Moody's affirmed Block Financial LLC's senior unsecured rating at Baa3, senior unsecured shelf (P)Baa3 and short term rating at Prime-3.

The ratings reflect the agency's expectations for pressured customer counts, debt to EBITDA around 2.5x and about $300 million of free cash flow in fiscal 2019. Moody's mentioned Block Financial's market position and scale, as well as improved financial results for the 2018 tax season as positive factors for the ratings. It mentioned the competitive nature of Block Financial's industry, the seasonal nature of the company's revenues and cash flows and a gradual shift of market demand to do-it-yourself tax filing solutions from the assisted tax preparation business, which the company offers, as negative factors for the ratings.

Additionally, the company's indirect parent, H&R Block Inc. announced plans to change its pricing strategy, to close 400 offices in the U.S. and to invest largely in information technology. Moody's senior credit officer, Edmond DeForest, said that these changes "could prompt an unexpected competitive response or lead to other unanticipated adverse consequences that result in greater or longer-lasting revenue and profit declines." Block Financial said it expects fiscal 2019 revenues to decrease by up to 3% and EBITDA margins to contract by over 350 basis points versus 2018.

The ratings outlook was revised to negative from stable. The agency said this comes amid concerns about the company's ability to reverse the projected revenue and profit margin declines in 2019, which could result in higher financial leverage, diminished free cash flow and a weakened competitive position. Moody's said it could reverse the outlook to stable if it sees potential customer and revenue growth in fiscal 2020, as well as improving profitability and steady financial policies.