New York, January 17, 2020 -- Moody's Investors Service ("Moody's") today changed
to negative from stable the outlook on Blucora, Inc. (Blucora)
and affirmed its B1 corporate family rating (CFR) and B1 senior secured
term loan and revolving credit facility rating.
Affirmations:
..Issuer: Blucora, Inc.
.... Corporate Family Rating, Affirmed
B1
.... Senior Secured Bank Credit Facility,
Affirmed B1
Outlook Actions:
..Issuer: Blucora, Inc.
....Outlook, Changed to Negative from
Stable
RATINGS RATIONALE
Moody's said the rating action follows Blucora's 16 January
announcement that its CEO has departed because of differences in views
on the scope of his authority. This announcement occurred nine
days after Blucora announced that its CFO was departing on 31 January
2020, only two years after his appointment in that position.
Moody's said the change in outlook to negative reflects Moody's
views of uncertainties surrounding Blucora's leadership and corporate
governance, and consequent implications for Blucora's financial
profile, strategic direction and culture.
Blucora has established an interim office of the CEO comprised of heads
of business units and other executives to manage the firm and reporting
to a newly formed oversight subcommittee, and said it anticipates
announcing a new CEO by the end of January 2020. Moody's
said there are a number of imminent challenges on the horizon for Blucora,
chief among them are its pending $160 million debt-funded
acquisition of HK Financial Services (HKFS), which it expects to
close by the end of the first quarter of 2020, and it being the
busiest time of the year for its TaxAct business, which contributes
59% of the firm's total net revenue.
Moody's said it affirmed Blucora's ratings because of its
strong financial profile, which benefits from its two business units
(wealth management and tax preparation) that generate strong cash flows,
resulting in ample liquidity and strong debt leverage for its rating level.
Pro forma for the HKFS acquisition, Blucora's Moody's-adjusted
debt leverage will be around 4.3x, deteriorating from 3.6x
for the trailing-twelve months ended September 2019.
In its assessment of the firm's corporate governance, Moody's makes
a one-notch downward adjustment for corporate behavior in its assessment
of Blucora's creditworthiness. This reflects the credit risks derived
from the frequency of changes in its top executive management positions
and uncertainties surrounding its longer-term strategic and financial
profile.
Factors that could lead to an upgrade:
Given the negative outlook, an upgrade of Blucora's ratings
is unlikely in the near future. Factors that could lead to a stable
outlook include:
• A swift resolution of its key management vacancies including the
positions of CEO and CFO
• Increased clarity on Blucora's longer-term strategic and
financial priorities, including with respect to M&A appetite,
shareholder returns and debt leverage
• Ongoing evidence of a successful implementation of Blucora's operational
strategies resulting in organic growth, rising profitability,
increased scale and improved margins
Factors that could lead to a downgrade:
• Failure to timely fill key management positions with executives
that have sufficient experience in managing change and successfully executing
M&A transactions and managing costs
• Evolution in financial policy that increasingly favors shareholders
such as increasing leverage to fund acquisitions or share repurchases
• Increasing competitive pressures on the firm's wealth management
or tax preparation businesses resulting in a deterioration in the firm's
revenue and cash flow generation
• A significant deterioration in franchise value, via a security
breach of client accounts, a sustained service outage, or
a significant legal or compliance issue resulting in reputational damage,
loss of customers and litigation costs pressuring profit margins
The principal methodology used in these ratings was Securities Industry
Service Providers Methodology published in November 2019. 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, 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.
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.
Fadi Abdel Massih
Asst Vice President - Analyst
Financial Institutions 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
Ana Arsov
MD - Financial Institutions
Financial Institutions 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