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Rating Action:

Moody's affirms Black Knight's Ba2 CFR, assigns Ba3 rating to proposed sr uns notes; outlook stable

11 Aug 2020

$750 million of new notes rated

New York, August 11, 2020 -- Moody's Investors Service ("Moody's") affirmed Black Knight, Inc.'s (together with its subsidiaries, "Black Knight") corporate family rating ("CFR") at Ba2 and upgraded its probability of default rating ("PDR") to Ba2-PD from Ba3-PD and senior secured rating to Ba1 from Ba2. Moody's assigned a Ba3 rating to the proposed $750 million senior unsecured notes due 2028. The speculative grade liquidity rating was maintained at SGL-1. The outlook remains stable.

Black Knight plans to use the net proceeds from the proposed notes, cash and the contribution of its Compass Analytics business in exchange for a $500 million loan and an approximately 60% equity interest in a previously announced joint venture among itself, Cannae Holdings Inc. ("Cannae") and Thomas H. Lee Partners L.P. ("THLee") that will purchase Optimal Blue Holdings, LLC ("Optimal Blue"), a marketplace platform for secondary trading of mortgage debt and provider of data and analytics to the mortgage industry, for $1.8 billion. Cannae and THLee will each pay $290 million cash and each receive an approximaltely 20% share in the joint venture. Black Knight's total cash investment will be $1,250 million including the $500 million loan to the joint venture. After three years, Cannae and THLee will have a right to put their joint venture interests to Black Knight at fair value, and Black Knight will have a right to call their interests, subject to certain conditions. The put and call can be settled in cash or Black Knight common shares at Black Knight's option, with the exception of a put in connection with a change of control of Black Knight, in which case the purchase price is payable only in cash. The Optimal Blue joint venture is expected to be consolidated by Black Knight. The $500 million loan Black Knight receives from the joint venture will be eliminated in the consolidation of Black Knight's reported financial statements.

RATINGS RATIONALE

"Black Knight should be able to bring debt to EBITDA of around 4.6 times as of March 31, 2020, pro forma for the Optimal Blue acquisition and proposed note offer, back below 4.0 times quickly through EBITDA growth and debt repayment from free cash flow, contributing to the affirmation of the Ba2 CFR," noted Edmond DeForest, Moody's Vice President and Senior Credit Officer.

The Ba2 CFR reflects moderately high financial leverage following the acquisition of Optimal Blue, limited product line diversity, modest revenue scale and a somewhat concentrated, although high quality, customer base consisting of many of the largest mortgage servicers and loan originators in the US. Support is provided by the company's attractive EBITA margins which are expected to remain around 40%, history of highly recurring revenues and leading market position as a provider of mission critical integrated software, data and analytics to the mortgage and real estate industries. Revenues are primarily driven by the number of mortgage loans outstanding and, as such, revenues are generally visible and stable, even when there are changes in mortgage origination and refinancing activities. Moody's does not anticipate substantial negative impacts to Black Knight's revenue or profits from the coronavirus pandemic.

Black Knight's largest customer is Wells Fargo & Company (A2 stable), accounting for 10% of revenue in 2019, and its top 5 clients represented about 31% of total revenues. Black Knight's solutions are utilized by the vast majority of the 25 largest US mortgage originators and servicers. Concentration risk is mitigated by Black Knight's long standing relationships and high retention rates with these clients. Competition comes from its mortgage banking and servicing clients own internal operations and information technology departments and other software and services companies including Ellie Mae Inc. (B3 stable, "EllieMae") and CoreLogic, Inc. (Ba2 stable). EllieMae is being acquired by Intercontinental Exchange, Inc. (A3 stable), which could enhance EllieMae's ability to invest and compete.

All financial metrics cited reflect Moody's standard adjustments. EBITDA and EBITA are also adjusted to exclude the minority interest from the 40% of Optimal Blue due to the joint venture partners.

Reputational risks surrounding data security, completeness and correctness are important credit considerations for Black Knight. A loss of confidence by its customers in its data security and related matters could severely diminish its reputation. The loss of reputation could lead to customer losses, declining pricing power and encourage investment by competitors and new market entrants. The company invests in its data security that optimizes security versus threats and has never reported a large data security breach.

As a software and services company, Black Knight does not have a material or unusual environmental impact. Certain of the products and services it offers can be used in the production of real estate related environmental impact analysis by its customers. Black Knight provides transparency into its governance and financial results and goals. The board of directors is controlled by independent directors.The company shares its chief executive officer with Dun & Bradstreet Holdings, Inc. (indirect parent of The Dun & Bradstreet Corporation, "Dun & Bradstreet", B2 stable), which Moody's considers an unusual arrangement. Black Knight owns an approximately 13% stake in Dun & Bradstreet following its initial public offering and private placement offering that closed on July 6, 2020.

