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Rating Action:

Moody's affirms NCR's B1 CFR; outlook stable

01 Aug 2019

New York, August 01, 2019 -- Moody's Investors Service ("Moody's") affirmed NCR Corporation's ("NCR") B1 Corporate Family Rating ("CFR"), B1-PD Probability of Default Rating ("PDR"), the company's SGL-2 Speculative Grade Liquidity (SGL) rating, and the B2 rating on the issuer's unsecured bonds. Concurrently, Moody's assigned a Ba2 rating to the company's proposed first lien credit facility. The rating action follows the announcement of NCR's partial refinancing of its debt structure in a largely debt leverage neutral transaction. In addition to the repayment of the company's existing bank debt with proceeds from the proposed facility, the rating action also considers Moody's expectation that NCR will issue an incremental $1.0 billion of unsecured debt (in aggregate) to refinance $900 million of existing bonds maturing in 2021 in the near term. The outlook is stable.

Affirmations:

..Issuer: NCR Corporation

.... Corporate Family Rating, Affirmed B1

.... Probability of Default Rating, Affirmed B1-PD

.... Speculative Grade Liquidity Rating, Affirmed SGL-2

....Senior Unsecured Regular Bond/Debenture, Affirmed B2 (LGD4 from LGD5)

Assignments:

..Issuer: NCR Corporation

....Senior Secured 1st lien Term Loan B due 2026, Assigned Ba2 (LGD2)

....Senior Secured 1st lien Delayed Draw Term Loan B due 2026, Assigned Ba2 (LGD2)

....Senior Secured 1st lien Revolving Credit Facility due 2024, Assigned Ba2 (LGD2)

Outlook Actions:

..Issuer: NCR Corporation

....Outlook, Remains Stable

RATINGS RATIONALE

NCR's B1 CFR is constrained by the company's elevated gross leverage of approximately 5x debt-to-EBITDA (Moody's adjusted and including preferred equity, 6x including expensed capitalized software), expectations for a challenging operating environment within the company's core automated teller machine ("ATM") market over the coming year, and the company's willingness to take on incremental credit risk to fund acquisitions and shareholder returns. These risk factors are partially mitigated by NCR's leading market position across its financial self-service and retail point-of-sale hardware business, a growing proportion of recurring revenues supported by long term contracts, and good geographic and customer diversification. Additionally, the company's credit profile should benefit from NCR's ongoing efforts to enhance its offerings in higher growth, higher margin, and more predictable software and services product lines that complement its hardware portfolio and provide higher predictability in revenues and, on balance, support stronger free cash flow ("FCF") generation.

The Ba2 ratings for NCR's proposed bank debt instruments reflect a B1-PD PDR and a Loss Given Default ("LGD") assessment of LGD2. The ratings for these instruments reflect a one-notch differential from Moody's LGD model due to uncertainty surrounding the amount and treatment of non-debt liabilities in a default scenario. The senior secured bank credit facility benefits from a collateral package that includes upstream guarantees of certain domestic subsidiaries, a pledge of the shares of certain domestic subsidiaries and certain international subsidiaries, and a pledge of the assets of certain domestic subsidiaries. As a result, NCR's senior unsecured notes are rated B2 reflecting their junior position in the capital structure as the notes do not share in the collateral package with the senior secured debt holders.

NCR's SGL-2 liquidity rating reflects the company's good liquidity, with projected pro forma cash of $300 million-$350 million as of June 30, 2019, and Moody's expectation of more than $300 million in FCF in 2019. NCR's liquidity is also supported by nearly full availability on the company's proposed $900 million revolver and $100 million of incremental borrowing capacity under a $200 million trade receivables securitization facility. Moody's expects NCR to remain compliant with its financial covenants over the next 12 months. The company's liquidity is an important element of NCR's credit profile given seasonally weak FCF trends in the first half of the year and periods of elevated required capital expenditures to support product deployments.

The stable outlook reflects Moody's expectation that NCR's revenues will rise modestly in the year ahead while cost reduction initiatives and a more profitable sales mix fuel more meaningful gains in EBITDA growth. Debt (including preferred equity)-to-EBITDA is expected to decline to just under 5x (6.4x including expensed capitalized software) during this period while FCF/Debt levels approach 8%.

What Could Change the Rating -- Up

NCR's rating could be upgraded if the company demonstrates sustained revenue growth, operating margin improvements, and consistent levels of FCF with lower volatility. The rating could also be considered for an upgrade if the company sustains adjusted Debt (including preferred equity)-to-EBITDA below 5x.

What Could Change the Rating -- Down

NCR's ratings could be downgraded if operating performance does not improve as anticipated, there is a deterioration in NCR's competitive position, or if the company maintains aggressive financial policies, resulting in an increase in adjusted Debt (including preferred equity)-to-EBITDA above 5.5x or a decrease in FCF/debt below 5%.

The principal methodology used in these ratings was Diversified Technology published in August 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

NCR is a leading provider of ATMs as well as retail and hospitality-oriented point of sale ("POS") terminals while also offering software and global end-to-end services solutions to these markets. Moody's projects the company to generate over $6.6 billion in revenues in 2019.

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.

Lee Zeltser
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

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

No Related Data.
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