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Rating Action:

Moody's affirms Red Ventures' B1 CFR; outlook revised to stable

30 Jun 2020

Approximately $3 billion of existing rated debt impacted

New York, June 30, 2020 -- Moody's Investors Service, ("Moody's") has affirmed Red Ventures, LLC's ("Red Ventures" or the "company") B1 Corporate Family Rating (CFR), B2-PD Probability of Default Rating (PDR) and B1 ratings on the senior secured first-lien bank credit facilities. The outlook was revised to stable from positive.

Following is a summary of today's rating action:

Affirmations:

...Issuer: Red Ventures, LLC (Co-Borrower: New Imagitas, Inc.)

.....Corporate Family Rating, Affirmed at B1

.Probability of Default Rating, Affirmed at B2-PD

.$754 Million Senior Secured First-Lien Revolving Credit Facility due 2023, Affirmed at B1 (LGD3)

.$2,279 Million (originally $2,290 Million) Senior Secured First-Lien Term Loan due 2024, Affirmed at B1 (LGD3)

Outlook Actions:

...Issuer: Red Ventures, LLC

.....Outlook, Changed to Stable from Positive

The revision of the rating outlook to stable reflects Moody's expectation that the economic recession arising from the novel coronavirus (a.k.a. COVID-19) pandemic will slow Red Ventures' revenue growth and delay deleveraging in 2020. Moody's views the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. 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 restrictions in regions where the company operates as well as the timeline for fully reopening those economies.

RATINGS RATIONALE

Red Ventures' B1 CFR is forward-looking supported by its best-in-class online customer acquisition platform designed around a performance-based revenue model, loyal client relationships and a proprietary analytics platform that has consistently delivered comparatively higher customer traffic and sales conversions than its clients' in-house marketing programs. The company maintains high adjusted EBITDA margins and a fast growth profile longer-term, albeit under near-term pressure due to the recession. Moody's believes Red Ventures will continue to benefit from the secular shift of brand marketing spend and consumer purchase activity from traditional channels to online platforms. The company is well-positioned to exploit these trends, which have become more pronounced during the COVID-19 outbreak as consumers scale back in-store shopping and increase their visits to online retail sites and e-commerce consumption. Red Ventures' "asset-lite" operating model facilitates good conversion of EBITDA to positive free cash flow, supporting good liquidity and Moody's expectation that the company will focus on deleveraging. Moody's also acknowledges management's stated commitment to achieve a 3x-4x total debt to EBITDA leverage target (equivalent to 3.2x-4.2x Moody's adjusted) by reducing discretionary distributions and applying free cash flow to debt repayment.

While Moody's believes the Bankrate acquisition enhanced Red Ventures' scale, diversified its traffic sources and helped to expand its financial institution client base given Bankrate's strong brand as a leading publisher, aggregator and distributor of online personal finance content, we also believe that Bankrate's revenue is susceptible to certain factors beyond its control. These include economic recession, high levels of unemployment, increases/decreases in housing activity and changes in interest rates that affect consumers' purchasing behavior and ability to access credit, which Moody's factors in the B1 rating. Moody's expects the company's financial services segment to be negatively impacted the most in the current economic downturn as financial institutions reduce promotional ad spending and consumer web traffic declines on those sites. However, Moody's believes there will be offsetting increasing traffic on Red Ventures' health, education, entertainment and home services sites. Moody's expects Red Ventures to maintain tight cost controls, especially on new hiring, and eliminate inefficient spend during the downturn to offset slower revenue growth.

An additional factor that constrains the rating includes Red Ventures' high pro forma financial leverage of 6.3x total debt to EBITDA (Moody's adjusted at LTM 31 March 2020, which excludes one-time acquisition-related transaction and restructuring costs and includes LTM EBITDA from acquisitions). Elevated leverage stems from two partially debt-financed medium-sized acquisitions last year, which highlights the company's acquisitive growth strategy that could lead to integration challenges and volatile credit metrics. The rating also embeds exposure to cyclical advertising revenue, absence of meaningful international diversification, high customer and end market concentrations, as well as governance risks related to private equity sponsor ownership that could lead to further M&A activity and dividend distributions.

