Rating Action: Moody's assigns B2 CFR to HireRight and affirms first lien bank loan rating; outlook stableGlobal Credit Research - 16 Dec 2021$810 million of rated debt impactedNew York, December 16, 2021 -- Moody's Investors Service ("Moody's") assigned HireRight Holdings Corporation ("HireRight") a B2 corporate family rating ("CFR"), a B2-PD probability of default rating ("PDR") and a speculative grade liquidity rating ("SGL") of SGL-1. At the same time, Moody's affirmed Genuine Financial Holdings, LLC's (a wholly owned subsidiary of HireRight) senior secured first lien credit facility, including $100 million revolver due 2023 and $835 million term loan ($710 million outstanding, pro forma for the debt repayment) due 2025 rating at B2. The outlook is stable.Today's rating actions follow the company's repayment of $110 million of loans outstanding under the first lien credit agreement, including $10 million under the revolver, and all $215 million of its senior secured second lien term loan with net proceeds from HireRight's recent IPO. The B3 CFR and B3-PD PDR assigned at Genuine Financial Holdings, LLC, along with the Caa2 second lien term loan rating, have been withdrawn.The effective upgrade of the CFR to B2 from B3 considers the reduction of financial leverage to about 5.8 times from 7.8 times (Moody's adjusted and expensing all capitalized software development costs) as of September 30, 2021 following HireRight's repayment of its second lien debt, revolving borrowings, and a portion of its first lien term loan, which meaningfully strengthens the company's credit profile. Governance considerations in the rating include HireRight's public company status and expectation of more balanced financial policies despite significant financial sponsor ownership following the IPO. The company's largest shareholders include affiliates of private equity firms General Atlantic and Stone Point Capital, as well as the Conrad entities (trusts held by Conrads, following the 2018 leveraged buyout transaction with GIS). Combined, private owners control 72% of HireRight's equity.The following ratings/assessments are affected by today's action:New Assignments:..Issuer: HireRight Holdings Corporation.... Corporate Family Rating, Assigned B2.... Probability of Default Rating, Assigned B2-PD.... Speculative Grade Liquidity Rating, Assigned SGL-1Ratings Affirmed:..Issuer: Genuine Financial Holdings, LLC....Senior Secured 1st Lien Bank Credit Facility, Affirmed B2 (LGD3)Ratings Withdrawn:..Issuer: Genuine Financial Holdings, LLC.... Corporate Family Rating, Withdrawn, previously rated B3.... Probability of Default Rating, Withdrawn, previously rated B3-PD....Senior Secured 2nd Lien Bank Credit Facility, Withdrawn, previously rated Caa2 (LGD6)Outlook Actions:..Issuer: Genuine Financial Holdings, LLC....Outlook, Remains Stable..Issuer: HireRight Holdings Corporation....Outlook, Assigned StableRATINGS RATIONALE"The debt reduction and increase in cash to about $100 million expected at the year-end 2021 significantly enhance HireRight's financial flexibility to support backend optimization initiatives and strategic M&A" said Moody's AVP-Analyst Oleg Markin.HireRight's B2 CFR reflects the company's established global market position as a provider of background screening, verification, identification, monitoring and drug and health screening services that are deeply embedded into clients' human resource, security and risk management functions and entail high switching costs. Moody's adjusted debt-to-EBITDA is expected to decline towards mid-4 times range over the next 12-18 months, driven by anticipated organic revenue growth in the mid-single digit percentages and EBITDA growth above 10%. Moody's expects free cash flow as a percentage of debt above 10% over the next 12-15 months, which is strong compared to many other B2 rated business service companies. Moody's projects organic revenue growth in the mid-single digit percentages over the next 12-18 months driven by favorable macro-economic indicators and the company's ability to add new customers and upsell existing with its bundled products.HireRight's credit profile benefits from good end-user industry diversification, long-standing relationships with its customers, including both blue-chip and mid-market companies, high gross revenue retention rates above 95% in 2021 and no significant customer concentration. The company's asset-lite operating model and low capital requirements drive good operating margin and cash flow conversion. HireRight's EBITDA margin is expected in the 20% range at the end of 2021, which is below the profit rates of its industry peers, Sterling Check Corp. (B1 Stable) and First Advantage Holdings, LLC (B1 Stable), both in the mid-to-high 20% range, are expected to improve meaningfully over the next two years as efficiencies from its cost optimization and robotic process automation initiatives are realized. The rating is also supported by Moody's expectation that HireRight will maintain very good liquidity over the next 12-15 months.The rating is constrained by the company's high pro forma debt-to-EBITDA leverage of around 5.8 times (Moody's adjusted and expensing all capitalized software costs), moderate operating scale and narrow product focus, as well as operations within the highly competitive and fragmented global screening and verifications market. HireRight faces moderate social and reputational