ZoomInfo Technologies, Inc. -- Moody's upgrades ZoomInfo senior secured to Ba1 and senior unsecured to B1, assigns Ba3 CFR; outlook is stable
Rating Action: Moody's upgrades ZoomInfo senior secured to Ba1 and senior unsecured to B1, assigns Ba3 CFR; outlook is stableGlobal Credit Research - 28 Mar 2022$1.5 billion of debt upgradedNew York, March 28, 2022 -- Moody's Investors Service ("Moody's") assigned to ZoomInfo Technologies, Inc. ("ZoomInfo") a Ba3 corporate family rating ("CFR") and a Ba3-PD probability of default rating ("PDR"). The CFR and PDR were effectively upgraded from B1 and B1-PD, respectively, as these ratings had been assigned to ZoomInfo, LLC. The CFR and PDR are now assigned where the financial statements are issued; the B1 CFR and B1-PD PDR assigned at ZoomInfo, LLC were withdrawn. At the same time, Moody's upgraded ZoomInfo, LLC's senior secured first lien credit facility (consisting of a $250 million revolving credit facility expiring in 2025 and $600 million term loan maturing in 2026) to Ba1 from Ba2 and the $650 million senior unsecured notes due 2029 issued by ZoomInfo Technologies LLC to B1 from B3. ZoomInfo's speculative grade liquidity rating ("SGL") is SGL-1. The outlook is stable for all entities.The following ratings/assessments are affected by today's action:New Assignments:..Issuer: ZoomInfo Technologies, Inc..... Corporate Family Rating, Assigned Ba3.... Probability of Default Rating, Assigned Ba3-PD.... Speculative Grade Liquidity Rating, Assigned SGL-1Ratings Withdrawn:..Issuer: ZoomInfo, LLC.... Corporate Family Rating, Withdrawn , previously rated B1.... Probability of Default Rating, Withdrawn , previously rated B1-PD.... Speculative Grade Liquidity Rating, Withdrawn , previously rated SGL-1Ratings Upgraded:..Issuer: ZoomInfo Technologies LLC....Senior Unsecured Regular Bond/Debenture, Upgraded to B1 (LGD5) from B3 (LGD5)..Issuer: ZoomInfo, LLC....Senior Secured 1st Lien Bank Credit Facility, Upgraded to Ba1 (LGD2) from Ba2 (LGD2)Outlook Actions:..Issuer: ZoomInfo Technologies LLC....Outlook, Remains Stable..Issuer: ZoomInfo Technologies, Inc. ....Outlook, Assigned Stable ..Issuer: ZoomInfo, LLC ....Outlook, Remains Stable RATINGS RATIONALE The effective upgrade of the CFR to Ba3 from B1 reflects ZoomInfo's growing scale, recurring revenue model with historically high customer net retention rates, strong profitability, and the perceived value of its product offerings. The Ba3 CFR is further supported by the company's consistent track record of strong revenue and earnings growth and double-digit percentage adjusted free cash flow-to-debt over the last two years. The significant decline in private equity ownership since the 2020 IPO, to below 25% as of December 31, 2021 also supports the upgrade of the CFR.Moody's expects rapid strengthening of ZoomInfo's credit profile, driven by anticipation of organic revenue growth above 30% over the next 12-18 month, and total revenue that could more than double over the next two years. ZoomInfo's exceptional growth benefits from continued tailwinds in the sales and marketing information market and the company's ability to offer a single platform solution that delivers high-quality intelligence to sales and marketing professionals, resulting in strong customer growth and revenue retention above 100%. ZoomInfo has a defensible market position, including its contributory data model that guarantees 95% data accuracy and fully integrates into several leading customer relationship management (CRM) and market systems, a source of a competitive advantage over large and small data providers.Moody's expects the company will manage its capital structure prudently, balancing between accretive acquisitions to strengthen its product portfolio, maintaining strong liquidity, and operating within management's long range targeted net debt to cash EBITDA leverage of 3.0x. Moody's projects the company will generate free cash flow-to-debt (Moody's adjusted) above 30% over the next 12-18 months.ZoomInfo's credit profile is pressured by the company's moderate operating scale, a short operating history as a public company, and high debt-to-EBITDA (Moody's adjusted and including unearned revenue) of 4.1 times as of December 31, 2021, which is projected to decline below 3.0 times over the next 12-18 months, driven by revenue-growth-fueled EBITDA expansion. The company's annual stock-based compensation expense, which Moody's does not adjust, adds about one turn of leverage. Because ZoomInfo is currently below its stated net cash leverage target of 3.0x (2.1x as of December 31, 2021), uses of cash for potential acquisitions is very likely. The rating is further constrained by the company's exposure to cyclical client spending and its niche market position in the B2B sales and marketing intelligence sectors that remains highly competitive given the presence of large and small providers with relatively