Among Black Knight's stated capital allocation priorities are investing in the business, net financial leverage reduction and cash returns to shareholders. The company has applied its free cash flow to these priorities since 2014. Moody's expects Black Knight will prioritize financial leverage reduction over further acquisitions and shareholder returns until debt to EBITDA is brought back below 4.0 times. Moody's considers Black Knight's financial strategies balanced and predictable.

The upgrade of the PDR to Ba2-PD from Ba3-PD reflects Moody's expectation of an average overall loss given default given the mix of secured and unsecured creditors in its debt capital structure following the proposed note offer.

The upgrade of the senior secured rating to Ba1 from Ba2 reflects the Ba2-PD PDR and a loss given default assessment of LGD3, reflecting first-loss support from the large amount of unsecured creditors in the debt capital structure. The secured obligations are guaranteed by secured downstream parent and upstream subsidiary guarantees.

The Ba3 senior unsecured rating reflects the Ba2-PD PDR and a loss given default assessment of LGD5, reflecting the unsecured creditors position behind the secured obligations. The unsecured obligations are guaranteed by unsecured downstream parent and upstream subsidiary guarantees.

The rated debts are issued by Black Knight InfoServ LLC (formerly known as Lender Processing Services, Inc.) and guaranteed by substantially all of its direct and indirect restricted subsidiaries and by its direct parent, Black Knight Financial Services, LLC. Black Knight Financial Services, Inc. owns 100% of the membership interests in Black Knight Financial Services, LLC. In connection with Black Knight's spin-off from Fidelity National Financial, Inc. (Baa2 stable) on October 2, 2017, publicly-traded Black Knight, Inc. assumed all interests in Black Knight Financial Services, Inc. Therefore, Moody's believes Black Knight, Inc.'s audited consolidated financial statements fully and fairly represent the financial condition of the issuer.

Moody's considers Black Knight's liquidity very good, reflected in the SGL-1 speculative grade liquidity rating. Moody's expects free cash flow of around $300 million and at least $200 million of availability under the $750 million revolver maturing in April 2023. As of June 30, 2020, Black Knight held approximately $228 million of cash.

Black Knight's senior secured term loan A requires amortization of 1.25% of the original principal balance per quarter for fiscal periods ending in September 2020 through March 2022, stepping up to 2.5% per quarter for periods ending from June 2022 to March 2023 and concluding with a bullet due at maturity in April 2023. The credit agreement includes financial covenants applicable to the revolver and term loan A that require Black Knight to maintain no more than 5.0 times Total Net Leverage and 2.5 times Interest Coverage, as defined in the credit agreement. Moody's anticipates Black Knight will maintain ample cushion under these covenants over the next 12 months.

Moody's does not anticipate cash flow from the Dun & Bradstreet investment, but considers the investment a potential source of liquidity. Black Knight's stake in Dun & Bradstreet is publicly-traded and currently valued at about $1.4 billion on a pre-tax basis. The Optimal Blue investment is also not expected to generate cash for distribution beyond a small amount of annual tax-related distributions anticipated to Black Knight and its partners.

The stable outlook reflects Moody's expectations for debt to EBITDA to return to below 4.0 times in the next 12 to 18 months, EBITA margins around 40% and robust free cash flow.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The ratings could be upgraded if Moody's anticipates: 1) balanced financial policies; 2) greater financial flexibility from a lower proportion of secured to total debt; 3) sustained growth in revenues and profitability; and 4) debt to EBITDA will be maintained below 3 times after considering potential debt Black Knight may incur pursuant to funding the put and call rights in the Optimal Blue joint venture.

The ratings could be downgraded if: 1) financial policies become more aggressive; 2) revenues or profitability decline; 3) debt to EBITDA is sustained above 4 times; or 4) liquidity becomes constrained.

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.

..Issuer: Black Knight, Inc.

.... Corporate Family Rating, Affirmed Ba2

.... Probability of Default Rating, Upgraded to Ba2-PD from Ba3-PD

....Senior Secured Bank Credit Facility, Upgraded to Ba1 (LGD3) from Ba2 (LGD3)

....Senior Unsecured Regular Bond/Debenture, Assigned Ba3 (LGD5)

......Speculative Grade Liquidity Rating, Maintained SGL-1

....Outlook, Remains Stable

Black Knight, headquartered in Jacksonville, FL, provides mission critical integrated software, data and analytics to the mortgage and real estate industries. Moody's expects 2020 revenue of over $1.2 billion.

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.

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.

Edmond DeForest
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

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.
© 2020 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 INVESTORS SERVICE, INC. AND/OR ITS CREDIT RATINGS AFFILIATES ARE MOODY'S 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 INVESTORS SERVICE 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 MOODY'S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY'S INVESTORS SERVICE 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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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 JPY250,000,000.

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