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Rating Action:

Moody's affirms Match Group's Ba2 CFR and assigns Ba3 rating to new unsecured notes; outlook revised to negative

12 May 2020

Approximately $2.9 billion of existing rated debt impacted and $500 million of new debt rated

New York, May 12, 2020 -- Moody's Investors Service ("Moody's") has affirmed Match Group, Inc.'s ("Match" or the "company") Ba2 Corporate Family Rating (CFR), Ba2-PD Probability of Default Rating (PDR), Ba1 ratings on the senior secured bank credit facilities and Ba3 ratings on the senior unsecured notes. Concurrently, Moody's assigned a Ba3 rating to the proposed $500 million senior unsecured notes. The outlook was revised to negative from stable.

The terms of the new notes will be substantially similar to Match's existing senior unsecured notes. Net proceeds will be used to fully repay the $400 million 6.375% senior unsecured notes due June 2024, which Moody's expects the company to call. The make-whole cost is estimated at $12.8 million.

Following is a summary of today's rating actions:

Assignments:

..Issuer: Match Group, Inc.

$500 Million Senior Unsecured Notes due 2028, Assigned Ba3 (LGD5)

Affirmations:

..Issuer: Match Group, Inc.

Corporate Family Rating, Affirmed at Ba2

Probability of Default Rating, Affirmed at Ba2-PD

$750 Million Senior Secured Revolving Credit Facility due 2025, Affirmed at Ba1 (LGD2)

$425 Million Senior Secured Term Loan B due 2027, Affirmed at Ba1 (LGD2)

$400 Million 6.375% Senior Unsecured Notes due 2024, Affirmed at Ba3 (LGD5) from (LGD4)

$450 Million 5.000% Senior Unsecured Notes due 2027, Affirmed at Ba3 (LGD5) from (LGD4)

$350 Million 5.625% Senior Unsecured Notes due 2029, Affirmed at Ba3 (LGD5) from (LGD4)

$500 Million 4.125% Senior Unsecured Notes due 2030, Affirmed at Ba3 (LGD5) from (LGD4)

Speculative Grade Liquidity Actions:

Issuer: Match Group, Inc.

Speculative Grade Liquidity, Remains SGL-1

Outlook Actions:

..Issuer: Match Group, Inc.

Outlook, Changed to Negative from Stable

On 19 December 2019, Match's parent, IAC/InterActiveCorp ("IAC"), announced that its Board of Directors had approved the separation of IAC and Match into two independent public companies [1]. Under the terms of the spin-off transaction, IAC's shareholders will receive a direct ownership interest in Match proportionate to IAC's existing 81% equity stake in Match. In connection with the transaction, Match will assume IAC's $1.7 billion of unrated exchangeable notes and associated hedging instruments, and pay a $3 per share cash consideration to Match's shareholders and IAC, totaling approximately $850 million in aggregate. The spin-off is expected to close by the end of June 2020.

The rating assignment and affirmations reflect the anticipated pro forma capital structure at transaction closing. Ratings are subject to change should the capital mix be altered at closing. Ratings are also subject to review of final documentation and no material change in the size, terms and conditions of the transaction as advised to Moody's. The transaction is leverage neutral since Moody's expects Match to use the net proceeds to repay the 6.375% notes and supplement cash balances with the excess. Moody's views the transaction favorably given the extension of the debt maturity structure and expected lower annual interest expense. Moody's will withdraw the Ba3 rating on the 6.375% notes upon their full redemption.

