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Rating Action:

Moody's assigns B3 CFR to Mergermarket; stable outlook

Global Credit Research - 15 Jan 2014

NOTE: On January 28, 2014, the press release was revised as follows: In the first paragraph, first sentence, added "and B3-PD Probability of Default Rating (PDR)".

NOTE: On January 17, 2014, the press release was revised as follows: Corrected the principal methodology to Global Business & Consumer Service Industry Rating Methodology published in October 2010. Revised release follows.

London, 15 January 2014 -- Moody's Investors Service today assigned a B3 corporate family rating (CFR) and B3-PD Probability of Default Rating (PDR) to Mergermarket Group, the holding and parent company of Mergermarket USA Inc.

Moody's also assigned a (P)B2 rating to the GBP 150 million first lien term loan due 2021 and USD 40 million Revolving Credit Facility maturing in 2019, and a (P)Caa2 rating to the GBP 70 million second lien tem loan due 2022, to be issued by Mergermarket USA Inc. The outlook on all ratings is stable.

This is the first time Moody's has assigned a rating to Mergermarket. Moody's issues provisional ratings in advance of the final sale of securities and these ratings reflect Moody's preliminary credit opinion regarding the transaction only. Upon a conclusive review of the final documentation, Moody's will endeavour to assign a definitive rating to the term loans. A definitive rating may differ from a provisional rating.

RATINGS RATIONALE

The B3 CFR reflects (1) the company's high financial leverage with limited deleveraging expected in the near term; (2) the company's relatively small scale; (3) revenue concentrated on two products, and within the financial services industry.

The B3 CFR also positively reflects the company's (1) leading market position in niche segments, with an international presence; (2) longstanding commercial relationships with top tier players in each business segment served; (3) good track record of growth in its largely subscription-based revenues (more than 90% of revenues); and (4) high annual renewal rate exceeding 95%.

After Moody's standard adjustments, total leverage at closing is expected to stand at around 7.0x. However, Moody's expects that the company will be able to reduce its leverage over the next two years driven by modest increase in EBITDA and expected prepayment out of excess cash flow. Moody's expects the company's EBITDA to show limited growth in the near term due to higher costs and EBITDA margin to stand at around 30% on average. Mergermarket presents a high operating leverage with product salaries representing c.80% of total costs in 2012.

Cash generated by operations is solid thanks to negative working capital and low level of capex. However, due to the high level of interest, Moody's expects that the company's free cash flow over the next two years will be relatively low, with FCF to debt below 5% in 2014, gradually improving thanks to improved EBITDA.

The company has made some attempts to diversify away from its 2 core products (Mergermarket and Debtwire), by developing products away from the financial services sector (biopharma, legal analysis with the acquisition of Xtract Research in 2010 and infrastructure with the acquisition of the Inframation Group in 2012) but with limited success in terms of weight in total revenues with each of them representing between 3% and 6% of revenues. The ratings assume that there will be no material acquisitions prior to the company having delevered significantly.

Mergermarket presents credit metrics based on "cash EBITDA". This results in higher EBITDA and lower leverage than financials based on UK GAAP and factoring in Moody's standard adjustments. Moody's considers subscription value to be akin to a backlog housed in unearned revenue, and utilises the GAAP reported financials for consistency with other rated issuers and in recognition that expenses are growing in conjunction with revenue and subscription levels.

Mergermarket's liquidity profile is adequate for its near-term needs. With zero opening cash, the company is immediately reliant on its USD 40 million RCF for liquidity. However, this should be repaid as free cash flow grows, and given that the first lien debt amortises by 1% p.a., with a cash sweep operating from 2015 (based on 2014 Excess Cash Flow). The RCF has a springing leverage covenant when it is drawn by more than USD 10 million.

The stable outlook reflects Moody's expectation that Mergermarket will be able to maintain its strong leadership and customer base globally, while benefiting from the expected growth in the M&A and continued growth in the capital market activities in 2014 and 2015. It also incorporates Moody's assumption that the company will deleverage below 7x in 2014, and also will not embark on any transforming acquisitions or make debt-funded shareholder distributions.

The first lien term loan, RCF and second lien term loan all benefit from the same security package, including guarantees from material operating subsidiaries and security over the assets of substantially all the guarantors. All shareholder funding entering Mergermarket Group -- which is the top company of the restricted group -- will be in the form of common equity. The (P) B2 rating on the GBP 170 million first lien term loan and the pari-passu RCF reflects the fact that this debt ranks ahead of the GBP 70 million second lien term loan, which is consequently rated (P)Caa2.

WHAT COULD CHANGE THE RATING UP

Positive pressure on the rating could materialise if (1) FCF to debt approaches 10%; (2) Moody's-adjusted EBITDA margin is sustained at around 30%; (3) Moody's-adjusted debt/EBITDA ratio falls below 6.0x.

WHAT COULD CHANGE THE RATING DOWN

Negative pressure could be exerted on the rating if the company fails to maintain the current momentum in its operational performance, leading to a deterioration in renewal rate such that (1) a weakening of its operational performance results in lower cash generation; or (2) there is an aggressive change in its financial policy; or (3) Moody's-adjusted debt/EBITDA ratio fails to fall below 7.0x in 2014.

The principal methodology used in these ratings was the Global Business & Consumer Service Industry Rating Methodology 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.

Mergermarket, headquartered in the United Kingdom, is a global financial market information company. Invoiced sales for the fiscal year ended December 2012 was approximately GBP 104 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.

Hubert Allemani
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Chetan Modi
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's assigns B3 CFR to Mergermarket; stable outlook
No Related Data.

 

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