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RealPage, Inc. -- Moody's assigns B3 CFR to RealPage, Inc., outlook is stable

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Rating Action: Moody's assigns B3 CFR to RealPage, Inc., outlook is stableGlobal Credit Research - 12 Feb 2021New York, February 12, 2021 -- Moody's Investors Service, ("Moody's") has assigned a B3 Corporate Family Rating ('CFR') and a B3-PD Probability Default Rating ('PDR') to first time issuer RealPage, Inc. ('RealPage'). In the same rating action, Moody's has assigned B2 ratings to RealPage's proposed $2.75 billion first lien term loan and $250 million first lien revolving facility. The proceeds from the new first lien debt and a new $1.0 billion second lien term loan will be used to partially fund private equity firm's Thoma Bravo's purchase of RealPage. The ratings are subject to the transaction closing as proposed and review of the final documentation. The outlook is stable.Moody's has assigned the following ratings:..Issuer: RealPage, Inc...... Corporate Family Rating, B3.... Probability of Default Rating, B3-PD....Senior Secured First Lien Revolving Credit Facilities, B2 (LGD3)....Senior Secured First lien Term Loan, B2 (LGD3)Outlook Actions:....Outlook, Assigned StableRATINGS RATIONALERealPage's B3 CFR rating reflects the company's elevated debt to EBITDA ratio while also considering its sound market position in the niche segment of software solutions for rental housing. Moody's estimates that the company's debt to EBITDA ratio will be close to 15x when the transaction closes but would decline to 7.5-8x by YE 2022 if the management achieves the forecast cost savings. This calculation does not incorporate any new acquisitions or include the standard adjustment for stock compensation, both being factors that could weaken this metric, but includes the adjustment for operating leases and the expensing of capitalized R&D. The potential for further deterioration in the metric due to weakness in earnings is, however, limited given the company's long track record in this segment and the predictability of its revenue stream.The company has built a sizeable platform over the last 22 years with 12400 clients who own/manage 19.7 million units across product types such as market rate rentals, affordable housing and student housing among others. Over the last three years, through YE 2020, RealPage's revenues grew by 20% CAGR and operating income grew by 50%. The subscription business has generally accounted for a substantial portion of revenue in the last few years, 89% in 2020, and the high unit retention rate, above 95% in the 2018-2020 period, is an additional credit positive. Acquisitions have been an important component of RealPage's growth strategy with the company having acquired 13 entities for over $1.1 billion since YE 2017.The company's concentrated ownership structure after the LBO transaction is completed is an important governance consideration, especially with regard to the potential for aggressive financial policy. Good liquidity, including the expectation that revolver will remain largely undrawn, is supported by stable operational cash flow. Nevertheless, acquisitions, even at a slower pace, could necessitate new capital, including additional debt.As proposed, the new first lien credit facility is expected to provide covenant flexibility that could adversely impact creditors, including incremental debt capacity up to the sum of i) the greater of 1.0x of EBITDA at LBO and 100% of consolidated EBITDA for the trailing four fiscal quarters (reduced by debt incurred under the second lien facility free and clear basket, or as part of the Ratio Debt basket or Ratio Acquisitions Debt basket) plus ii) an amount such that (a) pro forma consolidated first lien net leverage ratio is equal to or less than closing date leverage (for pari passu first lien debt); (b) pro forma consolidated senior secured net leverage is equal to or less than the closing date leverage (for secured debt junior to the first lien); and (c) either pro forma consolidated total net leverage ratio is equal to or less than closing date leverage plus 0.50x or the interest coverage ratio is not less than 1.75x (for debt that is unsecured, junior to the second lien or secured by non-collateral). Alternatively, if incurred in connection with a permitted acquisition or investment, the ratio tests can be all satisfied so long as leverage does not increase or the interest coverage does not decrease on a pro forma basis. An amount up to the greater of 1.0x of EBITDA at LBO and 100% of TTM EBITDA can be incurred with an earlier maturity than the first lien term loan.Other conditions that increase covenant flexibility to the detriment of creditors include: the requirement that only wholly-owned subsidiaries act as subsidiary guarantors, raising the risk that guarantees may be released following a partial change in ownership; the ability to transfer assets to unrestricted subsidiaries, subject to a blocker provision limiting the transfer of intellectual property which is material to the business of the company and its restricted subsidiaries (taken as a whole); and step downs of mandatory repayment provisions for asset sale proceeds to 50% and 0% based on achieving reductions to the closing date consolidated first lien net leverage ratio, minus 0.50x and 1.00x, respectively.The above are proposed terms and the final terms of the credit agreement can be materially different.The stable outlook reflects our expectation that demand for RealPage's products and service will grow, operating earnings will remain healthy and its liquidity profile will continue to be sound.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe ratings could be upgraded if debt to EBITDA is consistently below 7.0x, FCF/ Debt remains comfortably above 5% and the company exhibits a more conservative financial strategy.The ratings could be downgraded if RealPage's revenue contracts materially from current levels and the company begins to generate free cash flow deficits leading to expectations for diminished liquidity or if the company adopts more aggressive financial policy.RealPage, Inc., headquartered in Richardson, Texas is a software and data analytics company that provides solutions and services to the multifamily real estate industry. For YE 2020, the company reported $1.2 billion of revenue and $322 million of EBITDA (their calculation). The company will be owned by private equity firm Thoma Bravo at the close of the transaction.The principal methodology used in these ratings was Software Industry published in August 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1130740. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.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 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.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. Ranjini Venkatesan 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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