RATINGS RATIONALE

The negative outlook reflects the impact that the novel coronavirus (a.k.a. COVID-19) pandemic will have on Match's operating and financial performance in 2020. Moody's no longer expects Match will deliver quarterly sequential revenue growth in Q2 2020, or in the second half of 2020, given the evolving situation and numerous uncertainties related to the social considerations and economic impact from COVID-19 on the company's operations and financial leverage. The negative outlook also considers governance risks, specifically the likelihood that pro forma leverage at transaction close in Q2 2020 will be higher at roughly 5.6x (Moody's adjusted) compared to Moody's original estimate of 5x, and deleveraging to under 4x could take longer than 18 months after the spin-off from IAC (i.e., by year end 2021). The magnitude of the impact will depend on the depth and duration of the pandemic, the impact that government restrictions to curb the virus will have on consumer behavior, the duration of lockdowns in geographies that Match operates as well as the timeline for reopening bars, restaurants and other social gathering venues, which are important in the dating world.

Given the economic recession this year and the prospect of extended business closures and high rates of unemployment, an erosion of consumer confidence will lead to a reduction in discretionary consumption. While roughly 97% of Match's revenue is recurring subscription (typically ranging from 1 month to 12 months) or re-occurring à la carte microtransactions, Moody's expects subscription revenue to experience declines, slowing growth and increased volatility in the months ahead. The Tinder brand accounts for nearly 60% of Match's revenue and tends to attract the under 30 audience. Moody's expects regions with rising and high levels of young adult unemployment will negatively impact Tinder's new subscription sign-ups, renewals and enhanced feature offerings. ARPU is also likely to decline as users shift to lower priced subscriptions and less à la carte purchases. Moody's recognizes that differences in a user's age, gender and geographic location (hotspot vs. non-hotspot) as well as the rolling effects of the virus will drive the degree of decline and recovery given the company's broad geographic presence. The impact to the company's financial performance will mirror the timing of the outbreak, economic shutdown and eventual reopening in each region. Europe and the US will mostly impact Match's performance in Q2 2020 and potentially in Q3 2020, offset by growth in Asia-Pacific as that region's economies reopen.

Despite these revenue pressures, as more people remain at home during the pandemic, Match's services facilitate connectivity and relationships. Moody's expects user activity, conversations and engagement to continue to increase, especially among younger customers. This is primarily due to implementation of stay-at-home measures and closure of social gathering places for singles to meet, prompting them to adjust their behavior and dating methods. In the current environment, users have shifted to virtual dating via phone or video. To meet this demand, Match has quickly adapted its product offering to deploy one-to-one video chat capabilities on many of its platforms and accelerated the rollout of one-to-many live streaming video on Plenty of Fish, allowing users to connect with, and form, virtual communities around live video. Tinder will launch one-to-one live video in late Q2 2020. The company has also launched several new features and services such as the free Passport app on Tinder that allows users to change their geographic location and connect with members in regions that are more impacted by the pandemic, Match's launch of a coaching hotline, Hinge's "Dating from Home" prompts, and video-on-demand coaching and podcasts on Meetic. Moody's views these business model changes as credit positive.

Moody's estimates up to 66% of Match's operating expenses are variable enabling the company to quickly reduce operating costs in the short-run as a result of natural expense reductions that scale with revenue increases. The key variable cost elements are marketing spend and cost of revenue, which include mostly in-app purchase fees and credit card transaction fees. Moody's expects Match to reduce certain marketing costs and delay other marketing expenses to offset sequential revenue declines, as well as shift spend to more efficient channels. For instance, television viewership has increased but advertising rates have declined making this medium more effective in the current environment, while subway ridership and radio listenership are down making these out-of-home channels less effective. Since only a fraction of Match's H2 2020 ad spend is committed, it can easily make these adjustments. While Match will be judicious with other costs such as deferring non-critical hiring, the company will continue spending in areas where there are opportunities to increase engagement. As such, Moody's projects adjusted EBITDA margins (as calculated by Moody's) could temporarily migrate to the low end of the 30%-35% range over the coming quarters.

