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Rating Action:

Moody's Assigns B3 to Dun & Bradstreet on $7.1 billion go-private LBO; Outlook is Stable

25 Jan 2019

New York, January 25, 2019 -- Moody's Investors Service ("Moody's") has assigned a B3 Corporate Family Rating (CFR) and B3-PD Probability of Default Rating (PDR) to The Dun & Bradstreet Corporation (New) ("The Company" or "DNB"). A B2 rating was also assigned to the Company's new $3.030 billion Senior Secured Credit Facility consisting of a $2.63 billion First Lien Term Loan (due 2026), and a $400 million Revolving Facility (due 2024). In addition, Moody's assigned a B2 rating to new $500 million senior secured notes (due 2026) and a Caa2 rating to new $850 million Senior Unsecured Notes (due 2027). A new $200 million, 364-day, repatriation facility is unrated. The Outlook is Stable.

Assignments:

..Issuer: The Dun & Bradstreet Corporation (New)

....Corporate Family Rating, Assigned B3

... Probability of Default Rating, Assigned B3-PD

....$2.63 billion Gtd Senior Secured Term Loan, Assigned B2 (LGD3)

....$400 million Gtd Senior Secured Revolving Credit Facility, Assigned B2 (LGD3)

....$500 million Senior Secured Regular Bond/Debenture, Assigned B2 (LGD3)

....$850 million Senior Unsecured Regular Bond/Debenture, Assigned Caa2 ( LGD6)

Outlook Actions:

..Issuer: The Dun & Bradstreet Corporation (New)

....Outlook, Assigned Stable

The Dun & Bradstreet Corporation (New) has signed a definitive agreement to be taken private in a $7.1 billion leveraged buyout. The investor group includes a strategic buyer, Black Knight InfoServ, LLC (Ba2 Stable) which will provide executive management, and a consortium of private equity sponsors including Cannae Holdings, Inc. CC Capital Partners, LLC, and Thomas H. Lee Partners L.P.

The transaction is expected to close no later than the end of the first quarter of 2019.

RATINGS RATIONALE

The B3 rating is constrained by the private equity ownership which tolerates aggressive financial policy including high leverage and shareholder distributions. We project closing leverage to be between 9x-9.25x, with the ratio improving over the next 12-18 months to below 8x, assuming targeted synergies of over $200 million are realized. While we don't expect the investors to extract cash immediately, we believe dividends and or other shareholder friendly transactions are likely in the future. Additionally, we believe the company operates in a very competitive market place that is being disrupted by advances in technology and lower cost providers. New forward-thinking entrants and established peers with larger scale, more resources, and more advanced technology are constantly threatening to take share and pressure the pricing models and economics of DNB's businesses. DNB's market share, although strong, is weakening. This pressure can be observed in certain performance measures that are below many peers including below par retention rates on smaller customers, low EBITDA margins (around 30%) and slow revenue growth (low single digit percentage). We also note the Company's key segment, Trade Credit is declining, while the market is growing. To improve its position, the Company will need to take some risks, introducing new and lower priced data and services to smaller customers, stripping human resources from the company, reorganizing reporting structures, refocusing sales and marketing, and investing a lot more capital in technology. While new management is experienced and has a very good track record, executing the plan is uncertain given past failures.

The rating is supported by an established business with a very long 177 year operating history. It's brand is strong, helping to build deep and long-term relationships with a diverse and large number of customers. Scale is moderate, but DNB has good geographic diversity with a large percentage of sales produced outside the US, in various countries. It also owns some valuable assets including very large data sets and a proprietary Data Universal Numbering System (DUNS). The strength of the business is anchored by trade credit, which represents nearly 40% of total revenue and has a market leading 60% share. It business model is also a source of strength, with the large majority of its revenues subscription-based which provides high visibility and attractive economics.

OUTLOOK

The Stable outlook reflects our expectation that the Company will generate near $1.8 billion in revenues over the next 12-18 months, producing over $700 million in EBITDA on margins near 40%. We expect free cash flows to be $150-$175 million, after capital expenditures of $150-$200 million (5%-10% of revenue, including one time incremental investment capex). We project leverage (total debt/EBITDA) to fall below 8x (with debt of approximately $5.5b net of mandatory amortization, and including lease and pension obligations, and 100% of preferred stock). We also project free cash flow to debt to rise above 2%, and interest coverage (EBITDA- CAPEX / interest) to remain under 2x (near 1.75x). Our projections also assume the Company will not distribute any cash to shareholders in the form of dividends or otherwise. We expect the Company to maintain an adequate liquidity profile, and that there will be no material changes (relative to our expectations) in the scale of the Company, segment diversity, market position/share, financial policy, capital structure, key performance measures, or the business model.

Note: all figures and ratios based on Moody's adjusted estimates

FACTORS THAT COULD LEAD TO A UPGRADE

Moody's would consider an upgrade if leverage (Moody's adjusted Debt/EBITDA) was sustained below 6.5x, and free cash flow to debt (Moody's adjusted) was sustained above 5%. We would also consider a positive rating action if the credit profile improved due to a favorable change in one or more factors including but not limited to liquidity, scale and diversity, financial policies, market position, capital structure, business model or key performance measures.

FACTORS THAT COULD LEAD TO A DOWNGRADE

Moody's would consider a downgrade if leverage (Moody's adjusted Debt/EBITDA) is sustained above 8x (Moody's adjusted), or free cash flow to debt (Moody's adjusted) is sustained below 2.5%. We would also consider a negative rating action if the credit profile deteriorated due a an unfavorable change in one or more factors including but not limited to liquidity, scale and diversity, financial policies, market position, capital structure, business model or key performance measures.

PROFILE

The Dun & Bradstreet Corporation (New), founded in 1841 and headquartered in Short Hills NJ, is a global leader in trade credit and commercial data and analytic products used by businesses across most industries to improve their business performance. The Company has operates four main business segments include trade credit, enterprise risk management, sales acceleration, and advanced marketing solutions. Revenues were approximately $1.8 billion for the LTM period ended September 30, 2018.

The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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.

Jason Cuomo
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

Lenny J. Ajzenman
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

No Related Data.
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