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Rating Action:

Moody's affirms BlueCrest's B2 CFR on acquisition of BCC Software; outlook stable

01 Dec 2020

New York, December 01, 2020 -- Moody's Investors Service, ("Moody's") affirmed DMT Solutions Global Corporation's (dba BlueCrest) B2 Corporate Family Rating ("CFR") and B2-PD Probability of Default Rating ("PDR"). Moody's also assigned a B2 rating to the new first lien credit facility. These rating actions follow the announcement that BlueCrest plans to acquire BCC Group Holdings, Inc. ("BCC Software") for roughly $210 million. The outlook remains stable.

The affirmation of ratings reflects the increased scale and business diversity of BlueCrest following the acquisition of BCC Software. The transaction will expand the company's higher margin software business offerings and will generate additional recurring revenues; however, the acquisition will increase financial leverage. Moody's estimates that pro forma adjusted debt/EBITDA will peak at roughly 5x at year end 2020, up from 4 times for the period ending September 30, 2020. Moody's expects, however, that leverage will remain under 5 times as a result of mandatory debt amortization.

Proceeds from the proposed $445 million credit facility, along with new sponsor equity, will be used to fund the acquisition, refinance the existing capital structure, as well as pay for fees and expenses. The rating on the existing term loan that will be repaid as a part of this transaction will be withdrawn upon repayment. Ratings also assume that final transaction documents will not be materially different from draft legal documentation reviewed by Moody's to date.

Affirmations:

. Corporate Family Rating -- Affirmed B2

. Probability of Default Rating -- Affirmed B2-PD

Assignments:

.. 1st lien senior secured term loan B -- Assigned B2 (LGD4)

Outlook actions:

. Outlook - Remains stable

RATINGS RATIONALE

The B2 CFR reflects BlueCrest's small scale and challenged growth prospects that reflect the maturity of the mailing industry globally. Given the persistent declines in total mail volume in the US, Moody's expects modest earnings growth will result in pro forma debt/EBITDA to remain elevated at over 4.5 times over the next 12 months.

The B2 CFR is supported by BlueCrest's leading position as a provider of mail inserting and sorting equipment, long standing customer relationships under multiyear contracts, diverse revenue base with no customer accounting for more than 4% of revenue, and recurring services revenue streams. Good client retention reflects BlueCrest's track record for dealing with regulations and complexity related to its core transactional mail operations.

BlueCrest is committed to establishing and maintaining revenue growth across equipment, services, software, and supplies offerings; however, Moody's believe that achieving top-line growth could be challenging given persistent declines in total mail volume and transactional mail volume in the US and in most large non-US countries in which BlueCrest operates.

In addition to social risks from the coronavirus outbreak, governance risk is another consideration given BlueCrest's ownership by a financial sponsor. Private equity ownership often leads to debt financed distributions or M&A to enhance equity returns. Lack of public financial disclosure and the absence of board independence are also incorporated in BlueCrest's credit profile.

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

The stable outlook reflects Moody's expectation that adjusted debt/EBITDA will remain elevated at over 4.5x. The stable outlook incorporates BlueCrest's good liquidity over the next 12 months supported by growing adjusted free cash flow due to the absence of significant one-time cash expenses that were previously required for the carve out from Pitney Bowes.

Ratings could be upgraded if BlueCrest demonstrates stable revenues and term loan repayment leads to adjusted debt to EBITDA being sustained below 3.0 times. Liquidity would need to improve with adjusted free cash flow to debt in the high-single digit percentage range. Moody's would also need to be assured that BlueCrest will adhere to conservative financial policies. Ratings could be downgraded if topline performance for BlueCrest tracks below revenue trends for the industry. Ratings could also be downgraded if Moody's expects adjusted debt to EBITDA will be sustained above 5 times due to customer losses, debt financed acquisitions, or declining EBITDA margins. Deteriorating liquidity indicated by limited revolver availability or adjusted free cash flow to debt falling below 3% could also pressure ratings.

As proposed, the new first term loan is expected to provide covenant flexibility for transactions that could adversely affect creditors including incremental facility capacity equal to (i) the greater of $75 million and (ii) 75% of Consolidated EBITDA, plus additional pari passu credit facilities so long as the first lien net leverage ratio does not exceed the consolidated first lien net leverage ratio (as defined) at closing. Additional debt is permitted for incremental facilities that are secured on a junior lien basis or are unsecured. Proposed terms related to the release of subsidiary guarantees and collateral leakage through transfers to unrestricted subsidiaries have not been disclosed. The summary term sheet indicates a 100% net asset sale prepayment requirement with a 12-month reinvestment window.

DMT Solutions Global Corporation (dba BlueCrest), with headquarters in Danbury, CT, is a global provider of equipment and services related to mail inserting, parcel sorting, and printing. The company historically operated as a division of Pitney Bowes, Inc. and was acquired by Platinum Equity Capital Partners in mid-2018. Pro forma for the acquisition of BCC Software, BlueCrest generated approximately $460 million of net revenue for the last 12 months ended September 30, 2020.

The principal methodology used in these ratings was Diversified Technology published in August 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1130737. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

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.

Carl Salas
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

Stephen Sohn
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.

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