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Rating Action: Moody's assigns B1 CFR to Intermediate Dutch HoldCo (NL); outlook is stable
Global Credit Research - 25 Jan 2021
$1.95 billion of new debt rated
Toronto, January 25, 2021 -- Moody's Investors Service ("Moody's") assigned first time ratings to Intermediate Dutch HoldCo (NL) (dba NielsenIQ), consisting of a B1 corporate family rating (CFR) and B1-PD probability of default rating (PDR). Moody's also assigned B1 ratings to senior secured credit facilities at NielsenIQ's subsidiary, Intermediate Dutch Holdings ("US Holdings"). The outlook is stable for NielsenIQ and US Holdings.
On November 1, 2020, Nielsen Holdings Plc (Ba3 negative), announced the sale of its Global Connect business (NielsenIQ) to a private equity firm, Advent International (Advent) for $2.7 billion. The transaction is subject to regulatory approval and is expected to close in the first half of 2021. Net proceeds from a new $950 million senior secured first lien term loan B and new $650 million (Euro equivalent) senior secured first lien term loan B, both due in 2028, together with $989 million of common equity contributed by Advent, will be used to purchase NielsenIQ and to pay fees and expenses. A new $350 million senior secured revolving credit facility is not expected to be drawn at close.
Issuer: Intermediate Dutch HoldCo (NL)
Corporate Family Rating, B1
Probability of Default Rating, B1-PD
Issuer: Intermediate Dutch Holdings
$350 million senior secured first lien revolving credit facility due 2026, B1 (LGD3)
$950 million senior secured first lien term loan B due 2028, B1 (LGD3)
$650 million (Euro equivalent) senior secured first lien term loan B due 2028, B1 (LGD3)
Issuer: Intermediate Dutch HoldCo (NL)
Outlook, Assigned as Stable
Issuer: Intermediate Dutch Holdings
Outlook, Assigned as Stable
NielsenIQ's B1 CFR is constrained by: (1) limited industry diversity, doing a majority of business with large consumer packaged goods (CPG) companies; (2) execution risk in rolling out its new technology platform as customers will be slow to switch; (3) soft revenue growth in the next 12 to 18 months because of the impact of the coronavirus pandemic, weak global economic conditions and competitive pressures; and (4) event risk of higher leverage given its ownership by private equity. The rating benefits from: (1) very good liquidity; (2) leading global positions as a provider of data and analytics to CPG and retail clients; (3) Moody's expectation that leverage (adjusted Debt/EBITDA) will be sustained around 4x in the next 12 to 18 months, driven by cost savings (pro forma 4.5x for 2020); (4) good global geographic diversity; and (5) a long track record of strong recurring revenue as its offerings are embedded into clients' business processes.
The credit facilities are rated at the same level as the CFR as they make up the total debt capital. Although NielsenIQ's debt capital structure is comprised of only bank debt, for which Moody's normally ascribe a higher recovery rate and lower PDR, NielsenIQ's transaction is covenant-lite, so Moody's has used its normal 50% family recovery rate, which keeps the CFR and PDR at the same level.
The proposed term loan facilities do not have financial maintenance covenants. The term loan facilities are expected to provide flexibility including incremental term loan capacity not to exceed (i) the greater of (a) $492 million and (b) 100% of pro forma consolidated EBITDA for the trailing four quarters, plus (ii) available general basket amount, plus (iii) an unlimited amount as would not result in First Lien Net Leverage Ratio exceeding 3.50x (for pari passu first lien debt) or if used to finance an acquisition or similar investment, so long as leverage does not increase on a pro forma basis; additional ratio-based capacity for junior or unsecured incremental debt. Amounts up to the greater of 50% of closing date EBITDA initially (which grow as a % of EBITDA over time) may be incurred with an earlier maturity date than the existing term loan. The credit facilities also include provisions allowing the ability to transfer assets to unrestricted subsidiaries subject to a blocker provision that prohibits any IP Separation and Relicense Transaction; only wholly-owned subsidiaries are required to provide guarantees, raising the risk of potential guarantee releases subject to limitations on such releases when a subsidiary guarantor ceases to be wholly-owned unless (i) such entity is no longer a subsidiary or (ii) Intermediate Dutch Holdings is deemed to have made a new investment in such subsidiary giving pro forma effect to the release and consummation of the transaction; and step downs in the asset sale proceeds term loan prepayment requirement to 50% and 0% if the First Lien Net Leverage Ratio is 3.0x and 2.5x.
NielsenIQ's social risk is elevated and is tied to the coronavirus pandemic, increasing use of e-commerce platforms, and cyber breaches. Because of the pandemic, the company's revenue was negatively impacted in 2020 and Moody's expects some impact in 2021. Online purchases from some websites including Amazon.com do not provide point of sale data that NielsenIQ historically collected and measured to analyze purchaser behavior. Some of NielsenIQ's retail clients face growing competition from online merchants while some CPG clients are allocating more of their retail measurement and data analytics spend to Amazon, Google and Facebook. These do not bode well for NielsenIQ. Also, exposure to data breaches can cause legal or reputation issues and increased operational costs.
NielsenIQ's governance risk is high because it is owned by a private equity firm.
NielsenIQ has very good liquidity. Sources approximate $560 million while uses in the form of term loan amortization total about $16 million in the next four quarters. Liquidity is supported by pro forma cash of $110 million, Moody's expected free cash flow of about $100 million in the next 4 quarters, and full availability under a new $350 million credit revolving facility due in 2026. NielsenIQ will be subject to a springing first lien leverage ratio under its revolving credit facility and the covenant is not expected to be applicable through the next four quarters. The company has limited ability to generate liquidity from asset sales.
The outlook is stable because Moody's expects the company to maintain at least good liquidity while its cost reduction initiatives will improve EBITDA and allow it to reduce leverage to 4x in the next 12 to 18 months despite weak global economic conditions.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The ratings could be upgraded if the company provides clarity around its capital structure target, diversifies its industry coverage, is able to generate sustainable revenue and EBITDA growth in the mid-single digits (2021 revenue growth expected to be in the very low single digits), and sustains leverage towards 3.5x (pro forma 4.5x for 2020).
The ratings could be downgraded if there is material revenue or EBITDA decline (2021 revenue growth expected to be in the very low single digits) and leverage is sustained above 5.5x (pro forma 4.5x for 2020). Weak liquidity could also cause a downgrade.
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.
NielsenIQ, headquartered in Chicago, Illinois, is a global provider of retail measurement data, services and analytics to CPG and retail customers. Revenue for 2020 is projected to be about $3 billion.
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.
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