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Rating Action:

Moody's affirms ACI's Ba3 corporate family rating; outlook is stable

01 Apr 2020

New York, April 01, 2020 -- 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"). Moody's also affirmed ACI's B2 senior unsecured rating and maintained the SGL-2 speculative grade liquidity ("SGL") rating. The outlook remains stable.

Affirmations:

..Issuer: ACI Worldwide, Inc.

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

.... Corporate Family Rating, Affirmed Ba3

....Senior Unsecured Regular Bond/Debenture, Affirmed B2 (LGD5)

Outlook Actions:

..Issuer: ACI Worldwide, Inc.

....Outlook, Remains Stable

RATINGS RATIONALE

ACI's ratings reflect the company's stable revenue stream, driven by long-term software licensing contracts with renewal rates exceeding 95%, recurring subscriptions and a large backlog, which accounts for over 75% of annual revenue. ACI has a strong market position and long-standing legacy relationships in the payments software industry. Predictable revenue and profitability, combined with modest capital expenditure requirements, result in stable free cash flow generation.

A deteriorating macroeconomic environment will slow down the pace of deleveraging over the next twelve months. The 2019 debt-financed acquisition of Speedpay increased debt/EBITDA above 4.5x, resulting in very high levels for the current rating category. However, ACI intends to use free cash flow to reduce debt and bring leverage under 4.0x (Moody's adjusted). Margins will continue to expand as ACI leverages its scalable on-demand platform over the incremental Speedpay revenue base. Moody's expects ACI's financial strategy, a key governance consideration under our ESG framework, will result in leverage trending down toward 4.0x over the next 12 months through a combination of debt repayment and margin expansion, albeit at a slower pace. Intense competition, particularly in the Bill Pay segment, and consolidation in the software and services payments industry are credit negative, partially offset by favorable industry trends as the transition from cash and checks to digital payments continues.

The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. Social distancing measures that have been enacted globally due to the coronavirus outbreak could reduce merchant transactions, particularly for payments in the retail, hospitality and travel segments. Lower transaction volumes and a shrinking global economy will diminish revenue growth for ACI. Moody's regards the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.

A recessionary macroeconomic environment will pressure organic revenue growth below historical low single-digit levels over the next twelve months. However, the stable outlook reflects the expectation that leverage will continue to trend down toward 4.0x, albeit at a slower pace than initially anticipated at the time of the Speedpay transaction, as a result of debt repayment and margin expansion. FCF/debt will increase toward historical levels above 10%, as one-time transaction costs linked to the Speedpay acquisition diminish.

The ratings for ACI's debt instruments incorporate both the overall probability of default of ACI, reflected in the Ba3-PD probability of default rating, and loss given default assessment of the individual debt instruments. The senior unsecured notes due 2026 are rated B2, two notches below the Ba3 corporate family rating, due to their subordinated position in the capital structure compared to the $1.0 billion of senior secured debt (unrated) due April 2024.

ACI's liquidity is good, as reflected in the SGL-2 speculative grade liquidity rating. ACI had a cash & equivalents balance of $121 million as of December 2019 and $261 million of availability on its $500 million revolver due 2024. We anticipate free cash flow above $125 million over the next twelve months, resulting in more than sufficient internal liquidity sources to fund its operating needs. The SGL-2 rating also incorporates our expectation that ACI will maintain a cushion of at least 20% on its covenant metrics.

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.

Factors that would lead to an upgrade or downgrade of the ratings:

Ratings could be lowered if credit metrics deteriorate, such that free cash flow to debt is expected to be sustained under 10% or debt to EBITDA to remain above 4.0x (all credit metrics Moody's adjusted). Ratings will be pressured if ACI's revenue growth falls behind expectations or if we believe that the company's EBITDA margin (Moody's adjusted) will be sustained below 20%, both of which would indicate that ACI is losing market share and pricing power. Shareholder-friendly policies prior to a material debt and leverage reduction could also result in a downgrade.

A ratings upgrade is unlikely over the next 12 months given the heightened leverage from the Speedpay acquisition and a deteriorating macroeconomic environment, which will reduce growth materially and slow down the anticipated debt reduction. 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) toward 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).

ACI develops and implements a broad line of software to financial institutions, merchants, payment processors and corporates to facilitate the processing of electronic transactions such as ACH, wire transfers, credit/debit card transactions and other digital payments. ACI generated $1.4 billion in revenue in 2019, pro forma with Speedpay.

REGULATORY DISCLOSURES

For 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_1133569.

At least one ESG consideration was material to the credit rating outcome announced and described above.

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.

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.
© 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.

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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.”

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