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Rating Action:

Moody's affirms Blucora's B1 ratings and changes outlook to negative

17 Jan 2020

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

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.

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