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Verint Systems Inc. -- Moody's affirms Verint's Ba2 CFR and upgrades secured debt to Ba1; outlook stable

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Rating Action: Moody's affirms Verint's Ba2 CFR and upgrades secured debt to Ba1; outlook stableGlobal Credit Research - 15 Apr 2021New York, April 15, 2021 -- Moody's Investors Service, ("Moody's") affirmed Verint Systems Inc.'s ("Verint") Ba2 Corporate Family Rating ("CFR") and upgraded the ratings on the company's secured debt facilities to Ba1 from Ba2. The upgrade of the secured debt reflects the change in mix of debt with the recent paydown of secured debt with proceeds of a new (unrated) convertible debt offering. The ratings outlook remains stable.Verint recently paid down over $250 million of its outstanding secured term loan effectively with proceeds of a new $315 million convertible note issuance. The Ba1 rating on the secured term loan and revolver reflects the debt's senior most position in the capital structure and substantial amount of unsecured debt beneath it. The debt ratings accommodate moderate increases in secured debt (whether revolver draws or terms loans) to fund potential acquisitions.RATINGS RATIONALEVerint's Ba2 CFR reflects the company's strong market positions in the workforce and customer engagement management software industries and Moody's expectation of modest leverage and strong cash flow to debt metrics. Verint has particular strength in selling workforce optimization software to contact centers. Verint benefits from its expertise in providing software that analyzes unstructured data (i.e. conversations, email, chat, video, data traffic, etc.).Verint divested its cyber-security business in February 2021. Moody's expects the remaining customer engagement business will rebound to mid-single digit growth rates after declining during the early periods of the pandemic. Although the remaining business will slowly return to pre-divestiture historic profitability, transaction, restructuring and ongoing stranded costs will hinder margins in fiscal year (FY) 2022 (fiscal year ending January 31, 2022) and FY 2023. Debt to EBITDA should trend towards 3x over next year as those costs wind down. The credit profile also reflects Verint's acquisitive business strategy and the expectation that the company will continue to use a combination of cash and occasionally debt for future acquisitions.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe stable outlook reflects our expectation of mid-single digit growth and repayment of the convertible notes in the near term with leverage improving towards 3x. The ratings could be upgraded if Verint demonstrates consistent operating improvements post spin off of the cyber security business, maintains its market position, and sustains leverage below 3x and free cash flow to debt above 17.5%. The ratings could be downgraded if revenue, EBITDA and free cash flow were to deteriorate materially, particularly if driven by a change in market position. The ratings could also be downgraded if leverage exceeds 4.5x or free cash flow to debt is less than 12.5% on other than a temporary basis. Consideration will be given however for unusually strong cash positions.Verint's speculative grade liquidity (SGL) rating of SGL-1 reflects very good liquidity, as evidenced by solid cash balances, strong levels of free cash flow and an undrawn $300 million revolver. Verint had approximately $600 million of cash at the close of the cyber security spinoff in February 2020. Pro forma for transactions since the separation, including the $200 million APAX Partners preferred stock investment, new convertible notes issuance, term loan paydown and $387 million repayment of the convertible notes due June 1, 2021, Moody's estimates cash of over $350 million.Affirmations:..Issuer: Verint Systems Inc..... Corporate Family Rating, Affirmed Ba2.... Probability of Default Rating, Affirmed Ba2-PDUpgrades:..Issuer: Verint Systems Inc. ....Senior Secured 1st Lien Bank Credit Facility, Upgraded to Ba1 (LGD2) from Ba2 (LGD3) Outlook Actions: ..Issuer: Verint Systems Inc. ....Outlook, Remains Stable Verint Systems Inc. provides software and systems for workforce and customer engagement management. The company, headquartered in Melville, NY, has grown through a combination of acquisitions and internally developed products. For the fiscal year ended January 31, 2021, Verint's Customer Engagement business generated about $830 million of net revenue.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.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. Matthew B. Jones 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 © 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. 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