$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