risks and requires ongoing technology and capital investments to develop new products, improve process efficiency, as well as to expand into new geographies. Despite public ownership, the company remains controlled by private equity sponsors, which, in Moody's view, elevates the risk of aggressive financial strategies.The B2 rating assigned to the company's first lien senior secured credit facility reflects HireRight's B2-PD PDR and a loss given default (LGD) assessment of LGD3. Following the repayment of company's senior secured second lien term loan, the rating on the senior secured first lien credit facility was affirmed at B2 to be consistent with the CFR as the company's debt capital structure is almost entirely comprised of this single class of debt.HireRight's SGL-1 SGL rating reflects the company's very good liquidity profile. Moody's expects approximately $100 million of cash as of December 31, 2021, as well as free cash flow as a percentage of debt above 10% over the next 12-15 months. The company's cash flows are moderately seasonal, typically stronger in the second half of the year corresponding with clients hiring activity and collections. The company's liquidity is also bolstered by an undrawn $100 million revolving credit facility due July 2023. There are no financial maintenance covenants applicable to the senior secured first lien term loan. The revolving credit facility is subject to a springing first lien leverage ratio of 7.3x when the amount of revolving loans drawn exceeds 35% facility commitment. Moody's does not expect the company to utilize the revolver during the next 12-15 months, and that it would remain well in compliance with the springing first-lien net leverage covenant if it were tested.The stable outlook reflects Moody's expectations that HireRight revenues will expand at a mid-single digit percentage rate, while EBITDA improves at higher rate as efficiency benefits are realized, and debt-to-EBITDA declines to the mid-4 times range over the next 12-18 months.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe ratings could be upgraded if HireRight profitably grows its scale and diversity, improves profitability rates meaningfully and establishes a track record of balanced financial policies. Quantitatively, Moody's could consider an upgrade if the company's debt-to-EBITDA (Moody's adjusted) approaches 4.0 times, EBITDA margin (Moody's adjusted) is sustained above 25% and at least good liquidity is maintained.The ratings could be downgraded if HireRight's operating performance meaningfully deteriorates, leading to permanently high debt leverage and low or negative free cash flow expectations. Large debt-financed acquisitions or shareholder distributions could also pressure the ratings. Quantitatively, the ratings could be downgraded if debt-to-EBITDA (Moody's adjusted) is expected to remain above 6.0 times or free cash flow-to-debt (Moody's adjusted) is sustained below 5%.The principal methodology used in these ratings was Business and Consumer Services published in November 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1287897. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.HireRight, headquartered in Nashville, TN, is a global provider of background screening and compliance solutions, including criminal background checks, credential verification, employee drug testing, and fingerprint-based screening for enterprise and mid-market clients. Following the November 2021 IPO, HireRight is a publicly traded company on NYSE: HRT. Moody's expects the company to generate revenue in excess of $700 million at the end of fiscal 2021.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. 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.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. 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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.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. Oleg Markin Asst Vice President - Analyst 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 Karen Nickerson 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 © 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS, AND PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS OR PUBLICATIONS WHEN MAKING AN INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER.ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT.MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT INTENDED FOR USE BY ANY PERSON AS A BENCHMARK AS THAT TERM IS DEFINED FOR REGULATORY PURPOSES AND MUST NOT BE USED IN ANY WAY THAT COULD RESULT IN THEM BEING CONSIDERED A BENCHMARK.All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY’S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing its Publications.To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY’S.To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information.NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY CREDIT RATING, ASSESSMENT, OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER.Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody’s Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $5,000,000. MCO and Moody’s Investors Service also maintain policies and procedures to address the independence of Moody’s Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody’s Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY550,000,000.MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.