CME Raises $1B Credit for Back-Up - Analyst Blog

Yesterday, CME Group Inc. (CME) reported through a regulatory filing that it has entered into a credit revolving facility worth $1.0 billion in order to support its clearing house operations, which is on an expansion mode. The loan carries an interest rate of 1.25% above the federal rate for overnight loans, which floats in the range of zero to 0.25% since December 2008.

CME is the largest global derivatives exchange and is also risk prone to transactional defaults and unseen liabilities. Accordingly, CME has received a 364-day revolving credit line, fixed up by JPMorgan Chase & Co. (JPM), Bank of Montreal Common Stock (BMO) and Bank of America Corp. (BAC). The company is also trying to expand this loan size to $2.0 billion in near future.

CME is rigorously working to receive the credit line since the expansion of the company through acquisitions and reaching out to diverse markets warrants for keeping a back-up for any kind of contingencies. These eventualities include defaults from clearing house members and from money transfers, among others.

Moreover, operationally the company has been posting higher volumes that have been reflected in the last couple of quarters, but this growth consistency has to be supported by adequate funding in order to eliminate any operational risk. Thus, despite a strong cash flow, an urgent requirement for additional source of funds justifies the latest revolving credit line receipt. However, the company's long-term debt stands at cautious levels and could put pressure on the financial leverage.

Additionally, CME is considerably exposed to interest rate volatility and rising competition, which again demand for strong capital requirements to get rid of any fluctuations. Yet, we believe that a gradual economic recovery and stable debt ratings are expected to drive volumes further.

Moreover, the company's efforts to promote, expand and cross-sell its core exchange-traded business through meaningful acquisitions, a strong portfolio along with its global presence will generate a decent upside in the long run. 

Separately, yesterday another peer, IntercontinentalExchange Inc. (ICE), announced the launch of more than a dozen swaps contracts for oil products in ICE Futures Europe, including European gas oil and fuel oil.

On Monday, the shares of CME closed at $322.72, up 0.3%, at Nasdaq Stock Exchange.

 
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