U.S. Markets closed

VM Consolidated, Inc. -- Moody's affirms Verra Mobility's CFR at B2 on proposed refinancing; outlook is stable

·17 min read
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

Rating Action: Moody's affirms Verra Mobility's CFR at B2 on proposed refinancing; outlook is stableGlobal Credit Research - 15 Mar 2021Approximately $1.0 billion of new rated debt affectedNew York, March 15, 2021 -- Moody's Investors Service, ("Moody's") affirmed VM Consolidated, Inc.'s ("Verra Mobility") corporate family rating (CFR) and probability of default rating (PDR) at B2 and B2-PD, respectively. At the same time, Moody's assigned a B1 rating to the company's proposed amended and extended $650 million senior secured first lien term loan due 2028 and a Caa1 rating to the proposed $350 million senior unsecured notes due 2029. The company's current $75 million asset based lending (ABL) facility maturing 2023 will remain in place. Proceeds from the transaction will be used to acquire Redflex Holdings Limited ("Redflex"), an Australian domiciled manufacturer and service provider for traffic management products with a large US footprint, for approximately $128 million, repay its $866 million existing term loan due 2025, add $6 million of cash to the balance sheet, and pay related fees & expenses. The company was also assigned a SGL-1 speculative grade liquidity (SGL) rating. The rating outlook is stable."We view Verra Mobility's acquisition of Redflex as financially aggressive given modestly higher debt levels pro forma the acquisition at a time where the company's credit metrics have weakened following reduced demand for rental cars amid the coronavirus pandemic," said Moody's AVP-Analyst Andrew MacDonald. "The commercial services business is expected to remain pressured until roughly 2023 when global air travel traffic returns to pre-pandemic volumes; however, we believe Verra Mobility will maintain good liquidity provisions and return to year-over-year revenue growth by the second quarter of 2021. The addition of Redflex also increases the company's size within its core market in the US and provides opportunity for international growth longer term."Affirmations:..Issuer: VM Consolidated, Inc..... Corporate Family Rating, Affirmed B2.... Probability of Default Rating, Affirmed B2-PDAssignments:..Issuer: VM Consolidated, Inc.....Gtd Senior Secured 1st Lien Term Loan, Assigned B1 (LGD3)....Senior Unsecured Regular Bond/Debenture, Assigned Caa1 (LGD5).... Speculative Grade Liquidity Rating, Assigned SGL-1Outlook Actions:..Issuer: VM Consolidated, Inc.....Outlook, Remains StableThe assignment of ratings remain subject to Moody's review of the final terms and conditions of the proposed financing transaction that is expected to close around May 2021.RATINGS RATIONALEVerra Mobility's B2 CFR reflects the company's small revenue scale, with about $474 million of revenue for the year ended 31 December 2020 (including the Redflex acquisition), high Moody's adjusted debt-to-EBITDA leverage of 5.8x at pro forma at close that is expected to improve to 5x by early 2022. The company will experience ongoing structural weakness in the global travel industry that will weigh on the company's earnings through at least 2022. The company has solid EBITDA margins of roughly 46% and high free cash flow conversion which should generate about $100 million of free cash flow in 2021. The company also has over $126 million of cash as of 31 December 2020 pro forma for the transaction. If cash is used towards profitable acquisitions, which Moody's expects management will prioritize, leverage would decline. Moody's expects leverage will modestly increase in the first quarter of 2021 due to a difficult pre-pandemic comparable; however, it should improve steadily thereafter driven by the gradual recovery in global travel in 2021 from increased discretionary consumer spending.All financial metrics cited reflect Moody's standard adjustments. In addition, Moody's reclassifies Verra Mobility's capitalized software costs of approximately $5 million in 2020 as an expense.Verra Mobility is well positioned within its two niche markets, tolling solutions and safety cameras, the latter of which will increase with the addition of Redflex (approximately $80 million or 17% of total revenue). The company's competitive position benefits from existing connectivity with over 50 tolling authorities that cover a large portion of toll roads in the US and direct integration with hundreds of ticket issuing authorities. The safety segment is less susceptible to macroeconomic conditions, but is subject to legislation changes in allowing for photo enforcement. The company has high customer concentration with its top three customers in the commercial services business representing 32.8% of 2020 revenue. Its top municipal and largest overall customer is the City of New York Department of Transportation (NYCDOT) at 31.3%. Verra Mobility has an open receivable of $98.9 million as of FY 2020 with NYCDOT across two contracts on which payment has been delayed due to administrative and investigative overhang with the City of New York. While Moody's does not currently expect the conclusion of the investigation will materially impact the business, the ability of Verra Mobility to maintain NYCDOT as a client is a key underpinning of the rating. Customer concentration is partially mitigated by multi-year contracts and the embedded nature of its devices and services in the operations of its customers.Verra Mobility's SGL-1 rating reflects the company's very good liquidity profile supported by its ample cash balance of $126 million pro forma for the transaction and expectations for a free cash flow-to-debt rate in the high single digits. The company's $75 million ABL facility due 2023 is currently undrawn, although its borrowing base capacity is $48.8 million net of $6.3 million outstanding letters of credit due to ineligibility of certain NYCDOT receivables. Moody's expects the company to generate free cash flow of around $100 million during the next 12 months, which combined with its existing cash balance should support ongoing working capital needs, capital expenditures and mandatory term loam amortization of 1% or $6.5 million. The sole financial covenant in the credit facility is springing minimum fixed charge coverage ratio of 1.0x, which is only tested if the availability under the ABL facility falls below 10% ($7.5 million). The covenant is not expected to be triggered over next 12 months and, if it was triggered, the company would be able to comply with a reasonable cushion.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe stable rating outlook reflects Moody's expectation for revenue and EBITDA improvement by mid-2021 as global air travel volumes gradually recover with debt-to-EBITDA approaching the low 5x range, EBITA-to-interest at 3x, and free cash flow-to-debt rates sustained in the high-single digits during the next 12 to 18 months.Factors that could support an upgrade include debt-to-EBITDA sustained below 4x, free cash flow to debt sustained in the high single digits, successful integration of acquisitions, and further customer diversification.Factors that could result in a downgrade include debt-to-EBITDA above 6x, EBITA-to-interest approaching 1.25x, loss of a significant customer, deterioration in liquidity, or debt-funded acquisitions or dividends.Verra Mobility Corporation (Verra Mobility), headquartered in Mesa, Arizona, is a technology-enabled services company providing toll, violation management, and title and registration services for rental car and fleet management companies and road safety cameras for municipalities. Reported revenues were $394 million for the year ended 31 December 2020.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.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. Andrew MacDonald 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 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 © 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. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS, AND PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS OR PUBLICATIONS WHEN MAKING AN INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER.ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT.MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT INTENDED FOR USE BY ANY PERSON AS A BENCHMARK AS THAT TERM IS DEFINED FOR REGULATORY PURPOSES AND MUST NOT BE USED IN ANY WAY THAT COULD RESULT IN THEM BEING CONSIDERED A BENCHMARK.All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY’S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing its Publications.To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY’S.To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information.NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY CREDIT RATING, ASSESSMENT, OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER.Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody’s Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $5,000,000. MCO and Moody’s Investors Service also maintain policies and procedures to address the independence of Moody’s Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody’s Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY550,000,000.MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements. ​