Match's Ba2 CFR is forward-looking and based on the capital structure at closing, which Moody's expects to occur in Q2 2020. The Ba2 rating reflects the company's historically high growth profile, albeit expected to slow this year, that will continue to benefit from long-term secular adoption of online dating and social networking apps to find romantic partners, friends and business associates. The credit profile considers Match's scale and leading market position as the number one online dating provider derived from its portfolio of more than 45 brands including Tinder, the highest grossing dating app globally. The company's dating apps have benefited from high user engagement with approximately 9.9 million average subscribers globally, creating a strong "network effect". Since Q1 2017, Match has added approximately 4 million average subscribers at an 18.8% CAGR. The rating is supported by a business model in which nearly all of the revenue is recurring subscription or reoccurring micro-transactions. The company also benefits from good geographic diversification with roughly 53% of Match's LTM 3/31/20 direct revenue derived from overseas markets and 47% from North America. Match has successfully leveraged its dating apps into geographies with higher growth potential by localizing and tailoring the content of its matchmaking apps to a country's cultural norms and preferences. Further support is provided by Match's disciplined investment and acquisition strategy, consistent profitability, strong operating cash flow generation and ability to de-lever from both EBITDA growth and ample free cash flow generation to repay debt.

The Ba2 rating embeds Match's strong projected debt protection measures for the rating category and track record of deleveraging to its target leverage of under 3x net debt to EBITDA (as-reported) via strong EBITDA growth. At transaction close in Q2 2020, Moody's estimates pro forma financial leverage at roughly 5.6x total debt to EBITDA (as calculated by Moody's) with free cash flow to adjusted debt of approximately 15% (excluding the $850 million one-time distribution). With the change in ownership upon close, Moody's anticipates a lower risk of outsized dividend payments, which should improve free cash flow conversion compared to prior years. Moody's expects adjusted EBITDA margins (as calculated by Moody's) in the 30%-35% area, supported by revenue growth in the 5%-8% range in 2020. The company has publicly committed to returning net leverage to under its 3x target (as-reported) within 18 months after the spin-off transaction closes (i.e., by year end 2021). However, given that Moody's projects a global economic recession this year with the G-20 economies contracting 4%, this will result in lower-than-expected EBITDA and a slower pace of deleveraging. As the virus threat is contained and economic growth gradually returns, Moody's projects the G-20 economies will expand 4.8% in 2021, with Match de-levering to the 4x-4.5x area (as calculated by Moody's) by year end 2021 mainly via EBITDA growth, barring sizable debt-financed M&A.

The Ba2 rating is constrained by Match's narrow business focus in a highly competitive industry with revenue concentration in the Tinder brand. Given minimal entry barriers, Match faces significant competition from a multitude of smaller players, such as Meet Group and MagicLab, which owns the number two mobile dating app, Bumble, and was recently acquired by The Blackstone Group; as well as larger players like Facebook, which launched its Facebook Dating mobile app in the US in September 2019.

Despite Match's strong growth trends in the past, there may be periods when it could experience weaker-than-expected revenue growth due to economic shocks, heightened competition, lower ARPU, reduced user traffic or higher customer churn, which weighs on the rating. Additionally, margins could experience pressure as Match invests in new geographies, product development, customer acquisition, marketing and data analytics to retain and attract subscribers to its dating apps. The online dating market is also susceptible to sudden changes in consumer engagement and rapidly evolving technology that could lead to declines in user activity and impact payer conversion and monetization. Moody's expects Match to continue to invest in technology, including machine learning and data science, as well as new product features to sustain high user engagement.

Over the next 12-15 months, Moody's expects Match to maintain very good liquidity (SGL-1 Speculative Grade Liquidity) supported by the company's "asset-lite" operating model that facilitates meaningful free cash flow generation and high free cash flow conversion in the 80%-90% range (excluding the $850 million one-time distribution) and robust cash balances (cash levels totaled nearly $900 million at 30 April 2020). Moody's projects free cash flow over the next twelve months in the range of $550-$600 million (excluding the one-time distribution). Match's external liquidity is supported by the recently upsized $750 million undrawn revolving credit facility (RCF), which provides ample alternate liquidity for growth opportunities and M&A. Moody's expects Match to use cash-on-hand to pay the $3 per share consideration, or approximately $850 million in aggregate, to Match's shareholders and IAC when the separation closes.

