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Rating Action:

Moody's affirms ACI's Ba3 CFR and downgrades senior unsecured notes to B2

04 Apr 2019

New York, April 04, 2019 -- Moody's Investors Service ("Moody's") affirmed ACI Worldwide, Inc.'s ("ACI") Ba3 corporate family rating ("CFR") and Ba3-PD Probability of Default Rating ("PDR"), and downgraded the senior unsecured notes rating from B1 to B2. Moody's also affirmed ACI's SGL-2 speculative grade liquidity rating. The outlook remains stable. These rating actions follow the company's announcement in February 2019 that it will acquire Western Union's US-based Speedpay payment services for a $750 million all-cash consideration, plus transaction fees. The financing includes a new delayed-draw $500 million senior secured term loan, a $250 million draw on the $500 million senior secured revolver and cash on hand. ACI will also amend and extend the existing $285 million senior secured term loan to match the terms of the new delayed-draw term loan. The acquisition is expected to close in 2Q19.

Rating Action:

..Issuer: ACI Worldwide, Inc.

....Senior Unsecured Regular Bond/Debenture, Downgraded to B2 (LGD5) from B1 (LGD5)

.... Probability of Default Rating, Affirmed Ba3-PD

.... Speculative Grade Liquidity Rating, Affirmed SGL-2

.... Corporate Family Rating, Affirmed Ba3

Outlook Actions:

..Issuer: ACI Worldwide, Inc.

....Outlook, Remains Stable

RATINGS RATIONALE

The incremental $750 million of debt to finance Speedpay brings leverage to approximately 4.5x (Moody's adjusted), which is very high for the Ba3 CFR rating. Moody's expects ACI will use free cash flow to pay down debt over the next 12-18 months, bringing adjusted leverage under 4.0x, a level more appropriate with the rating. There will be downward pressure on the ratings if the expected debt pay-down does not materialize. While ACI has a history of debt-funded acquisitions, Speedpay is the largest to date, which elevates integration risks and pressures ratings. ACI operates in the very competitive payment software and services industry against large, well-capitalized players, which weighs on the credit. Ratings are supported by ACI's stable revenue stream, driven by a base of recurring revenue, long-term software licensing contracts with renewal rates exceeding 95%, and a large backlog, which accounts for over 75% of annual revenue. ACI has a strong market position and longstanding legacy relationships in the payments software industry. The combination of predictable revenues and profitability with modest capital expenditure requirements results in consistent positive free cash flow generation. Historically, ACI has relied on its legacy on-premise retail payment solutions as the main driver of EBITDA and free cash flow, resulting in product concentration risk. The acquisition of Speedpay expands the product suite by adding 270 large clients within the Bill Pay segment.

ACI's SGL-2 speculative grade liquidity rating reflects Moody's expectation of good liquidity over the next year. ACI had a cash balance of $149 million as of December 2018 and is expected to have about $250 million of availability on its 5-year $500 million revolver, pro forma with the Speedpay acquisition. Moody's also expects free cash flow above $150 million over the next year, resulting in more than sufficient internal liquidity sources to fund its operating needs. The SGL-2 rating also incorporates Moody's expectation that ACI will maintain a cushion of at least 25% on its covenant metrics.

The stable outlook reflects Moody's expectation that ACI's revenue will grow organically in the mid-single-digit range, benefiting from expected growth in the payments industry and the timing of large contracts that were delayed in late 2018. Moody's anticipates debt to EBITDA (Moody's adjusted) will decline from the 4.5x peak pro forma with the Speedpay transaction, expected to close in 2Q19, to under 4.0x within 12 months as a result of debt repayment.

An upgrade is unlikely over the next 12 months following the increase in leverage to finance the Speedpay acquisition. In the long term, the rating could be upgraded if ACI's strategy is producing an improved market position, as evidenced by consistent organic revenue growth and an expansion of its EBITDA margin (Moody's adjusted) towards 30%. An upgrade would also require a commitment to balancing the interests of shareholders and creditors by reducing leverage through both EBITDA growth and absolute debt reduction, such that debt to EBITDA is sustained below 3.0x and free cash flow to debt is sustained above 20% (all credit metrics Moody's adjusted).

The rating could be downgraded if ACI's revenue growth falls behind expectations or if Moody's believes that its EBITDA margin (Moody's adjusted) will be sustained below 20%, both of which would indicate that ACI is losing market share and pricing power. Ratings could be lowered as well if ACI is not able to successfully integrate Speedpay, resulting in lower than expected revenue growth and margins. Shareholder-friendly policies prior to a material debt reduction could also result in a downgrade. Ratings could be lowered as well if credit metrics deteriorate, such that free cash flow to debt will be sustained under 10% or debt to EBITDA will remain above 4.0x (all credit metrics Moody's adjusted).

The incremental $750 million of secured debt (unrated) in the pro forma capital structure further subordinates the $400 million 5.75% unsecured notes, resulting in the downgrade from B1 to B2. The senior unsecured notes are rated two notches below the Ba3 corporate family rating.

The principal methodology used in these ratings was Software Industry published in August 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

ACI develops and implements payments software for financial institutions, merchants, corporations and payment processors to facilitate electronic transactions such as wire transfers, credit and debit card transactions and other digital payments. The company is based in Naples, Florida.

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.

Ignacio Rasero
Vice President - Senior 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

No Related Data.
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