While Moody's expects acquisitions made in Q2 2019 and Q3 2019 will help Red Ventures deliver modest year-over-year revenue growth on a GAAP basis in the first half of 2020, we expect revenue growth for the entire year to be roughly flat as the acquisitions' revenue, which was included in the company's consolidated revenue in the second half of last year will also be captured in the second half of this year. This will produce better comparability and, as a consequence, reflect existing negative organic revenue growth trends. In Q1 2020, pro forma revenue and EBITDA on an as-reported basis (as if acquisitions were owned for the entire year) declined 8% and 10%, respectively, following 12% and 11% corresponding declines in Q4 2019. The stable outlook considers the likelihood that financial leverage will remain higher than expected in 2020, ending the year temporarily above the downgrade threshold at roughly 5.8x total debt to EBITDA (Moody's adjusted), compared to Moody's original estimate of under 4x. Moody's projects a global economic recession this year with the US and G-20 advanced economies contracting 5.7% and 6.4%, respectively. As the virus threat subsides and economic growth gradually returns in 2021, Moody's projects financial leverage will decline to just under 5x by the end of next year.

The stable outlook also reflects Moody's view that Red Ventures' digital marketing platform and online customer acquisition model will remain fairly resilient during the economic recession and generate robust free cash flow. Though Moody's projects US advertising spend to contract in the mid-to-high single digit percentage range in 2020, we expect digital ad spend to grow, albeit at a low-single digit percentage pace with social media and mobile expanding at high single-digits. Moody's expects the company will continue to experience favorable digital ad market trends and achieve share gains as customers adopt its data-driven approach to marketing, especially in end markets less affected by the virus such as health, education, entertainment and home services (collectively accounting for the majority of revenue), which we believe will offset EBITDA shortfalls in the credit cards sub-segment of its financial services business. Red Ventures has shifted resources from financial services to similar functions in health, education, entertainment and home services to exploit growth opportunities in these segments. Web-based providers like Red Ventures are expected to experience an increase in demand during the pandemic due to extended stay-at-home practices as clients accelerate the digitization of education and tele-health services and consumers increasingly engage in online activities such as ad-supported video streaming, social media, e-learning and e-commerce.

Moody's expects Red Ventures will maintain good liquidity with the potential for small tuck-in acquisitions, avoid dividend recapitalizations and pay negligible distributions facilitating free cash flow generation for debt reduction. In Q1 2020, the company proactively drew $270 million (net of a $60 million repayment) under its $754 million revolver as a precautionary measure resulting in $254 million of availability plus $373 million in cash balances at quarter end. Moody's projects the company will partially repay revolver borrowings over the coming twelve months and fully repay the remaining outstanding balance by 2021. The revolver is subject to a springing Maximum First Lien Leverage covenant equal to 7.5x (as defined in the first-lien credit agreement) that becomes operative each quarter when more than 35% of the facility is drawn. At 31 March 2020, Red Ventures' First Lien Leverage Ratio was 4.7x. While Moody's expects the company to maintain sufficient covenant headroom over the next twelve months, we will closely monitor the cushion as EBITDA levels moderate.

The rapid spread of the coronavirus outbreak, deteriorating global economic outlook, low oil prices, and high asset price volatility have created an unprecedented credit shock across a range of sectors and regions. 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 Red Ventures of the deterioration in credit quality it has triggered, given its exposure to the US economy, which has left it vulnerable to shifts in market demand and sentiment in these unprecedented operating conditions.

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

A ratings upgrade is unlikely over the near-term, however over time an upgrade could occur if the company demonstrates revenue growth and EBITDA margin expansion leading to consistent and increasing positive free cash flow generation and sustained reduction in total debt to GAAP EBITDA leverage below 4x (Moody's adjusted) and free cash flow to debt (Moody's adjusted) of at least 6%. Red Ventures would also need to increase scale, maintain at least a good liquidity profile and exhibit prudent financial policies. Ratings could be downgraded if financial leverage is sustained above 5x total debt to GAAP EBITDA (Moody's adjusted) or EBITDA growth is insufficient to maintain free cash flow to adjusted debt of at least 2% beyond 2021. Market share erosion, significant client losses, sub-par organic revenue growth, weakened liquidity or if the company engages in leveraging acquisitions or sizable shareholder distributions could also result in ratings pressure.

Headquartered in Fort Mill, South Carolina, Red Ventures, LLC is a wholly-owned operating subsidiary of Red Ventures Holdco, LP, which owns a portfolio of growing digital businesses that bring consumers and brands together through integrated e-commerce, strategic partnerships, and proprietary brands across the financial, home, health, education and entertainment services industries. On 8 November 2017, Red Ventures completed the acquisition of Bankrate, Inc. for approximately $1.4 billion. The company completed two mid-sized acquisitions, HigherEducation.com on 12 April 2019 and Healthline Media on 16 July 2019. Following a July 2018 equity raise mainly from existing investors, Red Ventures' management and employees own roughly half of the company, while private equity firms, Silver Lake Partners, General Atlantic, ICONIQ and other investors own the remaining half. Revenue totaled $1.37 billion for the twelve months ended 31 March 2020.

The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1037985. 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.

At least one ESG consideration was material to the credit rating action(s) 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.

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.
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