The RCF requires Match to maintain a Consolidated Net Leverage Ratio of less than or equal to 5.0x net debt to EBITDA (as defined in the bank credit agreement) whenever the facility is drawn. Upon separation, the calculation will exclude the exchangeable notes from the calculation since these obligations will reside at finco entities, however Moody's includes them in our adjusted gross debt calculations. Moody's estimates the company was in compliance with an approximate 50% cushion at 31 March 2020. While Moody's does not expect Match to draw under the facility over the coming 12-15 months (except for opportunistic M&A), we will closely monitor the covenant headroom, which could decrease as a result of EBITDA shortfalls or reduced cash balances. If the covenant cushion tightens over the coming quarters, Moody's expects the company will seek to obtain waivers from its banks.

Moody's Loss Given Default model excludes the exchangeable notes given their equity-like feature and potential redemption via stock in the future. Moody's also assumed minimal borrowings under the revolver and applied a -1 notch override on the credit facilities' ratings given the potential for a higher mix of secured debt in the future to support acquisitions or refinancing activity.

ESG CONSIDERATIONS

The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. The online dating sector has been one of the sectors affected by the shock given its sensitivity to consumer demand and sentiment. More specifically, the weaknesses in Match's credit profile, including its exposure to US, European and Asian economies, have left it vulnerable to shifts in market sentiment in these unprecedented operating conditions and Match remains vulnerable to the outbreak's continuing spread. Moody's regards the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. Today's action reflects the impact on Match of the breadth and severity of the shock, and the broad deterioration in credit quality it has triggered.

A social impact that Moody's considers in Match's credit profile is the increasing usage of online dating and social networking platforms that help users find potential matches for dating, friendship and networking, which will continue to benefit Match and support solid revenue and EBITDA growth fundamentals over the next several years. Given that Match is entrusted with sensitive user data, Moody's notes that potential data privacy breaches could prompt some consumers to avoid using the company's dating apps thereby increasing social risk. Offsetting this risk is the company's continuing focus and increasing investment and training in its information security, privacy and user safety programs across all of its dating apps.

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

The rating outlook could be revised to stable if financial leverage declines to the 3.5x area (Moody's adjusted) and free cash flow to debt improves to the 15% range (Moody's adjusted, excluding the one-time distribution) coupled with revenue growth in the 12%-15% range.

A ratings upgrade is unlikely over the near-term, especially if the coronavirus outbreak and economic recession continue to impact users' willingness to purchase subscriptions and à la carte services from Match's dating apps. Over time, an upgrade could occur if Match exhibits revenue growth and EBITDA margin expansion leading to consistent retained cash flow to net debt of at least 23% (Moody's adjusted) and leverage sustained near 3x total debt to EBITDA (Moody's adjusted). Ratings could be downgraded if a decline in revenue or higher operating expenses led to EBITDA margin contraction or total debt to EBITDA sustained above 4x (Moody's adjusted) 18 months after the spin-off transaction closes. There would be downward pressure on ratings if EBITDA were to weaken resulting in retained cash flow to net debt sustained below 15% (Moody's adjusted).

The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016 and available at https://www.moodys.com/research/Business-and-Consumer-Service-Industry--PBC_1037985. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Headquartered in Dallas, Texas, Match Group, Inc. is a leading online dating provider via its major brands in 40 languages globally. Revenue totaled approximately $2.1 billion for the twelve months ended 31 March 2020.

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.

At least one ESG consideration was material to the credit rating outcome announced and described above.

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.

REFERENCES/CITATIONS

[1] Match's 8K filing dated 23 December 2019 (from EDGAR)

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.

Gregory A. Fraser, CFA
Vice President - Senior Analyst
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.
© 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.

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