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Rating Action:

Moody's assigns B2 CFR to Verifone; Outlook stable

24 Jul 2018

Approximately $2.2 billion of rated debt affected

NOTE: On August 7, 2018, the press release was corrected as follows: At the end of the press release, the third contact was removed. Revised release follows.

New York, July 24, 2018 -- Moody's Investors Service ("Moody's") assigned to Verifone Systems, Inc. (Verifone) a B2 Corporate Family Rating (CFR), B2-PD Probability of Default Rating, and B1 and Caa1 ratings to the company's proposed first lien and second lien credit facilities, respectively. The ratings have a stable outlook. The proceeds from the new credit facilities will be used to consummate the acquisition of Verifone by a consortium led by Francisco Partners for approximately $3.4 billion, including net debt. Moody's expects to withdraw Verifone, Inc's existing ratings upon the close of the acquisition.

RATINGS RATIONALE

The B2 CFR reflects Verifone's high expected leverage and elevated execution risk over the next 12 to 18 months. Execution risk will be elevated as Verifone will implement significant cost and operating expense savings over the approximately 18 months after the close of the acquisition. The targeted efficiencies are substantial relative to Verifone's existing expense base and will affect all core functions of the company. The B2 rating incorporates Moody's expectation that Verifone's leverage will decline from about 7x at the close of the acquisition to below 5x over the following 18 months and strengthen significantly in 2020 when the cost reductions will be fully reflected in the earnings. While the planned savings are substantial, a large portion of the savings will come from headcount reductions and are achievable.

The B2 rating is supported by Verifone's good business profile reflecting its large installed base and relationships with merchant acquirers and customers. Verifone has leading market positions in the Point of Sale (POS) terminals market in several major economies and good geographic revenue diversity. The company is in the midst of a multi-year transformation from a POS-centric business to higher margin Services, which needs to be proven. Moody's believes that Verifone's new products launched over the last 12 months position the company well to defend its market shares in the POS market and execute its services growth strategy though sales from new products will comprise a small proportion of overall systems sales in the near term. Verifone has high business risks as a result of its limited product diversity and the characteristic volatility in its POS revenues, which account for the majority of its profits and additionally drive its services revenues. In addition, the company faces intense competition and the payment hardware and services market is evolving amid rapid technology changes.

Verifone has good liquidity mainly comprising cash balances and an undrawn $250 million revolving credit facility. Verifone free cash flow over the next 12 to 18 months will be highly dependent on the timely realization of cost savings and maintaining stable-to-modestly positive revenue growth.

The stable outlook reflects Moody's expectations that Verifone will realize a significant majority of planned cost savings by the end of 2019 and maintain flat-to-low single digit revenue growth over the next 12 to 18 months. Moody's expects leverage to decline to about 5x over this period.

Moody's could downgrade Verifone's ratings if revenue declines, execution challenges or increase in debt lead Moody's to believe that leverage is expected to remain above 5x or free cash flow is not expected to exceed the mid-single digit percentages of adjusted debt. Although not expected in the intermediate term, the ratings could be upgraded if Verifone successfully executes on its cost reduction goals, sustains good revenue growth and establishes a track record of balanced financial policies. The ratings could be upgraded if Moody's expects Verifone to maintain leverage below 4x and free cash flow in the high single digits of adjusted debt.

Assignments:

..Issuer: Verifone Systems, Inc.

.... Corporate Family Rating, Assigned B2

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

....Senior Secured 1st Lien Term Loan, Assigned B1 (LGD3)

....Senior Secured 1st Lien Revolver, Assigned B1 (LGD3)

....Senior Secured 2nd Lien Term Loan, Assigned Caa1 (LGD6)

Outlook Actions:

..Issuer: Verifone Systems, Inc.

....Outlook, Assigned Stable

Verifone Systems, Inc is a leading provider of Point-of-Sale electronic payment terminals and also offers security, encryption, product maintenance and other payments services.

The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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.

Raj Joshi
VP - Sr 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

Lenny J. Ajzenman
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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