Hoya Midco, LLC -- Moody's upgrades Hoya Midco's CFR to Ba3; outlook stable

Rating Action: Moody's upgrades Hoya Midco's CFR to Ba3; outlook stableGlobal Credit Research - 20 Jan 2022Approximately $350 million in new debt securities ratedNew York, January 20, 2022 -- Moody's Investors Service (Moody's) today upgraded Hoya Midco, LLC's (Vivid Seats) corporate family rating (CFR) to Ba3 from B1 and probability of default rating (PDR) to Ba3-PD from B1-PD. Concurrently, Moody's assigned a Ba3 rating to the amended and extended senior secured credit facility consisting of $275 million senior secured term loan due 2029 and $75 million revolver due 2027. Moody's also assigned an SGL-1 Speculative Grade Liquidity rating, indicating very good liquidity. The outlook remains stable.Vivid Seats plans to use the proceeds from the amended term loan along with $194 million cash to pay off the existing term loan and to cover fees and expenses. The rating on the existing term loan will be withdrawn when it is paid off.The rating upgrades reflect Vivid Seats' additional reduction in leverage proforma for the planned $194 million debt paydown, improved liquidity with added access to a revolving credit line, and stronger than previously anticipated earnings recovery. Moody's projects FY2021 Debt/EBITDA will decline to 2.7x from 4.5x (Moody's adjusted) proforma for the planned debt paydown, with the company maintaining nearly $300 million cash on balance sheet (or roughly $100 million net of estimated seller payables). Importantly, since the SPAC merger and Moody's CFR upgrade in October 2021, Vivid Seats provided more clarity on its financial policy as a public company. Vivid Seats has publicly stated its intention to operate with moderate net leverage, which will not exceed 3x for potential acquisitions, and maintain significant cash balances affording it financial flexibility for growth initiatives. The company's proposed refinancing and debt paydown demonstrate its commitment to a disciplined financial policy. Upgrades: ..Issuer: Hoya Midco, LLC .... Corporate Family Rating, Upgraded to Ba3 from B1.... Probability of Default Rating, Upgraded to Ba3-PD from B1-PDAssignments:..Issuer: Hoya Midco, LLC.... Speculative Grade Liquidity Rating, Assigned SGL-1....Senior Secured 1st Lien Term Loan, Assigned Ba3 (LGD3)....Senior Secured 1st Lien Revolving Credit Facility, Assigned Ba3 (LGD3) Outlook Actions: ..Issuer: Hoya Midco, LLC ....Outlook, Remains Stable RATINGS RATIONALE Vivid Seats' Ba3 corporate family rating reflects its modest operating scale, concentrated business profile in the ticket resale market and the stiff competition it faces from larger, diversified companies operating both primary and secondary ticket marketplaces. As a growth-oriented public company, Moody's expects Vivid Seats to maintain low debt levels. Nevertheless, private equity firm GTCR still owns approximately 61% of Vivid Seats' common stock and the potential for shareholder friendly actions given ownership concentration is a rating constraint.The company's Ba3 CFR also reflects the company's entrenched position in the secondary ticket marketplace, the scalable nature of its platform which benefits from network effects, and strong double-digit EBITDA margins the company has been able to consistently achieve prior to the pandemic. Moody's expects revenue growth to bring the company's top line to pre-pandemic levels in 2022, with continued growth at a high-single-digit percentage rate in 2023-2024, buoyed by pent-up demand for live events post-pandemic and increased marketing efforts.The SGL-1 Speculative Grade Liquidity Rating reflects Moody's expectation that Vivid Seats will maintain very good liquidity over the next 12-18 months. Sources of liquidity consist of a robust cash balance of over $200 million proforma for the refinancing and debt paydown (before seller payables), expectation for strong free cash flow, and full access to a proposed $75 million revolving credit facility due 2027. The revolver will be undrawn at close, and Moody's expects it to remain undrawn for the next 12-18 months given strong internally generated cash flows. There are no financial maintenance covenants under the amended first-lien term loan, but the proposed revolver is subject to a springing maximum first-lien net leverage ratio. Moody's does not expect the company to tap into the revolver during the next 12-18 months or the covenant to be tested. Moody's expects that Vivid Seats will remain well in compliance with the springing first-lien net leverage covenant, if tested.The Ba3 instrument ratings on the proposed first lien term loan due 2029 reflects the probability of default of the company, as reflected in its Ba3-PD probability of default rating, and an average expected family recovery rate of 50% at default given there is only a single class of debt and the proposed term loan does not have financial maintenance covenants.The stable outlook reflects Moody's expectations that Vivid Seats' operating performance will return, if not exceed, its pre-pandemic level in 2022, and that the company will maintain very good liquidity, low debt levels and cash well above seller payables.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSMoody's could upgrade Vivid Seats' ratings if the company profitably expands its scale and business diversity, and demonstrates a track record of conservative financial policies including low leverage, consistently strong free cash flow to debt and very good liquidity along with a material reduction of private-equity ownership.Ratings could be downgraded if an aggressive financial policy or weak earnings cause leverage to exceed 3.5x (Moody's adjusted), or free cash flows weaken, or the company fails to maintain good liquidity.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.Headquartered in Chicago, Illinois, Hoya Midco, LLC is the parent company of Vivid Seats LLC, a provider of an online marketplace serving the secondary ticketing industry. Hoya is an indirect subsidiary of publicly traded Vivid Seats Inc. and is majority-owned by affiliates of GTCR, LLC.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. 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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. Dilara Sukhov, CFA Vice President - Senior Analyst Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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