low barriers to entry. Although the company has been expanding its product portfolio through acquisitions, it lacks the product, geographic and end-market diversification typical of services industry issuers also rated in the Ba3 category.ZoomInfo's exposure to social risks is moderate given its access to sensitive client and customer information, including sensitive client data. The company has various controls in place to mitigate the risk of client breaches.As a public company, ZoomInfo provides transparency into its governance and financial results and goals. The seven-person board consists of the Chairman and CEO Henry Schuck, four independent directors, and two individuals who were designated by the company's former sponsors, TA Associates and Carlyle. Among ZoomInfo's near term capital allocation priorities are a commitment to net leverage target of 3.0x and maintaining strong liquidity for strategic acquisitions and organic growth investments. Moody's considers ZoomInfo's financial strategies somewhat aggressive given its history of acquiring companies with debt proceeds at very high valuations.The upgrade of the secured credit facility rating to Ba1 from Ba2 reflects the effective upgrade of the PDR to Ba3-PD from B1-PD and its priority position in the capital structure that benefits from loss absorption provided by the unsecured notes and non-debt obligations. The revolver and term loan are supported by guarantees and asset pledges from all material wholly owned domestic restricted subsidiaries of ZoomInfo, LLC and also have a guarantee from ZoomInfo MidCo LLC.The upgrade of the unsecured notes by two notches to B1 from B3 reflects its junior ranking and effective subordination to the senior secured credit facility. The senior notes are issued at ZoomInfo Technologies LLC and ZoomInfo Finance Corp., indirect subsidiaries of ZoomInfo Technologies, Inc. (Parent), and are supported by guarantees from all material wholly owned domestic restricted subsidiaries of ZoomInfo, LLC and ZoomInfo MidCo, LLC. ZoomInfo Technologies LLC is also a co-borrower under the first lien credit facility.The SGL-1 speculative grade liquidity rating reflects Moody's expectation that ZoomInfo will maintain very good liquidity over the next 12-15 months. Sources of liquidity consist of more than $300 million of balance sheet cash as of December 31, 2021, expectation for strong free cash flow-to-debt (Moody's adjusted) of around 30%, and full access to the $250 million revolving credit facility due November 2025. The revolver has a springing consolidated maximum senior secured first lien leverage covenant of 5.0x that must be measured when revolver borrowings exceed 35% of availability. Moody's does not expect the covenant to be triggered over the near term and believe there is ample cushion within the covenant based on our projected earnings levels for the next 12-15 month. There is no financial maintenance covenant applicable to the term loan.The stable outlook reflects Moody's expectations that ZoomInfo will maintain very high revenue growth rates and debt to EBITDA (Moody's adjusted) to decline below 3.0 times while expanding free cash to over $400 million by fiscal 2023.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSMoody's could upgrade ZoomInfo's ratings if the company: i) maintains strong revenue growth rates, including total revenue above $1.5 billion with LTM adjusted EBITDA approaching $500 million; ii) builds track record of balanced financial policies; iii) commits to and sustains debt-to-EBITDA (Moody's adjusted) below 3.5 times; and iv) establishes a fully independent board.Moody's could downgrade ZoomInfo's ratings if: i) debt-to-EBITDA (Moody's adjusted) is sustained above 4.5 times; ii) revenue growth rates decelerate meaningfully; or iii) free cash flow-to-debt (Moody's adjusted) falls below 15%. In addition, an aggressive financial policy that favors shareholder capital returns or debt-funded acquisitions or a meaningful erosion in liquidity could trigger a downgrade.The principal methodology used in these ratings was Business and Consumer Services published in November 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1287897. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.Headquartered in Vancouver, WA, ZoomInfo (NASDAQ: ZI) is a global leader in modern go-to-market software, data, and intelligence for sales, marketing, and recruiting teams. Moody's projects the company's annual revenue will exceed $1 billion in 2022.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. 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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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.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. Oleg Markin Asst Vice President - Analyst Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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