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Rating Action: Moody's assigns B2 to Precisely's first lien term loan following proposed repricing
Global Credit Research - 25 Jan 2021
New York, January 25, 2021 -- Moody's Investors Service, ("Moody's") assigned B2 ratings to Syncsort Incorporated's ("Precisely") proposed repricing of its existing first lien term loan tranches into a single tranche. While the transaction is a credit positive due to expected interest payment savings, there is no immediate impact on other ratings for Precisely, including its B3 corporate family rating (CFR), B3-PD probability of default rating (PDR), B2 rating for its revolving credit facility and Caa2 rating for its second lien term loan.
The proposed repricing on the first lien term loan from L+600-625 bps to L+475-500 bps is expected to improve Precisely's cost of capital, leading to interest payment savings and improved free cash flow. Additionally, in relation to the repricing, the company is expected to prepay $50 million of the first lien term loan using net proceeds from the Confirm divestiture, which will moderately improve leverage.
..Issuer: Syncsort Incorporated
....Gtd Senior Secured Bank Credit Facility, Assigned B2 (LGD3)
The B3 CFR reflects Precisely's high leverage as a result of the Software & Data (S&D) acquisition from Pitney Bowes in December 2019. Pro forma for the expected debt paydown, debt-to-EBITDA is estimated at 6.3x (Moody's adjusted and excluding annualized cost synergies and additional cost actions) for the LTM December 31, 2020, or 5.8x when about $18 million of annualized synergies are included. The ratings also reflect Precisely's modest scale relative to its high debt levels, while competing in the enterprise data management market with larger and better capitalized companies. Ratings are supported by the company's diversified niche product offering and track record of high customer retention rates reflecting the mission-critical nature of its products and difficulty in customers changing their enterprise data management platforms.
Moody's expects modest revenue growth over the next 12 to 18 months following 2020 which was impacted by fewer new license sales and declines in professional service revenue due to COVID-19 and the subsequent economic recession. However, the company has made solid progress on its integration initiatives, raising its total synergy target to $60 million (from its original $52 million) and exiting its transition service agreements (TSAs) in late 2020. While free cash flow will remain pressured in early 2021 due to remaining cash outlays for the restructuring activities, Moody's expects the company to generate adjusted free cash flow to debt in the 2-3% range driven by its strong margin profile and low capital expenditure requirements.
The stable outlook reflects Moody's expectation that Precisely will successfully integrate the S&D business and achieve planned cost synergies that will support leverage trending towards 5.5x over the next 12-18 months. Moody's expects that Precisely will maintain at least adequate liquidity and revert to positive free cash flow generation in 2021.
Precisely's adequate liquidity over the next 12 months will be supported by a pro forma cash balance of $7 million and full availability under its $125 million revolving credit facility as of December 30, 2020 following the expected debt paydown. Although Moody's expects free cash flow to remain pressured in early 2021, restructuring expenses are expected to roll-off and the company is projected to generate free cash flow of around $35-$45 million in 2021. The revolver contains a springing net first lien secured leverage covenant to be tested should revolver utilization exceed 35%, set at 7.1x with no step downs (4.6x estimated as of December 30, 2020). Moody's expects that Precisely will maintain sufficient cushion over the next 12-18 months.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The ratings can be upgraded if Precisely demonstrates strong organic growth and maintains financial strategy that will sustain debt-to-EBITDA leverage below 6x and free cash flow to debt above 5%.
The ratings could be downgraded should Precisely experience a deep organic revenue decline, margin deterioration or any other operating challenges related to the integration of S&D. Quantitatively, this could be represented by debt-to-EBITDA exceeding 8x or negative free cash flow beyond 2021.
Headquartered in Pearl River, New York, Precisely is a global software company specializing in Big Data, high-speed sorting products, data protection, data quality and integration software and services, for mainframe, power systems and open system environments to enterprise customers. The company is majority owned by Centerbridge with remaining ownership stakes held by Clearlake and management. In December 2019, the company completed the acquisition of Software and Data (S&D) business from Pitney Bowes, Inc. for a cash purchase price of $704 million. In May 2020, the company was rebranded as Precisely (formerly dba Syncsort). Pro forma for the acquisition, estimated revenues total $581 million for LTM December 2020.
The principal methodology used in this rating 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.
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 rating has been disclosed to the rated entity or its designated agent (s) and issued with no amendment resulting from that disclosure.
This rating is 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.
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.
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Carl Salas VP - Senior Credit Officer 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 Stephen Sohn 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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