting right now, do you feel there’s a lot more cost you can take out there? You gave us a good explanation around what you’ve done so far. But do you feel there’s more leeway you can on the cost side there?
Ewout L. Steenbergen — Chief Financial Officer & Executive Vice President
Craig, good morning. This is Ewout. Yes, absolutely, because if you look at the expense reduction in Ratings during the first quarter, the impact of the management actions have rather been minimal because most of those management actions have been taken in the month of March. So maybe a little bit of travel benefit has been incorporated in the first quarter, but most of the benefits of those management actions will actually come in during the next few quarters.
So from that perspective, very good expense development in Ratings, but that’s all based on actions we have taken in the past and all the good work that has been done in terms of our productivity programs that we have been talking to you about before and the management actions related to COVID, the real benefit will come in future. So definitely, there is further opportunity for the Ratings business with respect to their expense line.
Craig Huber — Huber Research Partners — Analyst
Great. Thank you.
Douglas L. Peterson — President, Chief Executive Officer & Director
Okay. Chip, if you don’t mind, let me make a couple of closing comments. First of all, I’d like to thank everyone for joining us today on the S&P Global First Quarter 2020 Call and for all of your questions. We know that this is a very difficult time for the markets. Also for everyone on this call, you’ve had to find new ways to adjust to working from home or some sort of alternative working environment. We were very pleased, though, with our first quarter and in particular, with the way our employees working at 99% now at home have really stepped up to support each other to continue to produce valuable ratings, research and analytics for our customers and for the markets.
But as you saw in the call today in our prepared remarks and then there a follow-up, we also recognize that the outlook for the next quarter and for the rest of the year is very different than how we started the year. We have incorporated some of the knowledge and research from our own teams and what we’re picking up in the markets to come up with a broad set of assumptions that introduced new levels of risk and uncertainty. Those are reflected in what we’ve given you in guidance for the rest of the year. And obviously, we’re going to clearly monitor the market conditions, work very hard to react and to be able to be prepared for what comes up. And we look forward to working with all of you throughout the year. And thank you again for joining the call. I hope everybody stays healthy, stay safe, and we will see you throughout the year. Thank you very much.
Operator
That concludes this morning’s call. A PDF version of the presenters’ slides is available now for downloading from investor.spglobal.com. Replays of the entire call will be available in about two hours. The webcast with audio and slides will be maintained on S&P Global’s website for one year. The audio only telephone replay will be maintained for one month.
On behalf of S&P Global, we thank you for participating and wish you a good day.