Rating Action: Moody's affirms BY Crown Parent's B2 CFR; outlook stable
Global Credit Research - 22 Jul 2020
Approximately $1.8 billion of rated debt affected
New York, July 22, 2020 -- Moody's Investors Service ("Moody's") affirmed BY Crown Parent, LLC's (doing business as "Blue Yonder") B2 Corporate Family Rating (CFR) and B1 and Caa1 ratings for the existing 1st lien credit facilities and senior unsecured notes, respectively. Moody's also assigned B1 ratings to the company's proposed $500 million of senior secured notes and the amended portion of the revolving credit facility that will have a 5-year maturity. The ratings outlook is stable.
Blue Yonder will use net proceeds from the senior secured notes issuance to refinance outstanding revolving loans and a portion of its 1st lien term loans and augment its cash balances.
The affirmation of the B2 CFR reflects Blue Yonder's good liquidity, strong growth in its Cloud revenues, and the nearly 60% of revenues that are derived under software maintenance and subscription agreements. This recurring revenue stream provides revenue stability amid the economic uncertainty. Moody's further expects that, if the Covid pandemic is contained and economic conditions improve in 2021 consistent with Moody's current baseline economic scenario, Blue Yonder's strong revenue growth and operating leverage in Cloud revenues will drive total debt to EBITDA (Moody's adjusted and including growth in deferred revenues) toward 6x and free cash flow of at least the mid-single digit percentages of total debt in 2021. The de-leveraging will also be aided by the abating impact from the business model transition to subscription services and the moderating pace of investments.
The proposed amendment to the existing credit agreement will increase revolving commitments by $35 million and extend the maturity date of the revolving loan commitments. The refinancing transaction will provide Blue Yonder greater flexibility to manage through the economic uncertainties caused by the Covid-19 pandemic and execute its ongoing business model transformation from perpetual licenses to subscription-based software services. The impact of the business model transition and increase in operating expenses have eroded operating cash flow and EBITDA from their peak in 2017 while revenues have grown.
Blue Yonder's total debt to EBITDA (Moody's adjusted and including growth in deferred revenues) was already very high around the mid 8x at 1Q 2020. Moody's expects leverage to approach 9x pro forma for the refinancing and to deteriorate further in 2020 due to profit declines from continuing revenue mix shift that will be compounded by the weak economic conditions. However, Blue Yonder's robust growth in SaaS revenues (Annual Recurring Revenue growth of 76% in 1Q 2020), albeit on a smaller base, and the growing backlog of SaaS revenues evidence the company's progress toward SaaS transformation that will strengthen its credit profile over time.
The rapid spread of the coronavirus outbreak, deteriorating global economic outlook, low oil prices, and high asset price volatility have created an unprecedented credit shock across a range of sectors and regions. Moody's regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety. Blue Yonder has moderate exposure to customers that the company views as "non-essential" in the retail, transportation/logistics, and manufacturing industries. Moody's expects Blue Yonder's software sales and operating cash flow to be adversely impacted over the next few quarters but free cash flow should remain positive in 2020. The pandemic has also highlighted the significance of technology investments in supply chain and distribution operations, which will benefit Blue Yonder once the crisis abates.
Blue Yonder's B2 CFR is supported by its good operating scale, a large installed base of 3,100 customers, and its good market position as the largest pure-play provider of supply chain management software products. The equity cushion reflected in Panasonic Corporation's acquisition of a 20% equity interest in Blue Yonder benefits Blue Yonder's credit profile. At the same time, Blue Yonder faces intense competition from the large and diversified software vendors as well as smaller pure-play software providers. Governance considerations, especially, Blue Yonder's tolerance for high financial leverage and Moody's expectation that financial strategy will favor shareholders, constrain its credit profile.
The stable outlook reflects Moody's expectation that Blue Yonder will maintain good liquidity and revenue growth and improving profitability will drive free cash flow growth to at least the mid-single digit percentages of total debt in 2021.
Moody's has rated the proposed senior secured notes B1 and expects the obligations under the notes to be pari passu with indebtedness under Blue Yonder's 1st lien credit facilities.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Moody's could downgrade BY Crown Parent's ratings if operating challenges or increase in debt cause leverage to sustain above 7x (Moody's adjusted total debt to EBITDA plus change in deferred revenues) and free cash flow remains in the low single digit percentages of total adjusted debt. The rating could be upgraded if Blue Yonder generates sustained revenue and operating cash flow growth in the mid-single digit rates, and Moody's believes that the company will maintain more conservative financial policies such that total debt to EBITDA leverage (Moody's adjusted, including changes in deferred revenues) is sustained below the mid 5x level.
..Issuer: BY Crown Parent, LLC
....Senior Secured Bank Credit Facility, Assigned B1 (LGD3)
....Senior Secured Regular Bond/Debenture, Assigned B1 (LGD3)
..Issuer: BY Crown Parent, LLC
.... Probability of Default Rating, Affirmed B2-PD
.... Corporate Family Rating, Affirmed B2
....Senior Secured Bank Credit Facility, Affirmed B1 (LGD3)
....Senior Unsecured Regular Bond/Debenture, Affirmed Caa1 (LGD6)
..Issuer: BY Crown Parent, LLC
....Outlook, Remains Stable
BY Crown Parent, LLC, formally known as RP Crown Parent, LLC, is a provider of supply chain management and retail software solutions. Affiliates of Blackstone Group, New Mountain Capital, and Panasonic Corporation own majority equity interest in the company.
The principal methodology used in these ratings was Software Industry published in August 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1130740. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
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Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.
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Raj Joshi VP - Senior Credit Officer Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Lenny J. Ajzenman Associate Managing Director Corporate Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653
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