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Rating Action: Moody's affirms NCR's ratings following announcement of Cardtronics acquisition
Global Credit Research - 27 Jan 2021
New York, January 27, 2021 -- Moody's Investors Service ("Moody's") affirmed NCR Corporation's ("NCR") ratings including the company's B2 corporate family rating ("CFR"), B2-PD probability of default rating ("PDR"), the Ba3 rating on NCR's first lien credit facility, and the B3 rating on the issuer's senior unsecured bonds. The SGL-2 speculative grade liquidity rating is unchanged and the outlook is Stable.
The affirmation follows the announcement of NCR's planned acquisition of independent ATM deployer ("IAD") Cardtronics plc ("Cardtronics") in a $2.5 billion all-cash transaction expected to close in mid-year 2021. While details relating to the financing of this purchase have not yet been fully disclosed, NCR is expected to fund this transaction principally with newly issued debt. Moody's believes the acquisition will improve NCR's scale and product capabilities as well as add predictability to its business with the addition of Cardtronics' recurring revenue base, but will result in an entity with heightened exposure to the secular challenges currently facing the ATM market with a materially more levered capital structure at closing. Pro forma LTM Debt plus preferred stock/EBITDA (Moody's adjusted for operating leases and pensions) will increase by just over 1x to approximately 6x (excluding synergies), but NCR has indicated that it will suspend share repurchases and apply cash flow to debt reduction until it reaches its company defined target of 3.5x net leverage by the end of 2022.
NCR has disclosed that it obtained a committed secured financing commitment of $2.5 billion that can be used to finance the acquisition of Cardtronics. To the extent the acquisition is financed with a high proportion of secured debt, the existing Ba3 secured and B3 unsecured ratings could be pressured.
..Issuer: NCR Corporation
.... Corporate Family Rating, Affirmed B2
.... Probability of Default Rating, Affirmed B2-PD
....Senior Secured Bank Credit Facility, Affirmed Ba3 (LGD2)
....Senior Unsecured Regular Bond/Debenture, Affirmed B3 (LGD4)
Outlook Actions: ..Issuer: NCR Corporation ....Outlook, Remains Stable RATINGS RATIONALE
NCR's B2 CFR is principally constrained by the company's high pro forma adjusted gross leverage and is also negatively impacted by Moody's expectation of challenging secular trends and uncertain intermediate term demand recovery prospects in the company's core markets, particularly within the automated teller machine ("ATM)" market. Additionally, NCR's historically aggressive financial strategies characterized by a willingness to take on incremental credit risk to fund shareholder returns and acquisitions presents incremental corporate governance risk. These risk factors are partially mitigated by NCR's leading market position across its financial self service and retail point of sale hardware business, a growing proportion of recurring revenues supported by long term contracts, and good geographic and customer diversification. Additionally, the company's credit profile is supported by ongoing efforts to enhance its business mix to higher growth, higher margin, and more predictable software and services product lines which support NCR's good liquidity position and healthy free cash flow ("FCF") generation prospects.
NCR's SGL-2 liquidity rating reflects the company's good liquidity, with a cash balance of over $1.6 billion as of September 30, 2020 (before accounting for recent debt repayment and excluding the impact of the Cardtronics transaction) and Moody's expectation of more than $400 million in FCF in 2021 (on a standalone basis). The potential utilization of existing cash balances or revolver borrowings for the partial funding of the Cardtronics acquisition could lead to a downgrade in the SGL upon closing of the transaction.
The stable ratings outlook reflects Moody's expectation that, on a standalone basis, NCR's revenues and EBITDA will increase modestly in the year ahead as macroeconomic conditions normalize with credit protections expected to improve at a similar pace.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
On a standalone basis, NCR's rating could be upgraded if the company demonstrates sustained normalized revenue growth, operating margin improvements, and consistent levels of FCF with lower volatility. The rating could also be considered for an upgrade if the company sustains adjusted Debt (including preferred equity)-to-EBITDA of approximately 5x
NCR's ratings could be downgraded if operating performance trends materially underperform Moody's expectations such that FCF materially weakens, there is a deterioration in NCR's competitive position, or if the company maintains aggressive financial policies.
NCR is a leading provider of ATMs as well as retail and hospitality-oriented point of sale ("POS") terminals while also offering software and global end-to-end services solutions to these markets. Moody's projects the company to generate pro forma revenue (inclusive of Cardtronics) approximating $7.5 billion in 2021.
The principal methodology used in these ratings was Diversified Technology published in August 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1130737. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
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_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.
 Form 8-K (SEC) 25-Jan-2021
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.
Lee Zeltser Vice President - Senior 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
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