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Rating Action:

Moody's affirms ZoomInfo's B1 CFR, upgrades secured credit facility rating to Ba2; outlook stable

13 Jul 2021

New York, July 13, 2021 -- Moody's Investors Service ("Moody's") affirmed ZoomInfo, LLC's ("ZoomInfo") B1 Corporate Family Rating (CFR) and B1-PD Probability of Default Rating (PDR) following the company's announcement that it will acquire Chorus, a market leading conversation intelligence platform. Concurrently, Moody's upgraded ZoomInfo's senior secured credit facility rating to Ba2 from Ba3, consisting of a $250 million revolver and upsized $600 million term loan B (including $200 million incremental), and affirmed a $650 million senior unsecured notes rating (upsized by $300 million) issued at ZoomInfo Technologies LLC, at B3. The Speculative Grade Liquidity (SGL) rating remains SGL-1. The outlook is stable.

Net proceeds from the new incremental term loan and unsecured notes, together with cash on hand, will be used to fund the acquisition of Chorus and pay related fees and expenses. The acquisition is expected to close in July 2021.

RATINGS RATIONALE

The material increase in debt and financial leverage, as well as the significant multiple paid for a very small and currently unprofitable company makes this transaction a negative credit development. Further, it signals that ZoomInfo will continue to use debt and re-leverage its balance sheet to fund its future growth. Proposed incremental debt will increase ZoomInfo's debt-to-EBITDA leverage (Moody's adjusted) to around 5.4x from 3.3x as of March 31, 2021, which weakly positions the company in the B1 rating. Adjusted leverage is calculated on a cash EBITDA basis (including the change in deferred revenue plus amortization of deferred commission costs less the change in deferred costs; expensing stock-based compensation and capitalized software costs). However, Moody's expects that with continued strong EBITDA growth and ZoomInfo's good track record of integrating and extracting synergies from acquisitions, leverage will decline to the low 4.0x ranges by the end of fiscal 2021.

With the Chorus acquisition, ZoomInfo is expanding its engagement sales tech stack by adding a highly complementary and fastest growing conversation intelligence tool. Chorus' main solutions include real-time call recording and transcription, sales coaching, onboarding and skill development and data analytics. Moody's believes that product synergies will compliment both platforms, allowing ZoomInfo to sell Chorus product into the company's large and growing customer base, driving more comprehensive go-to-market solution for its customers. Through rationalization of expenses and increasing sales rep productivity, Chorus' EBITDA is expected to become accretive in the second half of 2022.

The upgrade of the senior secured credit facility rating to Ba2 from Ba3 reflects the increase in the proportion of junior-ranking unsecured notes relative to the secured debt in ZoomInfo's pro forma capital structure, which provide additional loss-absorption to the credit facility under Moody's Loss Given Default (LGD) framework.

ZoomInfo's B1 CFR reflects Moody's expectations for revenue and earnings growth of approximately 30-40%, respectively, and solid free cash flow to total debt in the mid-20% range over the next 12-18 months. Absent subsequent debt-funded acquisitions, Moody's projects ZoomInfo's pro forma debt-to-EBITDA leverage (Moody's adjusted and excluding stock based compensation) to decline towards mid-3.0x range over the next 12-18 months, from approximately 5.4x as of March 31, 2021. The company has a publicly stated commitment to a more conservative financial policy with a long-term leverage target of less than 3.0x (based on management's calculation), which equates to about 3.5x-4.0x on a Moody's basis. ZoomInfo has a defensible market position, including its contributory data model that guarantees 95% data accuracy and fully integrates into several leading customer relationship management (CRM) and market systems, a source of a competitive advantage over other large and small data providers. The company's highly predictable and recurring annual subscription-based revenues, historically strong retention rates and very good profitability also provide credit support.

Conversely, ZoomInfo's rating is constrained by its high debt-to-EBITDA and moderate revenue base that is exposed to cyclical client spending. The company lacks product and geographic diversification and operates within the highly competitive sales intelligence data market given the presence of large and small providers with relatively low barriers to entry. ZoomInfo is slowly building a track record on its stated conservative financial policies as a publicly-controlled company.

The stable outlook reflects Moody's expectations that ZoomInfo will continue to defend its niche market position in the B2B sales and marketing intelligence sector, maintain discipline approach to capital allocation and strong balance sheet. Moody's also projects the company's organic revenue and EBITDA growth of around 30-40% over the next 12-18 months, debt-to-EBITDA (Moody's adjusted) to decline towards mid-3.0x range, and annual free cash flow in excess of $250 million in 2022.

The SGL-1 Speculative Grade Liquidity Rating reflects Moody's expectation that ZoomInfo will maintain very good liquidity over the next 12-15 months. Sources of liquidity consist of robust cash balances in excess of $200 million at the close of the transaction, expectation for strong free cash flow generation to debt around 20%, and full access to new $250 million revolving credit facility due November 2025. The required term loan amortization has been prepaid through the term of the loan. The revolver has a springing consolidated first lien leverage covenant of 7.65x that will be triggered should borrowings exceed 35% of availability. There is no financial maintenance covenant applicable to the term loan. Moody's does not expect the covenant to be triggered over the near term and believe there is ample cushion within the covenant based on our projected earnings levels for the next 12-15 month.

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

The ratings could be upgraded if ZoomInfo substantially increases and diversifies its revenue base while debt-to-EBITDA (Moody's adjusted) improves towards 3.5x, with the company continuing to maintain very good liquidity. The upgrade would also be likely as the private equity ownership declines below 50% and the company establishes and maintains balanced financial policies.

A ratings downgrade could result if Moody's expects low revenue growth, free cash flow as a percentage of debt will remain below 10%, or debt-to-EBITDA (Moody's adjusted) will exceed 5.0x for a sustained period.

Affirmations:

Issuer: ZoomInfo, LLC

.... Corporate Family Rating, Affirmed B1

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

..Issuer: ZoomInfo Technologies LLC

....Gtd Senior Unsecured Regular Bond/Debenture, Affirmed B3 (LGD5)

Upgrades:

..Issuer: ZoomInfo, LLC

....Gtd Senior Secured Revolving Credit Facility, Upgraded to Ba2 (LGD2) from Ba3 (LGD3)

....Gtd Senior Secured 1st Lien Term Loan, Upgraded to Ba2 (LGD2) from Ba3 (LGD3)

Outlook Actions:

..Issuer: ZoomInfo Technologies LLC

....Outlook, Remains Stable

..Issuer: ZoomInfo, LLC

....Outlook, Remains Stable

Headquartered in Vancouver, WA, ZoomInfo is a subscription-based B2B company that allows sales and marketing professionals to gain access to accurate information on firmographic data, company contacts, organizational charts, technology and real time projects on their target accounts. Following the June 2020 IPO, ZoomInfo is a publicly traded company on NASDAQ: ZI. Moody's projects the company's annual revenue to exceed $700 million in 2021. ZoomInfo is majority owned by TA Associates, the Carlyle Group, 22C Capital and the founder Henry Schuck.

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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288435.

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.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK 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.

Oleg Markin
Asst Vice President - 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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