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Rating Action:

Moody's assigns B2 CFR to LendingTree and Ba3 rating to new senior secured credit facility; outlook stable

06 Aug 2021

New York, August 06, 2021 -- Moody's Investors Service ("Moody's") assigned LendingTree, Inc. (LendingTree) a B2 Corporate Family Rating (CFR), B2-PD Probability of Default Rating and a Ba3 rating to the senior secured credit facility (including a revolving credit facility and term loan B). The outlook is stable.

Net proceeds from the term loan B are expected to be used to repay the $170 million of existing convertible notes due 2022 and add approximately $80 million in cash to the balance sheet when the term loan funds in Q1 2022. The term loan is required to be funded no later than June 1, 2022. Upon repayment of the convertible notes, total debt will increase by $80 million and interest expense will rise to approximately $14 million annually.

While leverage is currently very high at 13.2x as of Q2 2021 (including Moody's standard lease adjustments and the treatment of stock compensation as an expense) due to the impact of the pandemic on LendingTree's Consumer segment, Moody's expects operating results will improve during the remainder of 2021 and 2022 with leverage declining to about 7.5x by the end of 2022.

Moody's assigned LendingTree a Speculative Grade Liquidity (SGL) rating of SGL-2 as a result of projected strong free cash flow (FCF), a pro forma cash balance of $203 million, and an undrawn $200 million revolving credit facility.

Assignments:

..Issuer: LendingTree, Inc.

.... Probability of Default Rating, Assigned B2-PD

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

.... Corporate Family Rating, Assigned B2

....Senior Secured Revolving Credit Facility, Assigned Ba3 (LGD2)

....Senior Secured Term Loan B, Assigned Ba3 (LGD2)

Outlook Actions:

..Issuer: LendingTree, Inc.

....Outlook, Assigned Stable

RATINGS RATIONALE

The B2 CFR reflects LendingTree's very high leverage (13.2x as of LTM 6/30/21) as well as Moody's expectation that leverage will decrease substantially as the company's consumer segment recovers. LendingTree's $63.4 million in stock-based compensation expense as of LTM 6/30/21 increased its leverage ratio by about 6.5x. A significant portion of costs are related to selling and marketing, leading to low margins in the low to mid teen percentages prior to the pandemic. While Moody's expects margins will improve over time, they are likely to remain at relatively low levels. LendingTree's consumer segment is expected to recover in the near term, but this division is likely to remain sensitive to periods of economic weakness. The home segment has benefited from strong mortgage refinancing as interest rates decreased, but activity will likely decline in a rising interest rate environment. LendingTree also operates in a highly competitive environment and will need to adapt to existing and new competitive products on an ongoing basis. LendingTree has also been very acquisitive historically and Moody's expects the company will continue to evaluate acquisitions going forward that have the potential to increase leverage and integration risk.

LendingTree benefits from its strong position in the financial services marketplace sector with good brand recognition. The company has a large and growing business diversified across 3 segments -- home (mortgage loans, mortgage refinancing, home equity loans), consumer (credit cards, personal loans, small business loans and other services) and insurance (auto, home, health and Medicare). The diversified offerings are likely to provide a degree of stability as LendingTree's services are impacted differently during the economic cycle.

The Insurance segment will continue to demonstrate good growth, although Moody's expects competition will continue to rise. Moody's expects continued strong growth in financial technology as consumers perform more traditional financial transactions online and through mobile devices and benefit as financial service providers compete for new customers. Results should also improve as new investments in the insurance segment and the expansion of its MyLendingTree platform take hold. While the MyLendingTree service is a relatively small part of the company, Moody's expects it to offer the potential to lower customer acquisition costs and provide opportunities for additional growth with higher levels of customer engagement.

A governance impact that Moody's considers is the expectation of a relatively aggressive financial policy over time. LendingTree has completed a number of acquisitions historically and Moody's expects the company will continue to evaluate acquisitions going forward in a highly competitive and dynamic industry. LendingTree is a publicly traded company on the Nasdaq Stock Market LLC.

The stable outlook reflects Moody's expectation for a recovery in the consumer segment and continued growth in the insurance division. The home segment has experienced strong growth over the last year, but Moody's projects growth will be more challenged going forward and would be negatively impacted by an increase in interest rates. Free cash flow will improve with FCF as a percentage of debt increasing to the low to mid-teens in 2022. Moody's projects leverage will decline to the 7.5x range by the end of 2022, although leverage has the potential to improve further if excess cash flow is used for debt repayment or to fund EBITDA positive acquisitions.

LendingTree's SGL-2 rating reflects $203 million of cash on the balance sheet and a new undrawn $200 million revolver due 2026 as of Q2 2021. Moody's expects FCF to increase to over $100 million in 2021 and for the available cash balance to increase further in the absence of additional acquisitions or equity friendly transactions. While capex increased to $57 million as of LTM Q2 2021 due to the construction of new office space, Moody's expects capex to decrease to the $30 million range in 2022.

The term loan is covenant lite and the revolver is subject to a Maximum First Lien Net Leverage of 2.5x when more than $20 million is drawn. Moody's expects LendingTree will remain well within compliance with the financial covenant.

As proposed, the new credit facility is expected to provide flexibility that if utilized could negatively impact creditors including: (i) the proposed terms provide LendingTree the ability to issue incremental first lien debt equal to the greater of $116 million and 100% of Consolidated EBITDA (as defined by the credit agreement) plus an unlimited amount of additional secured debt if the First Lien Net Leverage Ratio does not exceed 3x. No portion of the incremental may be incurred with an earlier maturity than the initial term loans. The credit agreement permits the transfer of assets to unrestricted subsidiaries, up to the carve-out capacities, subject to "blocker" provisions which provide that material intellectual property shall not be transferred unrestricted subsidiaries. Dividends or transfers resulting in partial ownership of subsidiary guarantors could jeopardize guarantees, subject to explicit protective provisions limiting such guarantee releases for non-wholly owned subsidiaries. The credit agreement provides some limitations on up-tiering transactions, including a requirement that the consent of each lender shall be required for any amendment permitting a transaction providing for the subordination of any lender's right to payment or to the liens securing the obligation.

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

A ratings upgrade is unlikely over the near-term, however an upgrade could occur if LendingTree's leverage decreased below 5x with continued revenue growth and EBITDA margin expansion. A financial policy consistent with a higher rating would also be required in addition to a good liquidity position.

A ratings downgrade could occur if financial leverage was sustained over 7x due to operating underperformance or a debt funded leveraging transaction. A weak liquidity position or a FCF to debt percentage ratio in the low single digits could also pressure the ratings. A change in the mix of the debt structure (e.g., decrease in the amount of convertible notes or an increase in secured debt) could also lead to a downgrade of the secured credit facility rating.

Structural considerations

Moody's Loss Given Default (LGD) methodology indicated a Ba2 rating for the proposed senior secured credit facility, but a one notch override to Ba3 was included due to the uncertainty over the mix of the debt structure going forward. The convertible notes mature ahead of the proposed term loan and have the potential to reduce the cushion provided to the credit facility going forward. The Probability of Default (PDR) rating is B2-PD and reflects the expectation of a 50% recovery rate in the event of default.

LendingTree, Inc., headquartered in Charlotte, North Carolina, operates a leading online marketplace platform connecting consumers with financial services, including home, personal, small business loans, insurance, credit cards as well as other services. Revenue for the LTM period ended 6/30/2021 was approximately $985 million.

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.

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.

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.

Scott Van den Bosch
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.
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