Rating Action: Moody's affirms DigiCert's B3 CFR following proposed debt financed dividend; outlook changed to stableGlobal Credit Research - 07 Feb 2021New York, February 07, 2021 -- Moody's Investors Service, ("Moody's") affirmed the B3 corporate family rating (CFR) and B3-PD probability of default rating for DCert Buyer, Inc. (dba DigiCert) following the company's proposal to raise $467 million in incremental debt to partially fund a $570 million dividend. The outlook was changed to stable from positive given debt to EBITDA will reach an estimated 7.8x at closing (Moody's adjusted) and remain above 7x through most of 2021.DigiCert recently announced plans to raise a $337 million incremental first lien term loan and a $130 million incremental second lien term loan. Proceeds from the new borrowings plus the vast majority of excess cash will be used to fund a $570 million dividend to existing shareholders, primarily Clearlake Capital Group and TA Associates. The affirmed and assigned ratings are subject to review of final documentation and no material change in the terms and conditions of the transaction as advised to Moody's. A summary of today's action follows:Affirmations:..Issuer: DCert Buyer, Inc..... Corporate Family Rating, Affirmed B3.... Probability of Default Rating, Affirmed B3-PD....Senior Secured 1st Lien Bank Credit Facility , Affirmed B2 (LGD3)Assignments:..Issuer: DCert Buyer, Inc.....Senior Secured 2nd Lien Term Loan, Assigned Caa2 (LGD6)Outlook Actions:..Issuer: DCert Buyer, Inc.....Outlook, Changed To Stable From PositiveRATINGS RATIONALEThe B3 CFR is supported by DigiCert's strong EBITDA margins, leading market position, and a high free cash flow conversion rate. These strengths are offset by the company's small scale with $310 million GAAP revenue for LTM 9/30/2020 (or just above $500 million expected for fiscal 2020 adjusting for deferred revenue), very high financial leverage pro forma for the transaction, and aggressive financial policy.In 2017, DigiCert made a transformative acquisition, buying Symantec Corporation's ("Symantec") website security business. This acquisition positioned DigiCert as the leading player in the secure socket layer (SSL) industry, but also required significant operational overhaul in the legacy Symantec business. DigiCert has since completed the integration and revenue and EBITDA have stabilized, growing in the mid-single digit percentage range for fiscal 2020. DigiCert operates in a niche industry (total addressable market estimates are above $1 billion), so the opportunity to gain meaningful scale from a ratings perspective will need to come from growth in emerging business lines (e.g. managed public key infrastructure) or other product areas, either organically or through acquisition. Growing revenue and EBITDA from emerging business lines is critical to mitigate the risk of price erosion for core certificate offerings.Governance risks are a key consideration given that financial sponsors typically look to enhance equity returns through distributions or debt financed acquisitions. Accordingly, Moody's views DigiCert's financial policy to be aggressive given the private-equity ownership and plans to significantly increase debt to fund the planned $570 million dividend. Lack of public financial disclosure and the absence of board independence are also incorporated in the B3 CFR. The coronavirus outbreak, the government measures put in place to contain it, and the weak global economic outlook continue to disrupt economies and credit markets across sectors and regions. Although the pandemic has not had a significant negative impact on DigiCert's operating results and an economic recovery is underway, it is tenuous and its continuation will be closely tied to containment of the virus. Moody's regards the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.Liquidity is expected to be good over the next year with free cash flow to debt in the mid to high-single digit percentage range, reduced cash taxes through 2023, plus full availability under its undrawn $125 million revolver due 2024. Scheduled term loan amortization will be just under $20 million annually, and Moody's expects cash balances will be nominal with excess cash funding debt repayment. Growing free cash flow will be a key driver for maintaining good liquidity.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe stable outlook reflects Moody's expectation that DigiCert will continue to benefit from at least low single digit percentage revenue and EBITDA growth over the next year, as well as generate good free cash flow. The outlook also incorporates Moody's expectation that DigiCert will apply free cash flow to reduce debt balances with adjusted debt to EBITDA approaching 7.0x by year end 2021.Ratings could be upgraded if DigiCert continues to grow revenues and is able to sustain adjusted leverage below 6.0x with adjusted free cash flow to debt of at least 10%. The maintenance of very good liquidity is also necessary for an upgrade. Ratings could be downgraded if the company is not able to grow revenues or adjusted EBITDA margins deteriorate likely reflecting heightened competition or poor execution. Additionally, ratings could be downgraded if Moody's expects adjusted debt to EBITDA will be sustained above 7x beyond 2021 or adjusted free cash flow declines significantly. A deterioration of liquidity could also result in a downgrade.DigiCert, headquartered in Lehi, UT, is a leading provider of website security solutions with emphasis on device authentication and data encryption. The company has over 600,000 customers including Fortune 500 corporations, SMB enterprises, government institutions, and educational organizations. DigiCert is majority-owned by Clearlake Capital Group and TA Associates.The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1037985. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor 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. 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Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.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_1243406.At least one ESG consideration was material to the credit rating action(s) announced and described above.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.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Carl Salas VP - Senior Credit Officer Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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