Rating Action: Moody's affirms IRI's ratings, changes outlook to stable
Global Credit Research - 16 Jul 2020
Approximately $1.7 billion in rated securities affected
New York, July 16, 2020 -- Moody's Investors Service ("Moody's") affirmed IRI Holdings, Inc.'s (IRI) ratings, including the B3 Corporate Family Rating, and changed outlook to stable from negative.
The change in outlook to stable from negative and affirmation of the B3 CFR reflect IRI's meaningful improvements in liquidity, an expectation for positive cash flow and continued organic growth in the mid-to-high single digits over the next 12-18 months. An increase in demand for the company's products during the coronavirus outbreak will drive incremental business growth in the remainder of 2020. The company's plans to issue approximately $80 million of incremental first lien secured debt to be used for general corporate or acquisition purposes does not impact the stable outlook.
Moody's took the following actions:
..Issuer: IRI Holdings, Inc.
.... Corporate Family Rating, Affirmed B3
.... Probability of Default Rating, Affirmed B3-PD
....Gtd Senior Secured First Lien Revolving Credit Facility, Affirmed B2 (LGD3)
....Gtd Senior Secured First Lien Term Loan, Affirmed B2 (LGD3)
....Gtd Senior Secured Second Lien Term Loan, Affirmed Caa2 (LGD5)
..Issuer: IRI Holdings, Inc.
....Outlook, Changed To Stable From Negative
IRI Holdings, Inc.'s B3 CFR continues to reflect the company's high albeit improving leverage, weak interest coverage, modest profitability margin and intense industry competition. The governance risks Moody's considers in IRI's credit profile include an aggressive financial strategy stemming from the private equity ownership that is supportive of operating with high leverage over an extended period of time. The ratings are supported by a blue chip customer base in the consumer packaged goods (CPG), retail and consumer health sectors, a sticky, contracted revenue base supported by long term contracts with customers, entrenched position in a duopolistic market measurement segment that benefits from formidable barriers to entry, solid track record of EBITDA growth.
Moody's expects earnings growth will lead to further deleveraging, with Debt/EBITDA approaching 10x (Moody's adjusted) over the next 12-18 months, down from exceptionally high leverage of 12x as of LTM 3/2020 and 13x at the end of 2019. Moody's adjusts EBITDA to expense capitalized development costs.
IRI's liquidity is adequate based on Moody's expectation that IRI will generate positive free cash flow in the $40-$50 million range in the coming year and a $105 million cash balance with full revolver availability as of June 19, 2020. Moody's expects that after a period of heavy reliance on its $80 million revolver in 2019 to fund investments, revolver drawings will be minimal and capital investments will moderate to under $45 million over the coming year. Scheduled annual amortization under the $1.21 billion first lien term loan is $12.1 million. There are no funded debt maturities until November 2025 when the first lien term loan comes due. The company is subject to a 7.45 times springing first-lien leverage covenant, applicable only when at least 35% ($28 million) of the revolver is utilized. Given an expectation for minimal borrowings under the revolver and the generous allowances for credit agreement EBITDA calculations, Moody's expects IRI will be able to comfortably meet its compliance ratio requirement over the next four quarters.
The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. Moody's regards the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. We believe the consumer measurement and data analytics sector has less exposure than many others and the impact of the outbreak is mixed in this sector. More specifically, the disruptions to consumer spending patterns and supply chain caused by the coronavirus are creating a greater demand for IRI's surveys, consulting projects, data feeds and panel solutions. At the same time, a small portion of IRI's revenue is generated only when the physical stores are open. This revenue is forgone during the temporary store closures due to the coronavirus outbreak.
The stable outlook reflects Moody's expectation for improving earnings over the next 12 to 18 months, adequate liquidity and continued delevering through earnings growth.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The ratings could be downgraded if revenue fails to grow, liquidity deteriorates or profitability weakens such that Moody's expected debt-to-EBITDA fails to improve to below 11x (Moody's adjusted) over the next twelve to eighteen months, or if free cash flow deteriorates toward breakeven.
The ratings could be upgraded if the company demonstrates significant top-line growth and is able to sustain Debt/EBITDA (Moody's-adjusted) below 7x, and free cash flow as a percentage of debt in the mid-single-digits.
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.
Headquartered in Chicago, Illinois, IRI Holdings, Inc. provides market measurement data and related services to consumer packaged goods and health care manufacturers in the US and internationally. The company has been privately-held by Vestar Capital since November 2018. IRI reported revenue of approximately $1.3 billion for the latest twelve months ending March 31, 2020.
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.
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 https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
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.
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 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 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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