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Rating Action:

Moody's assigns B3 CFR to Ipreo following leveraged buyout; rates new credit facility B1 and unsecured notes Caa2; outlook stable

01 Jul 2014

Approximately $565 million of new debt rated

New York, July 01, 2014 -- Moody's Investors Service has assigned to Ipreo Holdings LLC's ("Ipreo" or the "company") a B3 Corporate Family Rating (CFR) and B3-PD Probability of Default Rating (PDR). In connection with this rating action, Moody's assigned a B1 rating to the company's proposed senior credit facility ($320 million senior secured term loan due 2021 and $45 million revolving credit facility due 2019) and Caa2 rating to the new $200 million senior unsecured notes maturing 2022. The rating outlook is stable.

The new debt instruments will be issued by a newly-formed second-tier parent holding company named US LLC 2. Ipreo is a wholly-owned subsidiary of US LLC 2 and a guarantor of the debt. Proceeds from the term loan and notes plus $487 million of equity (including approximately $65 million of management rollover equity) will be used to finance the leveraged buyout (LBO) of Ipreo by certain funds managed and controlled by Goldman Sachs Merchant Banking Division and The Blackstone Group ("Goldman/Blackstone" or the "equity sponsors") from Kohlberg Kravis Roberts & Co. L.P. ("KKR") for a total purchase price of approximately $962 million (net of balance sheet cash and excluding transaction fees and expenses, collectively estimated to be about $45 million). The equity sponsors will own approximately 86% of Ipreo through a series of parent holding company entities.

Ratings Assigned:

..Issuer: Ipreo Holdings LLC (New)

Corporate Family Rating -- B3

Probability of Default Rating -- B3-PD

..Issuer: US LLC 2

$ 45 Million Revolving Credit Facility due 2019 -- B1 (LGD-3)

$320 Million Senior Secured Term Loan due 2021 -- B1 (LGD-3)

$200 Million Senior Unsecured Notes due 2022 -- Caa2 (LGD-5)

The assigned ratings are subject to review of final documentation and no material change in the size, terms and conditions of the transaction as advised to Moody's. The new credit facilities will replace the current debt capital structure, which consists of a $165 million outstanding term loan B, $70 million of senior subordinated notes (unrated) and a $20 million revolver. The new $45 million revolver is expected to be undrawn at closing. We will withdraw the company's existing B2 CFR, B2-PD PDR as well as the B1 ratings and LGD assessments on the existing credit facilities upon their full repayment and extinguishment.

RATINGS RATIONALE

Ipreo's B3 CFR reflects the relatively high leverage following its second LBO in less than three years, small revenue base in the financial data and new-issue workflow software industry, and exposure to volatile primary capital markets activity. The rating also captures customer concentration and event risks related to ownership by its equity sponsors.

Pro forma for the contemplated Goldman/Blackstone buyout, total debt to EBITDA leverage will climb to 8.8x (incorporating Moody's standard adjustments, deferred revenue and relocation cost savings; excluding one-time transaction expenses, one-time customer investments and non-recurring costs) from 4.3x (Moody's adjusted) as of March 2014. Leverage is high compared to the median of 6.8x for B3-rated global industry peers (6.5x for B3-rated global cross industry peers). Nonetheless, we believe the business model can accommodate a more leveraged capital structure due to Ipreo's strong revenue visibility and history of positive free cash flow generation. This is supported by a subscription-based revenue model in which 63% of sales are recurring, high customer retention rates in the 90% range and high-demand products embedded in customer workflows, which collectively create a loyal client base.

We expect Ipreo will continue to capitalize on cost synergies as well as continued secular outsourcing trends by investment banks, market share gains in underserved verticals and geographies, and good industry growth prospects despite uneven primary markets activity. Barring another leveraging event, we believe this should reduce total debt to EBITDA to around 7.5x (Moody's adjusted) by year end 2015, which will better position the company within the B3 rating category for its industry peer group.

Despite its small revenue base, the technology-driven financial data provider maintains a solid market position in licensing its cloud-based Software as-a-Service (SaaS) mission-critical workflow tools and proprietary data for managing investment banks' primary market offering process including book building, deal-related accounting/analytics and regulatory functions. Ipreo also maintains small but growing market shares in the institutional contact information sub-sector through its Bigdough investor database and in shareholder intelligence services. Following KKR's LBO of Ipreo in August 2011, the company has performed better than initial forecasts due to a recovery in municipal bond issuance, realized benefits from prior steps to expand its geographic and asset class coverage, and share gains from a combination of new client wins and deeper penetration into existing client accounts.

Rating Outlook

The stable rating outlook reflects our view that the US and global economies will continue to grow modestly, that new issuance volume will not materially decline, and that Ipreo will generate revenue growth in the range of 10-15% over the next twelve months. This should allow Ipreo to generate modest free cash flow, maintain a good liquidity position, and reduce leverage to under 8x total debt to EBITDA (Moody's adjusted) by year end 2015, barring another leveraging event.

What Could Change the Rating - Down

A downgrade could occur if: (i) Ipreo's total debt to EBITDA leverage is expected to be sustained above 8x (Moody's adjusted); (ii) the company is unable to reduce leverage to at least 7.5x (Moody's adjusted) by year end 2015; or (iii) free cash flow were to weaken. Ratings could also be downgraded if market share erodes, liquidity deteriorates, Ipreo experiences sustained client losses or the company engages in debt-financed acquisitions or shareholder distributions resulting in leverage sustained above our downgrade threshold.

What Could Change the Rating - Up

An upgrade is unlikely absent meaningful revenue expansion that leads to consistent and growing free cash flow generation of at least 5% of adjusted debt, and a sustained reduction in total debt to EBITDA leverage to a level comfortably below 5.5x (Moody's adjusted). Ipreo would also need to maintain a good liquidity position to be considered for an upgrade.

Moody's subscribers can find additional information in the Ipreo credit opinion published on www.moodys.com.

The principal methodology used in this rating was Global Business & Consumer Service Industry published in October 2010. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Ipreo Holdings LLC, headquartered in New York, NY, is a provider of financial data, market information, and workflow tools to over 750 small and medium-sized financial firms and more than 1,250 investment banking and corporate clients. Ipreo has more than 750 employees and operations throughout the US, Europe, and Asia. Goldman Sachs Merchant Banking Division and The Blackstone Group acquired Ipreo from Kohlberg Kravis Roberts & Co. L.P. in a July 2014 LBO for approximately $962 million (net of balance sheet cash and excluding transaction fees and expenses). Revenue for the twelve months ended March 2014 was about $185 million.

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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.

Gregory A. Fraser
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

John C Diaz
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's assigns B3 CFR to Ipreo following leveraged buyout; rates new credit facility B1 and unsecured notes Caa2; outlook stable
No Related Data.
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